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Amica Life Insurance Co v. Wertz

United States District Court, D. Colorado

October 19, 2018

MICHAEL P. WERTZ, Defendant.


          William J. Martinez United States District Judge

         The case arises, 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, which is lawful 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 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”). Invoking this Court's diversity jurisdiction, [1] Amica brought this lawsuit for declaratory judgment that it properly denied payment of Fisher's death benefit in light of the interstate two-year exclusion. Currently before the Court on Amica's motion for summary judgment. (ECF No. 67.)

         The proper outcome ultimately turns on the extent of the Colorado Legislature's authority under the Colorado Constitution to delegate regulatory power to an administrative body. This Court therefore sua sponte certified the question to the Colorado Supreme Court per Colorado Appellate Rule 21.1. See Amica Life Ins. Co. v. Wertz, 272 F.Supp.3d 1239, 1255 (D. Colo. 2017) (ECF No. 73) (“Wertz” or “Prior Order”). Precisely three weeks later, the Colorado Supreme Court declined to accept the certified question. (See ECF No. 75.) That court thus returned a weighty question of Colorado constitutional law to the undersigned, whose decisions, particularly regarding state law, bind no one but the parties before him.[2]

         The Court then accepted supplemental briefs from the parties (ECF Nos. 81, 82, 86-1) as well as an amicus brief from the National Association of Insurance Commissioners (“NAIC”) in support of Amica (ECF No. 79-1); an amicus brief from the Interstate Insurance Product Regulation Commission (“Interstate Commission” or “Commission”), also in support of Amica (ECF No. 80-1); and Wertz's response to these amicus briefs (ECF No. 85). The Court reviewed these briefs and called for limited further briefing on certain matters. (ECF No. 89.) All parties and amici filed briefs in response. (See ECF Nos. 90-93.)

         The Court has thoroughly studied all of these materials, including the parties' original summary judgment briefs (ECF Nos. 67, 70, 72), the legal authorities cited by the parties and amici, and what appears to be the only treatise on interstate compacts, see Michael L. Buenger et al., The Evolving Law and Use of Interstate Compacts (2d. ed. 2016) (“Interstate Compacts”). The Court concludes-to its surprise-that the Colorado Legislature may validly delegate to an administrative agency the power to promulgate a regulation that modifies a statute. Moreover, there is no barrier to the Colorado Legislature delegating such authority to an interstate administrative agency, so the two-year exclusion applicable to Fisher's policy is valid and Amica properly denied payment of the death benefit.

         For ease of the seemingly inevitable appellate review, the explanation that follows is not confined to the legal question of what the Colorado Legislature may validly delegate to an administrative agency, but also repeats verbatim much of the Prior Order, including rulings regarding certain factual disputes. In other words, the purpose of this order is to address all matters resolved through the Prior Order and all matters left open there, so that one need only read this order to understand the full dispute and the Court's holdings.


         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.[3]

         The Compact creates the Interstate 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[4] 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.)[5] 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 . . . .”[6] 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.)[7]


         A. Timeliness of Wertz's Challenge

         The Insurance 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 accordingly argues that “any procedural challenge” to the ITLIP Standards is now foreclosed as untimely. (ECF No. 67 at 24.)

         There are colorable counterarguments to this position. For example, is a challenge in the context of a dispute between insurer and beneficiary the same as “judicial review” under the Insurance Compact (which presumably has in mind an action against the Interstate Commission directly)? Or, may the Colorado Legislature, consistent with due process, create a statute of limitations as short as thirty days? But Wertz does not raise these arguments. In fact, he entirely ignores Amica's timeliness argument. The Court therefore deems him to have conceded that his challenge to the procedural regularity of the ITLIP Standards is untimely.

         B. Lack of a Genuine Dispute of Material Fact

         Alternatively, the Court finds that there is no genuine dispute of material fact over whether the Interstate Commission provided proper pre-promulgation notice of the ITLIP Standards to the Colorado Legislature.

         The sole relevant factual dispute-genuine or otherwise-is whether the Interstate Commission actually sent notice of the ITLIP Standards to the Colorado Legislature ahead of those Standards' promulgation. Amica offers the affidavit of Karen Schutter, the Interstate Commission's executive director. (ECF No. 67-1 at 1, ¶ 1.) Schutter claims to be an authorized records custodian for the Commission. (Id. at 2, ¶ 6.) Schutter says that the requisite notice to the Colorado Legislature was sent on May 1, 2007 (id. ¶ 14), which obviously predates the ITLIP Standards' promulgation on June 1, 2007. Schutter attaches to her affidavit a document (“Exhibit D”) that appears to be a sort of cover letter, directed to all relevant state legislative committees and announcing the Interstate Commission's consideration of the ITLIP Standards, among others. (ECF No. 67-1 at 31.) Schutter does not claim that Exhibit D was the notice itself, but rather describes it as the “content of the notice” sent to the Colorado Legislature. (Id. at 6, ¶ 14.)

         Wertz's response is essentially twofold. First, Wertz points out that the Interstate Commission, in response to his records request, stated that the May 2007 notice to state legislatures has already been destroyed pursuant to the Commission's five-year records retention schedule. (ECF No. 70 at 3, ¶ 21.) Thus, he attacks Exhibit D- although, surprisingly, not on authenticity grounds. He does not, for example, dispute that Exhibit D embodied the “content of the notice.” He instead simply asserts,

Exhibit D to the Schutter Affidavit does not establish that the Commission sent the requisite Legislative Notice on May 1, 2007, or any other time prior to adopting the ITLIP Standards. Nor does Exhibit D establish that the Commission sent the requisite Legislative Notice to the proper members of the Colorado General Assembly.

(Id.; see also id. at 20 (repeating the same arguments).) Second, Wertz notes that Schutter began her employment with the Interstate Commission in December 2008, after the May 2007 notice was allegedly sent, and therefore she lacks personal knowledge regarding that matter. (Id. at 3, ¶ 21.)

         Wertz's arguments are somewhat misdirected. In Colorado, administrative action is entitled to a presumption of regularity. Marshall v. Civil Serv. Comm'n, 401 P.3d 96, 101 (Colo.App. 2016), cert. denied sub nom. Marshall v. City & Cnty. of Denver, No. 16SC905, 2017 WL 3594017 (Colo. Aug. 21, 2017). If Wertz had brought a timely judicial review challenge directly against the Interstate Commission, Wertz would have borne the burden to rebut the presumption of regularity. Id.; see also 3 Charles H. Koch, Jr. & Richard Murphy, Administrative Law & Practice § 9:13 (3d ed., Feb. 2017 update). Wertz offers no reason why he does not bear the same burden as to his counterclaim against Amica based on the alleged irregularity of the ITLIP Standards, nor does the Court independently discern any reason.[8] The Court holds, therefore, that the burden of proof rests on Wertz, just as it would in a normal action for judicial review.

         In that light, it was Wertz's burden in his summary judgment response brief to present the evidence by which a reasonable jury could conclude that the May 2007 legislative notice was never sent. Viewing Wertz's response generously, it appears he proffers only two items of evidence: (1) the Interstate Commission's admission that it no longer possesses the actual May 2007 notice; and (2) the fact that the Commission was able to produce legislative notices sent in 2008 and 2010, both of which also should have been destroyed under the Commission's five-year retention schedule (see ECF No. 70 at 19 n.1)-apparently insinuating that the retention schedule explanation as to the May 2007 notice is suspect.

         The Court holds that these two items, viewed together and in the light most favorable to Wertz, are no more than a scintilla of evidence that the Interstate Commission failed to provide pre-promulgation notice of the ITLIP Standards to the Colorado Legislature on May 1, 2007. In other words, no reasonable jury could find that Wertz carried his burden on this question. Accordingly, there is no genuine dispute of material fact as to pre-promulgation notice.

         C. The “Consider Fully” Clause

         Wertz also advances a rather creative alternative argument that the ITLIP Standards were invalidly promulgated. His argument is grounded in the following two sentences of the Insurance Compact:

Before 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. The Commission in adopting a Uniform Standard shall consider fully all submitted materials and issue a concise explanation of its decision.

Colo. Rev. Stat. § 24-60-3001, art. VII, § 2. Wertz interprets the second sentence to mean that the Interstate Commission must “‘consider fully' all materials submitted in response” to the notice given in the first sentence. (ECF No. 70 at 20.) Therefore, he says, “[n]otice must be sent in a timeframe that allows sufficient time for the legislature to react and respond.” (Id.) But, he continues, the notice was allegedly sent on May 1, 2007, and the Colorado Legislature's 2007 session ended on May 4, 2007. (Id.) Thus, the Commission supposedly violated its “consider fully” duty by not giving the Colorado Legislature time to submit any response or comment.

         Wertz's interpretation simply has no support in the statutory language. The second sentence quoted above speaks of the rulemaking process generally. It has nothing to do with waiting for a particular legislature to submit written materials. This argument therefore fails as a matter of law.


         A. Matters Not in Question

         Given the foregoing, the constitutional question cannot be avoided. In approaching that question, the Court first notes the following.

         Despite the many arguments made by the parties and amici, this case is not about:

• Whether the Colorado Legislature may delegate rulemaking authority to an administrative agency. Without question, it may.
• Whether the Colorado Legislature may delegate rulemaking authority to an interstate administrative agency ...

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