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Madalena v. Zurich American Insurance Co.

2023 COA 32. No. 21CA1780. Administrative Law—Workers’ Compensation—Bad Faith Breach of Insurance Contract—Issue Preclusion—Claim Preclusion.

April 6, 2023

Madalena suffered a work-related injury. His employer reported the injury to its claims administrator, Gallagher Bassett Services, Inc. (Gallagher Bassett). Following an investigation, the workers’ compensation insurer, Zurich American Insurance Company (Zurich), and Gallagher Bassett (collectively, Zurich defendants) denied the claim. Madalena requested a hearing under the Workers’ Compensation Act of Colorado (the Act). An administrative law judge (ALJ) awarded Madalena temporary total disability benefits. An Industrial Claim Appeals Panel affirmed the decision. Zurich defendants later terminated Madalena’s benefits, and Madalena challenged the termination in a second workers’ compensation proceeding. The second ALJ ruled that Madalena was entitled to permanent total disability payments, and Zurich defendants did not challenge this determination. Madalena then sued Zurich defendants in district court for bad faith for unreasonably denying him workers’ compensation benefits and delaying payment of his benefits. Zurich defendants received a verdict in their favor.

On appeal, Madalena argued that the trial court erred by not giving preclusive effect to the determinations in the administrative orders. He maintained that issue preclusion applies to final administrative orders deciding workers’ compensation benefits, including all determinations regarding compensability and causation, in a subsequent bad faith case. However, the issues in the administrative proceedings concerned the compensability of Madalena’s injury and the benefits due to him under the Act, while the issues litigated in the bad faith case focused on how Zurich defendants had administered Madalena’s claim and arrived at their coverage decisions. Therefore, the issues litigated and adjudicated in the administrative and the civil proceedings were not identical, and the administrative determinations do not have preclusive effect on the different issues litigated in the bad faith case.

Madalena also contended that the trial court erred by ruling that the administrative orders were inadmissible under CRE 403. Here, though some findings and conclusions in the administrative orders may have been relevant to Madalena’s claims that Zurich defendants continued to breach their duty of good faith and fair dealing, the risk of confusing or misleading the jury by admitting the administrative orders substantially outweighed the orders’ probative value. Accordingly, the trial court did not abuse its discretion by excluding the administrative orders from evidence.

Madalena further contended that Zurich defendants’ arguments that Madalena failed to properly request authorization for surgery should have been barred for lack of jurisdiction and claim preclusion. Whether Madalena properly requested coverage for surgery is not a claim; it is a discrete factual issue subsumed within the broader bad faith claim, over which the district court, not the ALJs, had jurisdiction. Thus, the district court properly exercised its jurisdiction over Madalena’s bad faith claims, and claim preclusion did not bar Zurich defendants from litigating in the bad faith insurance case whether Madalena sought their authorization for surgery.

Madalena also asserted that the district court erred by limiting the testimony of a urologist. However, the jury heard other substantially similar testimony, and the urologist’s testimony would merely have supported a finding that Madalena had incurred damages, an issue on which Madalena prevailed. Therefore, the court’s exclusion of the urologist’s testimony on causation does not warrant reversal of the judgment.

The judgment was affirmed.

Official Colorado Court of Appeals proceedings can be found at the Colorado Court of Appeals website.

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