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Amica Life Insurance Co. v. Wertz

United States District Court, D. Colorado

September 11, 2017

MICHAEL P. WERTZ, Defendant.


          William J. Martinez United States District Judge.

         Under the separation-of-powers principles inherent in the Colorado Constitution, a Colorado administrative agency may not lawfully promulgate rules and regulations that conflict with a Colorado statute. But, may the Colorado Legislature enact an interstate compact creating an interstate administrative agency with lawful power to promulgate rules and regulations that conflict with a Colorado statute?

         The question arises in this case, sadly, from the suicide of a Colorado resident, Martin Fisher (“Fisher”), fourteen months after Plaintiff Amica Life Insurance Company (“Amica”) issued him a life insurance policy. The policy contains a two-year suicide exclusion, and such an exclusion is permissible under a regulation promulgated by an administrative agency created by an interstate compact to which Colorado is a party. A Colorado statute, however, nullifies suicide exclusions longer than one year. See Colo. Rev. Stat. § 10-7-109. If Colorado may validly delegate authority to an interstate administrative agency to develop insurance standards that may conflict with Colorado insurance statutes, then Amica's two-year exclusion is valid. Otherwise, Amica's exclusion is invalid and Amica owes the death benefit to Fisher's beneficiary, Defendant Michael P. Wertz (“Wertz”).

         This dispute is currently before the Court on Amica's motion for summary judgment (ECF No. 67), and the proper outcome under Colorado law is unclear given Colorado's pragmatic approach to issues of legislative delegation. Yet the answer is of great public policy importance. If “yes, ” it demonstrates that the Colorado Legislature may, in certain circumstances, delegate to an administrative body the ability to make law superior to its own. If “no, ” then Colorado's ability to participate in some interstate compacts becomes significantly limited, and the entire basis of the interstate compact at issue here-the Interstate Insurance Product Regulation Compact-is called into question.

         For the reasons explained below, the Court rules in Amica's favor on certain factual questions presented in Amica's summary judgment motion. However, as to the ultimate legal question, the Court sua sponte certifies it to the Colorado Supreme Court.


         Summary judgment is warranted under Federal Rule of Civil Procedure 56 “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A fact is “material” if, under the relevant substantive law, it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). An issue is “genuine” if the evidence is such that it might lead a reasonable trier of fact to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).

         In analyzing a motion for summary judgment, a court must view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In addition, the Court must resolve factual ambiguities against the moving party, thus favoring the right to a trial. See Houston v. Nat'l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987).


         Understanding anything else in this case first requires understanding the Interstate Insurance Product Regulation Compact, which has been enacted by the Colorado Legislature at Colorado Revised Statutes § 24-60-3001 (“Insurance Compact” or “Compact”). Having enacted the Insurance Compact, Colorado participates with most of the other states in the Union in an arrangement intended “[t]o develop uniform standards” for “individual and group annuity, life insurance, disability income and long-term [care] insurance products.” Id., art. I, §§ 1, 2; see also id., art. II, § 11.[1]

         The Compact creates the Interstate Insurance Product Regulation Commission (“Interstate Commission” or “Commission”), “a joint public agency” to which each compacting state may send one representative. Id., art. III, § 1; art. V, § 1(a). The Commission is empowered to promulgate “Uniform Standards” for insurance products “which shall have the force and effect of law and shall be binding in the Compacting States.” Id., art. II, § 15; art. IV, § 1; art. VII, § 1. Insurance companies may then submit insurance products to the Interstate Commission for approval under the Uniform Standards, and such approval authorizes the insurance company to sell that product in any Compact member state in which the company is otherwise authorized to do business. Id., art. X, §§ 1, 3. In short, the Interstate Commission acts as a near-national insurance commissioner with respect to “individual and group annuity, life insurance, disability income, and long-term [care] insurance products.” Id., art. I, § 1.

         In promulgating Uniform Standards, the Insurance Compact requires the Interstate Commission to follow “a rulemaking process that conforms to the Model State Administrative Procedure Act of 1981 as amended, as may be appropriate to the operations of the Commission.” Id., art. VII, § 2. Moreover, “[b]efore the Commission adopts a Uniform Standard, the Commission shall give written notice to the relevant state legislative committee(s) in each Compacting State responsible for insurance issues of its intention to adopt the Uniform Standard.” Id. Uniform Standards become effective ninety days after promulgation “or such later date as the Commission may determine.” Id., art. VII, § 3.

         Any member state of the Compact may opt out of a Uniform Standard “either by legislation or regulation duly promulgated by the Insurance Department under the Compacting State's Administrative Procedure Act.” Id., art. VII, § 4. If a state opts out after a Uniform Standard has gone into effect, the opt out is prospective only. Id., art. VII, § 5.

         “[I]n the event the Commission exercises its rulemaking authority in a manner that is beyond the scope of the purposes of this [Compact], or the powers granted hereunder, then such an action by the Commission shall be invalid and have no force and effect.” Id., art. VII, § 1. But, if “any person” wishes to challenge a Uniform Standard, that person must file such a challenge within thirty days of the Uniform Standard's promulgation. Id., art. VII, § 7. In reviewing the challenge, “[t]he court shall give deference to the actions of the Commission consistent with applicable law and shall not find the Rule[2] or Operating Procedure to be unlawful if the Rule or Operating Procedure represents a reasonable exercise of the Commission's authority.” Id.

         III. FACTS

         The following facts are undisputed unless attributed to one party or another, or otherwise noted.

         A. The Two-Year Suicide Exclusion Standard

         Colorado enacted the Insurance Compact in 2004, with an effective date of August 4, 2005. (ECF No. 67 at 3, ¶ 1.) The Colorado Legislature designated the state insurance commissioner as Colorado's representative at the Interstate Commission. Colo. Rev. Stat. § 24-60-3001, Preamble. The Interstate Commission itself became operational in June 2006. (ECF No. 67 at 4, ¶ 4.)

         On January 24, 2007, the Commission published notice of its intent to adopt its Individual Term Life Insurance Product (“ITLIP”) Standards. (Id. at 6, ¶ 18.) Amica claims that, on May 1, 2007, the Commission provided notice of the pending ITLIP Standards to “the chairs, ranking members, and members of the Colorado General Assembly's (i) House Business Affairs and Labor Committee and (ii) Senate Business Labor and Technology Committee.” (Id. ¶ 21.) Wertz denies this. (ECF No. 70 at 3, ¶ 21.) The Court will address whether Wertz's denial creates a genuine issue of material fact in Part V.B, below. Regardless, the parties agree that the House and Senate committees named above were the proper committees to which the Interstate Commission was required to provide notice. (ECF No. 67 at 6, ¶ 23.)

         The Interstate Commission held a public hearing regarding the ITLIP Standards on May 16, 2007. (Id. at 7, ¶ 24.) That is also the date of the last written comment the Commission received regarding the ITLIP Standards. (Id. ¶ 27.)

         The ITLIP Standards were formally adopted by the Interstate Commission on June 1, 2007, with a declared effective date of September 6, 2007. (Id. ¶ 31.) The ITLIP Standards declare that any suicide exclusion in an approved policy must be no longer than two years from the date the policy is issued. (Id. ¶ 32.) Colorado has never opted out of that Uniform Standard-or, for that matter, any Uniform Standard. (Id. at 13, ¶¶ 83-84.)

         B. Fisher's Policy, His Suicide, and Wertz's Claim

         In October 2011, the Interstate Commission approved an individual term life insurance product submitted by Amica. (Id. at 10, ¶ 55.) That product, as approved, excluded death benefits if death of the insured was caused by suicide within two years from the policy's issuance. (Id. ¶ 57.) In such a circumstance, Amica's only obligation was to refund the policy premium. (Id.)

         On January 28, 2014, Amica issued to Fisher one of the aforementioned life insurance policies. (Id. ¶ 58.) Fisher committed suicide about fourteen months later, on March 12, 2015. (Id. at 11, ¶ 71.) On May 1, 2015, Defendant Wertz, who was Fisher's named beneficiary under the policy, submitted a claim for the death benefit, citing Colorado Revised Statute § 10-7-109. (Id. at 12, ¶ 72.) That section reads in relevant part as follows: “The suicide of a policyholder after the first policy year of any life insurance policy issued by any life insurance company doing business in this state shall not be a defense against the payment of a life insurance policy . . . .”[3] In other words, Wertz believed Colorado's one-year exclusion applied, not the policy's Commission-approved two-year exclusion. Amica stood by the two-year exclusion, denied Wertz's claim, and refunded the premium. (Id. ¶ 73.)


         Anticipating that Wertz would file suit, Amica filed a declaratory judgment action in this Court in June 2015. (ECF No. 1.) Wertz answered and affirmatively defended that the two-year suicide exclusion violated Colorado law and must be declared unenforceable. (ECF No. 24 at 4, ¶ 20.) Wertz also counterclaimed for reformation of the policy, breach of contract, and common-law bad faith breach of insurance contract. (Id. at 9-12.)

         At first, the parties agreed “the material facts of this matter were not in dispute” (ECF No. 39 ¶ 2) and the resolution “depended entirely upon a question of law” (ECF No. 45 at 1), namely, which source of authority controls: Colorado Revised Statute § 10-7-109 or the ITLIP Standards? Amica therefore filed what was, in effect, a motion for judgment on the pleadings to resolve the question of law. (ECF No. 25; see also ECF No. 49 at 3 n.1.) Amica naturally argued that Colorado had enacted the Insurance Compact and, in so doing, declared that the Interstate Commission's duly promulgated Uniform Standards have the force and effect of law; therefore, the ITLIP Standards apply. Wertz's primary response was that the Compact, or at least its application in this case, violates the Colorado Constitution. Specifically, Wertz argued that the Compact is an unconstitutional delegation of legislative power, violates separation-of-powers principles, and violates the guarantees of equal protection and freedom from special legislation. (ECF No. 30-1 at 3-18.)

         In reply, Amica relied heavily on the Compact's opt-out provisions. (ECF No. 33 at 5-6.) Amica characterized the ability to opt out as “the ultimate safeguard against the exercise of unbridled discretion by the Commission” (ECF No. 33 at 5), thus mollifying the Colorado Supreme Court's charge that “individuals be protected against the unnecessary and uncontrolled exercise of . . . discretionary power” by bodies to whom legislators have delegated rulemaking authority. Cottrell v. City & Cnty. of Denver, 636 P.2d 703, 709 (Colo. 1981).

         Two months after Amica filed its reply, and before this Court had decided Amica's motion, Wertz filed a motion to amend his answer and counterclaims. (ECF No. 39.) Wertz there claimed “ongoing investigation and research under further inquiry” which has led him to “believe[] that the Commission failed to promulgate the [ITLIP Standards] in accordance with the Compact's terms.” (Id. ¶ 2.) Therefore, according to Wertz, the ITLIP Standards might be invalid under the Compact's own terms. Wertz claimed that this would “impact the constitutionality of the Compact statute.” (ECF No. 39 ¶ 2.) Another implication, of course, would be that this Court might not need to reach the constitutional questions, should Wertz turn out to be correct.

         The Court resolved Amica's and Wertz's respective motions by denying the former without prejudice and granting the latter. (ECF No. 49.) The Court reasoned that “the constitutionality of the Compact is a weighty issue that this Court should avoid if there is a colorable possibility that the case can be decided on other grounds, such as the potential procedural irregularity that Wertz raises.” (Id. at 7.) The Court therefore sent the parties to discovery on the question of “the procedural regularity of the [ITLIP] Standards.” (Id. at 8.)

         That discovery is now closed, and Amica has filed its motion for summary judgment, claiming no genuine dispute of material fact on the procedural regularity of the ITLIP Standards, and renewing its argument that those Standards control over Colorado Revised Statute § 10-7-109. (ECF No. 67.)[4]

         V. ANALYSIS

         A. Timeliness of Wertz's Challenge

         The Interstate Compact requires that any action seeking judicial review of a Uniform Standard be brought within thirty days of promulgation. Colo. Rev. Stat. § 24-60-3001, art. VII, § 7. The ITLIP Standards were promulgated on June 1, 2007. Wertz raised his current counterclaim theory-i.e., that the Interstate Commission did not give proper pre-promulgation notice of the ITLIP Standards to the Colorado Legislature-for the first time on January 21, 2016. (ECF No. 39.) Amica ...

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