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Hall v. Allstate Fire and Casualty Insurance Co.

No. 21-1040.  D.Colo. Judge Kelly. Underinsured Motorist Claim—Bad-Faith Claim—Summary Judgment—Failure to Cooperate Affirmative Defense—Material and Substantive Disadvantage Requirement.

December 17, 2021

Plaintiff was injured in a car accident caused by an underinsured motorist who carried $25,000 in liability insurance coverage. Plaintiff’s insurance carrier, Allstate Fire and Casualty Insurance Co. (Allstate), gave plaintiff permission to settle with the underinsured motorist for the $25,000 limit. Plaintiff’s counsel then submitted a request for underinsured motorist (UIM) benefits to Allstate. The request included a list of medical expenses totaling over $27,000. A claims adjuster reviewed the expenses, determined that the reasonable amount was $25,011.68, and sent payment for $11.68 with a letter that stated the adjuster would be in contact with counsel to resolve the remaining components of plaintiff’s claim.

The adjuster attempted to contact plaintiff’s counsel a number of times but did not receive a response. Then, without prior notice, plaintiff filed suit against defendant for breach of contract, statutory unreasonable delay or denial of payment of benefits, and common law bad faith. During discovery, plaintiff disclosed that he had received further treatment during the time the adjuster was trying to contact him. Defendant filed a motion for summary judgment based on the affirmative defense of failure to cooperate. The court found that plaintiff’s failure to respond to repeated requests for information constituted a failure to cooperate and defendant suffered a material and substantive disadvantage by having to defend the case without the ability to properly investigate the claim. The court granted summary judgment to defendant on all claims.

Plaintiff argued on appeal that the district court erred in concluding that Allstate had demonstrated substantial and material prejudice to support the failure to cooperate defense for the breach of contract claim. An insured may forfeit the right to recover by failing to cooperate in violation of an insurance policy provision. An insurer asserting the failure to cooperate affirmative defense must show that (1) the insured failed to cooperate with the insurer in a material and substantive respect, and (2) this failure to cooperate materially and substantively disadvantaged the insurer. As to the first element, plaintiff failed to answer any of Allstate’s requests for additional information, so he violated his contractual duty to provide Allstate information. As to the second element, the standard to establish a material and substantial disadvantage is whether an insured’s conduct prevented a reasonable investigation under the circumstances. Here, plaintiff’s failure to respond prevented Allstate from conducting a reasonable investigation into his claim. Further, Allstate suffered a material and substantial disadvantage because plaintiff’s failure to cooperate forced it to defend a bad faith lawsuit. Therefore, the district court correctly concluded that plaintiff’s failure to cooperate resulted in a material and substantial disadvantage to Allstate.

Plaintiff also challenged the grant of summary judgment on the bad faith claim. A bad faith claim must fail if coverage was properly denied and the plaintiff’s only claimed damages flowed from that denial. Because the district court found that Allstate properly denied coverage through its failure to cooperate defense, it properly granted summary judgment on the bad faith claim.

The order granting summary judgment was affirmed.

Official US Court of Appeals for the Tenth Circuit proceedings can be found at the US Court of Appeals for the Tenth Circuit website.

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