Cribari v. Allstate Fire & Casualty Insurance Co.

          ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (DKT. #114), AND DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (DKT. #115).

          N. REID NEUREITER, UNITED STATES MAGISTRATE JUDGE

         This case is before the Court for all purposes pursuant to 28 U.S.C. § 636(c), upon the consent of the parties (Dkt. #18) and the Order Referring Case to Magistrate Judge entered by Judge William J. Martinez on December 6, 2016 (Dkt. #19). The Parties have filed cross-motions for summary judgment. They will be DENIED. The case will proceed to trial.

         1. Background

         This is an insurance coverage dispute. Plaintiff Beverly Cribari was in an automobile accident in February 2015. She was injured and has had to undergo more than one surgery to her wrist as a result. Ms. Cribari was not at fault in the accident, and the negligent driver's insurer settled for his policy limits of $100, 000. Based on the severity of her injuries, future physical impairment, and economic damages, Ms. Cribari asserts that the negligent driver was underinsured. She therefore submitted an underinsured motorist claim to her own insurer, Allstate Fire & Casualty Ins. Company (“Allstate”).

         On August 29, 2016, Ms. Cribari filed claims in Colorado state court against Allstate for breach of contract, common law bad faith, and unreasonable delay/denial. Allstate removed the case to this federal court on September 9, 2016. (Dkt. #1.)

         Currently before the Court are Plaintiff's Motion for Summary Judgment (Dkt. #114) and Defendant's Motion for Summary Judgment. (Dkt. #115.)

         Just prior to the hearing on these competing motions, held on February 25, 2019, Defendant Allstate sent a check for full policy limits ($250, 000) to Ms. Cribari and her counsel, while simultaneously purporting to reserve its right to recoup the amount if it is determined that Ms. Cribari failed to cooperate with Allstate in the investigation of the claim, thereby forfeiting her benefits under the policy.

         In light of the payment and Allstate's reservation of rights, Ms. Caribari asked for the right to file an additional brief addressing the legal implications of this payment, suggesting that such a payment may waive and render moot Allstate's failure to cooperate defense. The Court granted Ms. Cribari leave to file a sur-reply, which was filed on March 4, 2019. (Dkt. #134.) Allstate was given leave to file their own sur-reply addressing the same issue. Allstate's response was filed March 8, 2019. (Dkt. #136.)

         Before addressing the cross-motions for summary judgment, the Court must first consider the impact on this case, if any, of Allstate's payment of full policy limits subject to a purported reservation of rights.

         2. Allstate's payment of full policy limits does not render moot Allstate's failure to cooperate defense.

         Allstate asserts that Ms. Cribari breached the contractual duty to cooperate. Ms. Cribari argues that by paying full policy limits (even subject to a reservation of rights), Allstate has waived any failure to cooperate defense to Ms. Cribari's breach of contract claim. By Ms. Cribari's reasoning, the purported failure to cooperate defense has been rendered moot by Allstate's policy limits payment. (See Dkt. #132 at 2.)

         On February 13, 2019, Allstate issued a check for $250, 000 made payable jointly to Ms. Cribari and her counsel's law office. (See Dkt. #134-1.) Accompanying this check was a “reservation of rights” letter dated February 12, 2019 from Allstate's outside counsel to Ms. Cribari's attorney stating, in material parts, the following:

This letter is to advise that Allstate is hereby submitting payment of $250, 000.00 in UIM benefits (check included), subject to a reservation of rights. Such payment shall not operate in any way as a waiver of any rights or obligations that either Mrs. Cribari or Allstate may have pursuant to the subject policy or the law, nor shall it operate to invalidate any terms or conditions of the subject policy, or any rights that Allstate has under the subject policy or otherwise, to assert a position that Ms. Cribari failed to cooperate during the pendency of her claim and comply with all terms and conditions of the policy, preventing Allstate from obtaining material documents and information necessary for it to fully investigate and evaluate the totality of her UIM claim.

* * *

Allstate will exercise its right to have a judge and jury resolve any questions regarding whether Mrs. Cribari breached her duties and failed to perform such duties pursuant to the terms and conditions of the subject policy. Allstate is not waiting its right to rely on any provision of the policy, or of the law, or in equity which may now or at a later time appear to have application to the claims made and the rights and obligations of the parties to the subject policy. Allstate reserves its right to conduct further investigation to the extent additional information is disclosed or discovered, and deny or decline coverage should a judge or jury conclude that Mrs. Cribari failed to cooperate in the investigation of her claim and/or failed to comply with the terms and conditions of the subject policy.

(Dkt. #134-2 at 1-3.)

         On receipt of the check and the letter, Ms. Cribari's counsel sent an e-mail to Allstate's outside counsel seeking clarification “regarding the recent payment of $250, 000 to Ms. Cribari.” (Dkt. #134-3 at 1.) Noting that the reservation of rights letter made no mention of “whether Allstate agrees this [check] may be cashed, ” Ms. Cribari asked for confirmation that “regardless of what may otherwise happen in this litigation, Allstate will not request return of any funds later.” (Id.) Allstate refused to give any assurance that it would not seek to recoup the funds. Its counsel wrote back: “[M]y client has paid these benefits subject to a reservation of its rights. Should a judge or a jury determine that [Ms. Cribari] failed to cooperate with the investigation of her UIM claim, we will pursue recovery of these monies.” (Id.)

         At oral argument, Ms. Cribari's counsel expressed frustration with this payment and the accompanying reservation of rights, explaining in words or substance that it was not a payment at all because Ms. Cribari could not spend the money for fear that Allstate would seek to recoup it in the future. Allstate's counsel effectively conceded that making the payment while simultaneously reserving rights put Ms. Cribari in a difficult position, and he would not be able to recommend that she spend the money given the uncertainty about whether Allstate would seek to recover those funds.

         Ms. Cribari argues that, absent limited exceptional circumstances, Colorado law makes no provision for an insurer to make a payment while reserving the right to recoup that payment later after a trial. In Ms. Cribari's view, “a true, operable payment by an insurance carrier of the full amount of available UIM benefits would serve to moot the insured plaintiff's claim for breach of contract, and since the purported policy violation of breach of the contractual duty to cooperate is a ‘contract' defense, that purported defense is now also moot and no longer applicable to any remaining claims.” (Dkt. #134 at 2) (emphasis in original.) Ms. Cribari also argues that because there is no right to recoup the payment in the insurance policy itself, Allstate cannot create such a right by merely sending a reservation of rights letter. Says Ms. Cribari, “Allstate has made a final payment of the full amount of benefits, has no right to recoup that payment, and both the breach of contract claim and failure to cooperate defense are moot.” (Id. at 4.)

         Ms. Cribari also argues that even if Colorado does allow payment subject to a reservation of rights and later recoupment, summary judgment should be granted on the failure to cooperate defense anyway. Argues Ms. Cribari, “Allstate's payment of the $250, 000 policy limit confirms that any purported prejudice suffered by Allstate precluding it from fully adjusting the insurance claim either never really existed, or has been resolved, allowing it to in fact evaluate the claim.” (Id.)

         Allstate, for its part, argues that it has acted appropriately and there is nothing wrong with tendering payment of the full amount of the policy while reserving the right of recoupment if a jury ultimately finds Ms. Cribari breached the policy by failing to cooperate. Allstate cites Auto-Owners Ins. Co. v. Summit Park Townhome Assn., No. 14-cv-03417, 2016 WL 1321507 (D. Colo. April 5, 2016) as recognizing that it is appropriate in Colorado for an insurer to make a payment while simultaneously reserving the right to recoup the funds after litigation.

         Having reviewed the cases cited by the Parties, I agree with Judge Babcock's decision in Auto-Owners that an insurer in Colorado is entitled to make a payment, subject to a reservation of rights, without waiving its right to get a final ...