# Farmers Group, Inc. v. Williams > Supreme Court of Colorado · February 4, 1991 · 15 Brief Times Rptr. 130 URL: https://www.frixlaw.com/law-library/cases/9789477 ## Case - **Full name:** FARMERS GROUP, INC., a Nevada Corporation; And Mid-Century Insurance Company, a California Corporation, Petitioners and Cross-Respondents, v. Rodney Paul WILLIAMS and Jo Maria Gatewood, A/K/A/ Jo Maria Gatewood-Williams, Individually and as Husband and Wife, Respondents and Cross-Petitioners - **Court:** Supreme Court of Colorado - **Decided:** February 4, 1991 - **Citations:** 15 Brief Times Rptr. 130; 805 P.2d 419; 1991 Colo. LEXIS 44; 1991 WL 10856 - **Precedential status:** Published - **Opinion:** Dissent by Vollack - **Judges:** Erickson, Vollack, Lohr, Yollack, Rovira - **Cited by:** 173 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9789477 ## How later opinions describe it (automated extraction) - holding that the treble damages provision of Colorado's No-Fault Act did not abolish the common law tort of bad faith breach of insurance contract and that the treble damages provision was a cumulative remedy available to an aggrieved claimant - noting distinction between statutory civil penalty and exemplary damages, and concluding that provision of No-Fault Act that made treble damages award automatic once willful and wanton conduct was proved was simply a statutory civil penalty that could be established by prepond… - holding that remedies under Colorado’s No-Fault Act are cumulative and do not preempt common law tort claims for bad faith breach of insurance contract ## Opinion text Justice VOLLACK dissenting: I respectfully dissent from the majority’s holding that the common-law bad faith remedy was not preempted by the No-Fault Act, and that the treble damages allowed under the Act, § 10-4-708(1), 4A C.R.S. (1987 & 1990 Supp.), were not punitive and were thus provable by a preponderance of the evidence. In my opinion, the legislature preempted the common-law bad faith remedy by providing an exclusive remedy in contract to cover the same behavior of willful and wanton refusal to pay personal injury protection (PIP) benefits. The Colorado Auto Accident Reparations Act (the No-Fault Act) is a statutory creation in derogation of the common law. The legislature, in adopting the No-Fault Act, devised a comprehensive scheme for providing mandatory first-party insurance benefits to persons injured in automobile accidents, without regard to fault. It is a system created entirely by statute and, at the time of its enactment, was unknown at common law. In enacting the statute, the legislature contemplated the potential for factual disputes and provided express remedies in favor of the insured for the wrongful delay in payment. Section 10-4-708(1) provides in part: In the event that the insurer fails to pay such benefits when due, the person entitled to such benefits may bring an action in contract to recover the same. In the event the insurer is required by such action to pay any overdue benefits, the insurer shall, in addition to the benefits paid, be required to pay the reasonable attorney fees incurred by the other party. The insurer shall pay interest on the benefits which were in controversy at a rate of eighteen percent per annum, with interest commencing from the date the benefits in controversy were due. In addition, in the event of willful and wanton failure of the insurer to pay such benefits when due, the insurer shall pay to the other party, in addition to the other amounts due to the other party under this subsection (1), an amount which is three times the amount of unpaid benefits in controversy in the action. The majority holds that remedies under the No-Fault Act are not exclusive. I disagree. In 1973, the Colorado legislature created new concepts that did not previously exist at common law in providing coverage under the No-Fault Act. One of the main issues prior to the No-Fault Act was the hardship on injured parties to pay medical expenses prior to completion of litigation. The inability of injured parties to pay medical expenses in many cases forced unsatisfactory settlements. To correct this inequity, the legislature established the statutory framework creating a legal obligation for insurers to provide PIP benefits without regard to fault. PIP claimants were also provided with a direct claim for relief in contract with specific remedies against an insurer who willfully and wantonly denies or withholds PIP benefits. Bad faith by an insurer falls within one of two standards of conduct based upon the position of the insured in relation to the insurer. When third parties bring claims against an insured, the insurer has full control to investigate, negotiate, settle, and *430 provide a defense. The insurer assumes a quasi-fiduciary relationship. Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo.1984). On the other hand, the insured, in filing a claim for PIP benefits against the insurer, becomes a first-party claimant, and both parties act pursuant to the contractual duties and obligations flowing between them. In first-party claims, the insured is on a more equal footing with the insurer than in third-party claims. Klaus & Cahill, Colorado 's No-Fault Statute — Does It Bar Common Law Bad Faith?, 17 Colo.Law. 449 (1988). Next, we should consider whether the standard of care required in third-party claims is the same as in first-party claims. We have stated that with third-party claims “the standard of conduct of an insurer in relation to its insured in third-party claims must be characterized by the general principles of negligence.” Trimble, 691 P.2d at 1142 . A less difficult burden is required in third-party claims because of the quasi-fiduciary relationship between an insurer and its insured. With regard to first-party claims for bad faith conduct by an insurance carrier, we held in a worker’s compensation context that a “claimant who asserts that an insurer has failed to pay a claim in bad faith must establish that the insurer acted unreasonably and with knowledge of or in reckless disregard for the fact that no reasonable basis existed for denying the claim.” Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1274 (Colo.1985). Moreover, in 1987 the legislature enacted section 10-3-1113, 4A C.R.S. (1987), which provides: Information to trier of fact in civil actions. (l)(a) In any ■ civil action for damages founded upon contract, or tort, or both against an insurance company, the trier of fact may be instructed that the insurer owes its insured the duty of good faith and fair dealing, which duty is breached if the insurer delays or denies payment without a reasonable basis for its delay or denial. (b) Under a policy of liability insurance, the determination of whether the insurer’s delay or denial was reasonable shall be based on whether the insurer’s delay or denial was negligent. (c) Under a policy of first-party insurance, the determination of whether the insurer's delay or denial was reasonable shall be based on whether the insurer knew that its delay or denial was unreasonable or whether the insurer recklessly disregarded the fact that its delay or denial was unreasonable. (d) In determining whether an insurer’s delay or denial was reasonable, the jury may be instructed that willful conduct of the kind set forth in section 10-3-1104(l)(h)(I) to (l)(h)(XIV) is prohibited and may be considered if the delay or denial and the claimed injury, damage, or loss was caused by or contributed to by such prohibited conduct. In my opinion, the enactment of section 10-3-1113 codified previous case law and clearly sets a different standard of conduct for first-party and third-party insurance actions. Standards established for third-party actions do not apply in PIP benefit claims. Section 10-4-708(1) provides for the insured in first-party claims, entitling him to a contract action for failure to pay benefits when due and, in addition to recovery of benefits due, entitling him to attorney fees and interest at a rate of eighteen percent per annum from the date the benefits were due. The statute further provides as a remedy for bad faith 1 in the form of willful and wanton failure to pay benefits when due, an award of three times the amount of the unpaid benefits. The treble-damage award goes to the manner of the breach, rather than the breach itself. The provisions of section 10-4-708(1) meet the generally adopted rationale, “Where a statute creates legal duties and provides a particular means for their enforcement, the designated remedy excludes *431 all others.” Silverstein v. Sisters of Charity, 38 Colo.App. 286, 288 , 559 P.2d 716, 718 (1976). At the time the No-Fault Act was adopted there was no Colorado law on tort action for bad faith breach of insurance contract. Maj.op. at 424. The No-Fault Act, which established PIP coverage, imposed new statutory duties upon insurance companies writing automobile policies, requiring them to promptly pay medical benefits. Failure to pay reasonable and necessary PIP benefits could result in a contract action and the recovery of compensatory and punitive damages, as provided by section 10-4-708(1). In my opinion, this is the kind of statutory duty and remedy referred to in Silverstein . Since, at the time of the adoption of the No-Fault Act, no common law claims of bad faith breach of contract existed in Colorado, it was not necessary to include express language preempting such remedies. To the contrary, where a statute creates legal duties which were nonexistent at common law, and provides particular means for their enforcement, the designated remedy is exclusive, and courts should not imply new remedies to accompany a new right in the absence of some legislative indication, or other circumstances, that such a result was intended. American Television and Communication Corp. v. Manning, 651 P.2d 440 (Colo.App.1982). In the absence of strong indicia of legislative intent to the contrary, courts are compelled to conclude that the legislature provided precisely the remedies it considered appropriate. Holter v. Moore and Co., 681 P.2d 962 (Colo.App.1983). 2 In my opinion, a plain reading of section 10-4-708(1) provides an exclusive remedy for breach of contract, nullifying subsequent common-law remedies which would provide double recovery. I disagree with the majority conclusion that the treble damages of section 10-4-708(1) are not punitive and that the burden of proof necessary is only a preponderance of the evidence. The express language used in section 10-4-708(1) and section 10-3-1113(l)(c) to establish a willful, wanton, or reckless breach of contract tracks the language of section 13-21-102, 6A C.R.S. (1987), regarding exemplary damages, requiring a beyond-a-reasonable-doubt burden of proof as required in section 13-25-127(2), 6A C.R.S. (1987). I would reverse the judgment. I am authorized to say that Chief Justice ROVIRA joins in this dissent. . The majority concludes for the purpose of this opinion that willful and wanton behavior is synonymous with bad faith. Maj. op. at 422. . The legislature has further reinforced the exclusive remedy by amending § 10-4-708(1.5), 4A C.R.S. (1989), to provide in part: (1.5) Any action for breach of contract brought pursuant to subsection (1) of this section shall proceed to binding arbitration pursuant to the following provisions!.] Logic dictates that the legislature would not mandate such detailed procedures if the Act’s breach of contract remedy was not intended to be exclusive. The majority’s conclusion that § 10-4-708(1) is cumulative to and does not preempt the common-law tort remedy for bad faith breach of insurance contract would bring about multiple litigation for the same claim for relief in different forums with double recovery. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9789477. Public record. Not legal advice.