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State Farm Mutual Automobile Insurance Co. v. Brekke1/31/2005
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The motivation for entering into an insurance contract is different than it is other contracts. Goodson, 89 P.3d at 414; Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo. 1984). Insureds enter into insurance contracts for the financial security obtained by protecting themselves from unforeseen calamities and for peace of mind, rather than to secure commercial advantage. Goodson, 89 P.3d at 414; Cary, 68 P.3d at 467; Trimble, 691 P.2d at 1141. Additionally, there is a disparity of bargaining power between the insurer and the insured; because the insured cannot obtain materially different coverage elsewhere, insurance policies are not generally the result of bargaining. Goodson, 89 P.3d at 414; Huizar, 952 P.2d at 344. Unlike the breach of the implied duty of good faith and fair dealing in an ordinary contract, breach in an insurance contract gives rise to a separate cause of action in tort. Goodson, 89 P.3d at 414; Cary, 68 P.3d at 466.
Because of the special nature of uninsured motorist coverage, we have held the contract creates a relationship between the insurer and the insured that we have described as quasi-fiduciary. Peterman, 961 P.2d at 494. The aspect of this quasi-fiduciary relationship significant to us today in the uninsured motorist context is the insurance provider's duty to investigate and adjust a claim in good faith. Lazar v. Riggs, 79 P.3d 105, 107 (Colo. 2003); Trimble, 691 P.2d at 1142. If an insurance provider does not investigate and process the insured's uninsured motorist claim in good faith, it has acted inconsistent with its relationship to the insured. See Cary, 68 P.3d at 466. Therefore, prior to litigation between an insurance provider's insured and an uninsured motorist, the insurance provider is under a duty to conduct a good-faith investigation of the accident that caused its insured's injury . In Peterman we also stated that nothing in UM litigation vitiated the underlying contractual and quasi-fiduciary duty that the insurer owes its insured. Peterman, 961 P.2d at 494.
In addition to the duty to investigate owed by the insurance company to the insured, the insured owes contractual duties of cooperation and reporting to the insurance provider. For example, their contracts required Brekke and Shaffer to cooperate with and assist State Farm when asked in the process of negotiating settlements, securing and giving evidence, attending hearings and trials, and assisting witnesses to attend hearings and trials. The contracts also impose an additional list of duties on Brekke and Shaffer designed to assure that State Farm had all the information about the nature of the UM claim before it paid the claim. If these duties are fulfilled, the insured will provide extensive information to the insurance provider that it may use to determine what occurred in the accident underlying the UM claim. These duties of reporting and cooperation required by the insurance provider from its insured create an exceptionally close relationship between the two parties.
Thus, in surveying the reciprocal duties of the two parties, the insurance provider's duty to its insured to investigate the accident is balanced by the insured's contractual duty to provide information and cooperation to the insurance provider about the accident. If both parties fulfill their reciprocal duties, virtually all relevant facts and issues likely to arise in the tort litigation will be known by both the insurance provider and its insured long before any suit is filed.
Huizar and Peterman guide what litigation procedures comply with the public policy that protects the insured from being forced to traverse undue procedural hurdles and re-litigate matters prior to a recovery un
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