Colo. Supreme Rules Adjuster Can’t Be Held Personally Liable for Denied Claim

Jim Sams | Claims Journal

A Colorado law that allows claimants to collect double coverage if a claim is unreasonably denied or delayed does not allow plaintiffs to hold claims adjusters personally liable, the state Supreme Court decided Monday.

In a unanimous decision, the high court said the plain statutory language makes it clear that insurers, not their employees, are responsible for delayed and denied claims.

“Because the insurer—not any individual employee—authorizes payment, this language indicates that an action for unreasonable delay or denial of insurance benefits is triggered by a decision of the insurer, not the adjuster,” the opinion says.

The question of a claim’s adjuster’s personal liability was brought to the Colorado Supreme Court by the US District Court in Denver, which is considering a lawsuit filed by injured motorist Alexis Skillett that seeks penalties for an alleged unreasonable denial of underinsured motorist benefits. Allstate Fire and Casualty Insurance Co. removed the case to federal court and filed an unopposed motion to certify legal questions to the Colorado Supreme Court.

Skillett was hurt in a July 2020 crash in Aurora, Colorado while riding as a passenger in her mother’s car. Another vehicle, while attempting to change lanes, struck the right front corner of the car.

Skillett settled with the at-fault driver’s insurer for $23,907.15 but asked Allstate — which insured her car — for an additional $10,000 in underinsured motorist benefits.

Allstate adjuster Collin Draine offered to pay $1,750, saying that the settlement had adequately compensated Skillett for her damages. Skillett filed a suit in state court alleging that the denial was unreasonable. She requested double the $25,000 per-person limit on her insurance policy, attorney fees and costs as allowed by Colorado Revised Statute Section 10-3-1116.

That statute was adopted in 2008 as a means of discouraging insurers from unreasonably delaying or denying claims. The statute prohibits “a person engaged in the business of insurance” to unreasonably delay or deny payment of a first-party claim.

Whether claims adjusters can be held personally liable for unreasonable claim delays or denials has been a contentious issue across the country. In 2019, the supreme courts for Iowa and Washington state ruled that their state laws do not recognize bad-faith claims against third-party claims administrators.

However, the high courts in Montana, Texas and West Virginia ruled prior to those decisions that an individual could bring third-party claims against insurance company employees for bad faith, according to an article written by Florida State University law professor Chad G. Marzen.

Skillet argued that the Colorado statute’s reference to “a person” allows lawsuits against individual adjusters in addition to insurers. Her lawsuit names Draine as a defendant along with Allstate.

Allstate countered that Skillett named Draine as a defendant only as a means of keeping Skillett’s lawsuit in state court, where jurists are generally thought to be more sympathetic to insurance claimants. Draine is a Colorado resident and federal courts generally do not have jurisdiction in disputes between residents of the same state.

According to the Supreme Court’s opinion, the Colorado Court of Appeals ruled in 2013 that individual employees cannot be held liable for bad faith. But in 2020, the federal district court in Denver created a conflict by finding that the statute could plausibly be interpreted to create a cause of action against an individual adjuster.

The Colorado Supreme Court even though an adjuster can be considered to be a “a person engaged in the business of insurance,” the use of that word in the context of the entire statute shows that the legislature intendedfor lawsuits to be filed against individuals, not individual employees. The law establishes penalties in instances when an “insurer” delays or denies payment of a benefit. Moreover, a preceding code section refers to instances when the insurer “delayed or denied authorizing payment” of a covered benefit, the opinion says.

“Insurers and insureds—not adjusters—are the parties to an insurance policy,” the court said. “They are the ones who undertake obligations under such policies, and it is the insurer—not the adjuster—who may be obligated to pay insurance benefits.”

The American Property Casualty Insurance Association applauded the ruling.

“This is a welcome and common-sense result that accords with a similar decision from the Washington Supreme Court in Keodalah v. Allstate in 2019,” stated Kenneth Stoller, APCIA assistant vice president and amicus counsel. “APCIA filed amicus briefs in both cases explaining why personal liability for bad faith would distort the role of the adjuster, significantly impair proper claims handling, and is not necessary to advance the legitimate interests of insureds.”

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Colo. Supreme Ct. the Latest to Decide if Claims Adjusters Can Be Held Personally Liable

Jim Sams | Claims Journal

For the third time in three years, a state supreme court is being asked to decide whether a claims adjuster can be held personally liable for bad faith.

The Colorado Supreme Court on Jan. 11 heard oral arguments in a case that was brought before it via a certified question by a federal judge. A lawsuit filed by Alexis Skillett after her underinsured motorist claim was denied by Allstate also names claims adjuster Collin Draine as a co-defendant.

Magistrate Judge Michael E. Hegarty, for the US District Court in Denver, was unwilling to guess whether Colorado law allows claims adjusters, who are acting in the courts of employment, to be held be held personally liable. So he held off from making a decision until the Supreme Court interprets the state statutes on unreasonable delay or denial of insurance benefits.

Both the Iowa Supreme Court and Washington Supreme Court heard similar cases in 2019, and both decided that their respective state laws did not recognize a claim of bad faith against a third-party claims administrator. Comments made by two Supreme Court justices during oral arguments in Skillett’s case suggest that the court will be reluctant to find personal liability under Colorado law as well.

“Who in their right mind would wanna take this job of being a claims adjuster if you’re staring down the barrel of this kind of liability on a regular basis?,” Justice William W. Hood III said, according to a report by Colorado Politics.

Justice Melissa Hart said that holding claims adjusters personally liable would have a “distorting impact’ on how they do their jobs, according to that report.

As of Wednesday, the Colorado Supreme Court had not released an opinion to answer the magistrate judge’s certified question. But the large volume of litigation that attempts to assign liability on claims adjusters for bad faith in claims handling suggests the question will be raised in other states even after Colorado puts the issue to bed.

Skillet sued Allstate and adjuster Draine after she was injured in a crash while driving as a passenger in her mother’s car. She settled with the insurer for the driver who was cited for the crash for $23,907 and asked Allstate for an additional $10,000 in underinsured motorist coverage, alleging her damages were much greater. Draine offered $1,750, according to the civil complaint.

Skillet filed suit in state court and Allstate transferred the action to the U.S. District Court in Denver. After Hegarty posed the question to the Supreme Court, the American Property Casualty Insurance Association and National Association of Mutual Insurance Companies, the US Chamber of Commerce, Colorado Civil Justice League and other groups filed amicus briefs.

In the Chamber’s brief, attorney Stephen Masciocchi said “suing adjusters is a cynical ploy to terrorize individual employees and thereby attempt to exert unfair settlement leverage.”

But Skillett’s attorney, Thomas Neville, told Colorado Politics that the insurance carrier will pay any damages on behalf of their claims adjusters. He said truck drivers are typically named as defendants in lawsuits against trucking companies after accidents, but that doesn’t mean no one wants to drive semi-trucks.

According to a 2015 article written by insurance law professor Chad G. Marzen of Florida State University, immunity for claims adjusters employed by insurers from personal liability in bad faith actions was once a well-settled area of law. He credited the California Supreme Court for creating the “general doctrinal rule” in a 1979 decision: Egan v. Mutual of Omaha Insurance Co. The high court reversed a trial court order assessing punitive damages against claims manager and claims adjuster, finding the adjuster was not a party to the insurance claim.

But in 1993, the Montana Supreme Court found that an individual could bring a third-party claim against an insurance company employee adjuster for bad faith. The Texas Supreme Court issued a similar decision in 1998, as did the West Virginia Supreme Court in 2003, according to Marzen’s article.

He said in recent years, federal court judges have often regarded personal liability for employee claims adjusters as an unsettled question. He named several district court decisions that demonstrated “an emerging split” among jurisdictions.

“All of the foregoing cases demonstrate there is a growing divide in the insurance law area on the issue of whether an employee claims adjuster can be held liable for insurance bad faith,” Marzen wrote. “The longstanding doctrinal rule based upon the privity of contract rationale, which immunized claims adjusters from personal liability, has slowly been eroded over time.”

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Colorado Enforces Ambiguous Limitation of Liability Clauses

Kelly Smith | Snell & Wilmer

On September 23, 2021, the Colorado Court of Appeals issued its opinion in Johnson Nathan Strohe, P.C. v. MEP Engineering, Inc., addressing a matter of first impression. The court of appeals held for the first time that an ambiguous limitation of liability clause may be enforced. This stands in contrast to ambiguous exculpatory agreements, which have long been deemed unenforceable in Colorado.


Johnson Nathan Strohe, P.C. v. MEP Engineering, Inc. involves the design and construction of a Denver apartment building. The project owner hired the plaintiff-architect to design the apartment building. In turn, the architect hired the defendant-engineer to provide mechanical, plumbing, and electrical design services, including the design and implementation of a heating and hot water system. The architect and engineer’s contract included a limitation of liability provision stating:

Limitation of Liability: In light of the limited ability of the Engineer to affect the Project, the risks inherent in the Project, and of the disparity between the Engineer’s fees and the potential liability exposure for problems or alleged problems with the Project, the Client agrees that if the Engineer should be found liable for loss or damage due to a failure on the part of MEP-ENGINEERING, INC. such liability shall be limited to the sum of two thousand dollars ($2,000 or twice The Engineer’s fee whichever is greater) as consequential damages and not as penalty, and that is liability exclusive.

Later, significant issues arose concerning the heating and hot water system. The building owner filed an arbitration demand against the architect, and a $1.2 million damages award was entered against the architect. The engineer was not a party to the arbitration.

The Lawsuit

Thereafter, the architect sued the engineer seeking to recoup the amount for which it was found liable in the arbitration. In turn, the engineer filed a motion for a legal determination of the enforceability of the limitation of liability provision in its contract. The architect argued, in part, that the provision was ambiguous and thus unenforceable. The district court disagreed and dismissed the case after the engineer deposited $252,720 (twice its fee plus interest) into the court’s registry.

The architect appealed, arguing that the district court erred in finding the limitation of liability provision unambiguous. The court of appeals agreed, holding that the limitation of liability provision was ambiguous. The court of appeals focused in on the provision’s application to “consequential damages” and whether the provision thus applied only to consequential damages but not other forms of damages.

Notwithstanding, the court of appeals went on to hold that “a limitation of liability in a commercial contract is not void merely because it is ambiguous. Like other ambiguous contract provisions, the meaning is a question of fact that courts must determine using ordinary methods of contract interpretation.” In so holding, the court of appeals decided that limitation of liability provisions should be treated like run-of-the-mill contract provisions and not like exculpatory provisions, which are void and unenforceable if ambiguous. The court of appeals explained that while limitations of liability and exculpatory provisions both reduce liability, “they are different in kind.” Exculpatory agreements bar liability entirely whereas a limitation of liability provision still renders a party liable but at a “bargained-for level.” The court of appeals remanded to the district court to determine the meaning of the limitation of liability of clause.

Takeaways ]

Johnson Nathan Strohe, P.C. v. MEP Engineering, Inc. is reflective of Colorado’s permissive approach towards parties’ ability to limit (but not escape) liability. The case is a clear signal that parties involved in commercial construction cases should take extreme care when negotiating limitation of liability provisions in their contracts as those provisions are likely to be enforced.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Arbitration Provisions in Colorado Construction Contracts: Implications on Challenges to an Arbitrator’s Jurisdiction

Kelly Smith | Snell & Wilmer

Many construction contracts include provisions requiring the parties to arbitrate disputes relating to the contract or construction project rather than bringing their claims in a court of law. Often times, the arbitration provisions specify which arbitral body will decide the claims and which arbitration rules will govern. The American Arbitration Association (or “the AAA”) is one such arbitral body that is commonly specified and, in fact, is designated in the AIA standard agreement between contractors and subcontractors and other AIA standard agreements. The designation of the AAA as the arbitral body and its accompanying rules may seem standard and innocuous but can have significant implications in Colorado on: (1) extent of judicial review of the arbitrator’s jurisdiction, and (2) timing of judicial challenges to the arbitrator’s jurisdiction.

Judicial Review of an Arbitrator’s Jurisdiction

Generally, Colorado courts determine gateway issues of arbitrability, like an arbitrator’s ability to decide the dispute and jurisdiction over claims. However, where parties incorporate arbitration rules which afford the arbitrator with the power to determine his or her own jurisdiction, Colorado courts find that “the parties authorized the arbitrator to decide arbitrability issues.” See, e.g., Ahluwalia v. QFA Royalties, LLC, 226 P.3d 1093, 1099 (Colo. App. 2009).

Parties can still seek judicial review of an arbitrator’s jurisdiction, but Colorado courts will likely give deference to the arbitrator’s findings on its own jurisdiction if the parties designated arbitration rules authorizing the arbitrator to make determinations regarding jurisdiction. Both the AAA Commercial and Construction Arbitration Rules provide arbitrators with the ability to determine their own jurisdiction. Accordingly, parties should be aware that by designating the AAA’s rules or rules that similarly afford arbitrators the ability to determine their own jurisdiction, they are potentially limiting their ability to seek full judicial review on that topic.

Timing to Seek Judicial Review

A party seeking to challenge an arbitrator’s jurisdiction should carefully analyze the proper time in which to bring such a challenge. Colorado’s Uniform Arbitration Act appears to provide parties with the ability to seek vacation of an arbitration award based on the arbitrator’s lack of jurisdiction after the award is entered. CRS § 13-22-223(1)(d). However, waiting to challenge the arbitrator’s jurisdiction is not without risk. The Colorado Court of Appeals has held that “a commercial entity that objects to the arbitrability of a dispute, but does not seek reasonable judicial remedies and instead participates in the arbitration, waives its argument on appeal that the dispute was not arbitrable.” Harper Hofer & Assocs. v. Northwest Direct Marketing, Inc., 412 P.3d 659, 666 (Colo. App. 2014). This holding was a departure from prior Colorado case law, which had permitted a party to challenge an arbitrator’s jurisdiction post-award so long as the party had reserved the right to object to jurisdiction. Id.

Accordingly, parties entering into construction contract in Colorado should pay close attention to the arbitral body and arbitration rules specified in their contract as these rules will affect the timing and extent to which the party may challenge the arbitrator’s jurisdiction.

Implied Warranty Claims–Not Just a Seller’s Risk: Builders Beware!

Carin Ramirez | Colorado Construction Litigation

One of the thorns in the side of every construction defect defense litigator is the implied warranty claim.  The “implied warranty” is a promise that Colorado law is “implied” into every contract for a sale of a new home that the home was built in a workmanlike manner and is suitable for habitation. Defense attorneys dislike the implied warranty claim because it is akin to a strict liability standard.  All that is required to provide the claim is that an aspect of construction is found to be defective — i.e., inconsistent with the building code or manufacturer’s installation instructions — regardless of whether the work was performed to the standard of care. The implied warranty claim is therefore easier to prove than a negligence claim, where a claimant must prove that a construction professional’s work fell below a standard of reasonable care. Additionally, it is not a defense to an implied warranty claim that the homeowners or the HOA are, themselves, partially liable for the defects where damage is due in part to insufficient or deferred maintenance, as it is for negligence claims. The only redeeming aspect to the implied warranty claim was that, until recently, it was believed that it could only be asserted by a first purchaser against the seller of an improvement, because the implied warranty arises out of the sale contract.

Recently, the Colorado Court of Appeals opinion in Brooktree Village Homeowners Association v. Brooktree Village, LLC, 19CA1635, decided on November 19, 2020, extended the reach of the implied warranty — though just how far remains to be seen.  Specifically, a division of the Court of Appeals held that an HOA can assert implied warranty claims on behalf of its members for defects in common areas, even where there is no direct contractual relationship between the parties to base the warranty upon.

The facts of the Brooktree case are somewhat unique.  The original developer constructed the grading and 2 of 14 planned buildings at the development before filing for bankruptcy.  After the original developer filed for bankruptcy, the common areas were conveyed to the HOA.  Several years later, Brooktree Village, LLC, the developer defendant in the Brooktree case, acquired the undeveloped areas other than the common areas, and completed the development using a builder that was a related entity. The primary construction defect allegations in the case involved site grading and drainage in the common areas and the HOA sought damages of the cost to repair the common areas. Though the facts of the case are unique, the reasoning and holding of the Brooktree opinion could, nonetheless, significantly broaden the scope of implied warranty claims.

First, the Brooktree court held that the HOA could assert implied warranty claims against the builder, even though the developer, not the builder, was the entity that sold the homes to the owners.  The decision was based, in part, upon the fact that the builder had signed the purchase agreements, had provided express warranties to the purchases, and had created the developer entity primarily to market and sell the homes. The decision could therefore be interpreted to apply only in similar factual circumstances in which the developer and builder are related entities and both sign the purchase agreements.  There is language in the Brooktree opinion that could support a broader interpretation that would apply to nearly any builder of a home. The opinion states that, even if the builder had not been a party to the purchase agreements, it constructed the townhomes and knew they would be sold to individual owners and should not be permitted to “shirk its responsibilities under implied warranties” to the homeowners.  We anticipate this language will be used in the future by plaintiff’s attorneys to support arguments that homeowners can assert implied warranty claims against builders, regardless of whether the builder was also the seller of a home.

The second holding of the Brooktree is that the HOA can assert an implied warranty claim against the builder and second developer arising from defects in the common areas, even though neither the builder nor second developer ever owned the common areas or conveyed the common areas to the HOA.  As above, the fact that there was no contract between the HOA and the builder and developer for conveyance of the common areas for the warranty to be “implied” into did not deter the Court of Appeals from finding a way to allow the HOA to pursue the claim. Rather, the Brooktree court found that, because the sales of the individual homes included rights to use the common areas, and the builder completed the construction of the common areas after they were conveyed to the HOA, construction defects within the common areas fell within the implied warranty to the purchasers.  This holding, as did the first, indicates a willingness on the part of the Colorado Court to bend the rules—or simply create new ones—to permit homeowners to hold developers and builders to a strict liability standard regardless of the contractual relationship between the parties.

Additionally, the court held that, because some of the homes were owned by purchasers that purchased their units directly from the second developer, the HOA could assert implied warranty claims for defects in the common areas and seek the entire amount of repair costs from the builder and second developer — as opposed to a proportion of damages representing the portion of direct purchasers — because the repair of only a portion of the common areas would not provide a meaningful remedy to the direct purchasers.

Just how broadly the implied warranty claim will now apply remains to be seen.  However, we anticipate we will see the implied warranty claim asserted in more circumstances and against more parties, particularly builders, in the future.