$2.25 Million Statutory Bad-Faith Verdict Against Owners Insurance, Affirmed by the Tenth Circuit

On December 19, 2007, Donald Etherton was rear-ended in Colorado. The crash compressed discs in his lumbar spine and eventually required three separate surgeries. He carried underinsured motorist (UIM) coverage through Owners Insurance with a $1 million policy limit.

Etherton first settled with the at-fault driver's insurer for $250,000, the limits of that policy. That left $750,000 still available from his own Owners policy. He submitted his claim. Owners offered $150,000 and cited 'serious questions of causation' tied to Etherton's pre-existing degenerative disc disease. When Etherton asked Owners to explain the offer or at least tender the $150,000 as the undisputed portion of the claim, the company refused both requests.

Anderson Hemmat attorneys Chad Hemmat and Ethan McQuinn filed suit in federal court on two theories: breach of contract for the unpaid UIM balance and unreasonable delay or denial of benefits under Colorado Revised Statute section 10-3-1116. That statute, then relatively new, allowed a policyholder to recover twice the covered benefit if the insurer's refusal was found unreasonable.

Over six days of trial in January 2013, the firm built a causation case centered on treating physician testimony. The defense attacked the methodology of plaintiff's medical expert under Daubert, arguing the doctor's opinion linking the accident to the lumbar injuries was unreliable. The jury rejected that position, found Owners liable on both claims, and awarded Etherton $750,000 in breach-of-contract damages for the remaining policy limit. The district court then applied the statutory formula, doubling that figure and adding it to the base award, bringing the total judgment to $2.25 million.

Owners appealed on three grounds: the admission of the causation expert, the sufficiency of evidence for the unreasonable-delay claim, and the legality of stacking the breach-of-contract recovery with the statutory penalty. On July 19, 2016, the Tenth Circuit affirmed on all three points. The panel held that the statute permits recovery of the covered benefit and two times that benefit simultaneously when bad faith is proven, and that the jury had sufficient evidence to find Owners' position unreasonable regardless of whether the underlying liability was 'fairly debatable.' The verdict was not reduced.