and County of Denver District Court No. 15CV31295 Honorable
Elizabeth A. Starrs, Judge.
Sweetbaum Sands Anderson, P.C., Jon F. Sands, Marilyn S.
Chappell, Denver, Colorado, for Plaintiff-Appellee
Anderson, LLP, Kyle P. Seedorf, John M. Roche, Lauren E.
Rhinehart, Denver, Colorado, for Defendant-Appellant
1 Suppose that an injured party sues a person who has both
primary and excess insurance covering the claim. The injured
party offers to settle for an amount within the primary
coverage limit. The primary insurer exercises its
contractual, discretionary right not to accept the
settlement. But the excess insurer, perhaps spooked by the
prospect of a judgment exceeding the primary coverage limit,
pays the settlement demanded by the injured party. When the
excess insurer sues the primary insurer to recover the amount
paid in settlement, claiming that the primary insurer should
have accepted the settlement offer, what sort of claim may
the excess insurer assert? And must the excess insurer plead
and prove that the primary insurer acted in bad faith in
declining to settle?
2 We hold that an excess insurer in this situation must
proceed on a theory of equitable subrogation premised on the
rights of the insured under his contract with the primary
insurer - that is, the excess insurer must step into the
shoes of the insured. It follows that, under Colorado law,
because the insured would have to prove bad faith in an
action against his primary insurer based on the insurer's
refusal to settle, the excess insurer must also plead and
prove such bad faith.
3 The facts of this case match those of our hypothetical.
Preferred Professional Insurance Company (PPIC) is the excess
insurer that paid the settlement. The Doctors Company (TDC)
is the primary insurer that declined to settle. But while
PPIC purported to bring a claim of equitable subrogation
against TDC, it disavowed any intent to proceed on the legal
theory that it stands in the insured's shoes. And it did
not plead or attempt to show that TDC acted in bad faith.
Instead, PPIC's theory is that general equitable
principles allow it to recover from TDC apart from any rights
of the insured under his contract with TDC, and that it need
not plead or prove that TDC acted in bad faith.
4 The district court accepted PPIC's theory and granted
summary judgment in its favor. But we conclude that
PPIC's theory of recovery is not viable under Colorado
law. So we reverse the summary judgment and remand the case
to the district court for entry of judgment in TDC's
5 The undisputed facts establish that the parties both held
separate professional liability policies for the same
insured, Dr. Rupinder Singh. A medical malpractice suit was
filed against Dr. Singh and other parties.
6 TDC defended Dr. Singh in the suit as required by its
primary liability policy. The policy provided coverage up to
a limit of $1 million. TDC's policy required Dr.
Singh's consent before accepting any settlement offers,
but TDC retained the discretion whether to accept or reject
any such offers.
7 PPIC's insurance policy was an "excess policy,
" which would cover any losses that exceeded TDC's
$1 million coverage up to an additional $1 million. As an
excess insurer, PPIC did not have any duty to defend Dr.
Singh in the suit.
8 The plaintiff in the medical malpractice suit offered to
settle the case with Dr. Singh for $1 million. Dr. Singh
conveyed his desire to accept the settlement offer to both
insurers, but TDC declined the plaintiff's offer. PPIC
told Dr. Singh he should accept, and it paid the $1 million
9 PPIC filed a claim for equitable subrogation, seeking
payment of the $1 million from TDC. Both parties filed
summary judgment motions. In its motion, PPIC argued that the
applicable standard for recovery under equitable subrogation
is a five-factor test set forth in Hicks v. Londre,
125 P.3d 452, 456 (Colo. 2005). TDC responded that in order
to recover under equitable subrogation, PPIC was required to
prove that TDC refused to settle in bad faith. In reply, PPIC
argued that its claim for equitable subrogation was "not
premised on the assertion that it has stepped into the shoes
of its insured, Dr. Singh, through its payment of the
settlement, " and that it was "not required to
establish [bad faith]" to recover, relying exclusively
on Unigard Mutual Insurance Co. v. Mission Insurance
Co., 907 P.2d 94, 99 (Colo.App. 1994), and
Hicks. The district court applied the Hicks
factors and found in PPIC's favor without addressing
TDC's argument concerning the need to show bad faith.
10 On appeal, TDC contends that the district court erred as a
matter of law. TDC asserts that, under well-established
Colorado insurance law, an equitable subrogation claim
brought by an excess insurer against the primary insurer to
recover the amount paid in settlement can only be derivative
("standing in the shoes") of the insured's
rights. Consequently, TDC argues, PPIC's refusal to plead
and present evidence that TDC acted in bad faith in declining
to settle, under the circumstances here, requires dismissal
of PPIC's claim. We agree with TDC.
Standard of Review
11 We review an appeal of a summary judgment de novo.
Edwards v. Bank of Am., N.A., 2016 COA 121, ¶
13. Summary judgment is a drastic remedy that should be
granted only when the pleadings and the supporting documents
demonstrate that no genuine issue of material fact exists and
that the moving party is legally entitled to judgment. W.
Elk Ranch, L.L.C. v. United States, 65 P.3d 479, 481
(Colo. 2002). The moving party carries the burden to
establish the lack of a genuine issue of fact. Any doubts in
that regard must be resolved against the moving party.
Bankr. Estate of Morris v. COPIC Ins. Co.,
192 P.3d 519, 523 (Colo.App. 2008).
12 An appellate court may "independently review the
question of whether the doctrine of equitable subrogation
applies to the circumstances." Hicks, 125 P.3d
13 As a threshold matter, we address and reject PPIC's
argument that TDC did not properly preserve this issue in the
district court. TDC argued in opposing PPIC's motion for
summary judgment that PPIC was pursuing a novel theory of
recovery in the primary/excess insurance coverage context
that should be rejected, and that the Hicks test has
never been applied in this setting to allow an excess carrier
to usurp the primary insurer's role without a showing
that the primary insurer acted in bad faith. TDC cited
several bad faith failure to settle cases, including some
arising in the insurance context between excess and primary