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Hartford Fire Insurance Co. v. Colorado Division of Insurance8/15/1991
The Hartford Fire Insurance Company (the Hartford) appeals the district court's judgment affirming in part the decision of the Commissioner of Insurance (the commissioner). The Colorado Division of Insurance (Division) cross-appeals that portion of the trial court's judgment reversing the commissioner. We affirm in part, reverse in part, and remand with directions.
From 1971 through 1986, the Hartford provided occurrence-based medical malpractice insurance coverage to Colorado physicians and surgeons (the insureds). In January 1986, the Hartford sent its insureds form letters advising them that all policies renewed after January 1, 1986, and all new policies would be in a claims-made form of coverage.
A claims-made policy provides coverage only for claims reported while the policy is in effect. Thus, an insured must buy "tail coverage" to protect himself or herself against claims made after the policy terminates. In contrast, an occurrence-based policy provides coverage for any claim arising out of events taking place during the life of the policy regardless of when the claim is reported.
The Hartford's January 1986 letter did not explain in detail the difference between the two policies or disclose the disadvantages of a claims-made policy. However, it did explain that an insured must purchase tail coverage by paying the Hartford such premiums "as may be required by the company's rules, rates and rating plans then in effect," and included a schedule of percentage rates for the coverage. The letter also stressed that the Hartford offered its insureds stability and security.
At the time the Hartford decided to change to a claims-made policy form, no statute or regulation governed claims-made policies.
From January 1986 through June 1986, the Hartford marketed its claims-made policies. One incentive the Hartford offered was free tail coverage for an insured who died, retired, or became disabled while covered by the policy. This provision was available to any insured who retired at age 65 and who had been insured under a claims-made policy for at least three years.
On June 3, 1986, the Hartford informed its insureds that it had decided to withdraw from the medical malpractice insurance market by gradually not renewing all existing policies. In explaining its decision, the Hartford stated that over the past twelve months it had observed "alarming increases in loss frequency and severity particularly for the . . . years 1982-1985," and that its actuarial analysis called for a 457% rate increase over its previously applicable occurrence rates. At that time, no regulation existed that governed the pattern or timing a company must follow to withdraw from a particular type of insurance business.
Also in June 1986, the Hartford filed a new rate plan with the Division containing drastically increased premiums including tail coverage premiums. In July 1986, the Hartford sent letters to its insureds informing them that it had decided not to implement the gradual withdrawal program, but instead would completely withdraw from the medical malpractice insurance market by not renewing all policies on their normal expiration date after September 1, 1986.
The Hartford stated that its decision was partly based on the increased premiums required in order to continue underwriting medical malpractice insurance policies and on the Hartford's perceived inability to price adequately its claims-made policies because of the potential length of time in which future claims could arise. The Hartford's July 1986 letter did not inform its insureds of the cost of tail coverage for the claims-made policies expiring as a result of the Hartford's
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