INSURANCE BAD FAITH – INSURERS CANNOT INTERVENE IN LAWSUITS WHEN THEY DEFEND UNDER A RESERVATION OF RIGHTS
By Nelson Boyle, Trial Lawyer, Burg Simpson Eldredge Hersh & Jardine
Sometimes an insurer issues a reservation of rights letter (telling its insured that it may not cover some or all of the claims against the insured) and then hires an insurance defense lawyer to defend its customer. If the insurer acts in bad faith by failing to settle within policy limits or by exposing its insured in bad faith to a judgment the insured may have to pay out-of-pocket when the insurer could settle the case, Colorado law already allows the insured to enter into a protective settlement agreement. Under such an agreement, after an insurer acts in bad faith, the insured and the person injured can settle the case and the insured will assign its bad faith claims or the proceeds from such claims to the injured person in exchange for an agreement that the injured person will not collect the judgment from the insured. In Colorado, these types of agreements are typically called “Nunn agreements.”
Today, in Bolt Factory v. Auto-Owners Ins., 2019 COA 121, __ P.3d __, the Colorado Court of Appeals held that when an insurer defends under a reservation of rights, it has only a contingent interest in the outcome of the case and thus lacks a sufficient interest to intervene as of right to attack a Nunn agreement. Furthermore, even if the insurer had sufficient interest, it can protect that interest in a later declaratory, bad faith, or garnishment action. The insurer cannot intervene to try to disrupt the Nunn agreement since the insurer can protect any interests it has in a separate lawsuit to address coverage, bad faith, or garnishment of the insurance policy.
Nelson Boyle’s civil litigation practice focuses on appeals, business, insurance bad faith, and personal injury litigation. Nelson is licensed to practice in all Colorado courts, the U.S. District Court for Colorado, the U.S. Court of Federal Claims, the Tenth Circuit Court of Appeals, and the United States Supreme Court.
Nelson Boyle serves as Chair of Colorado’s Second Judicial District Judicial Performance Commission. He also serves as a member of the Amicus Curiae Committee of the American Association for Justice and on the Board of the Colorado Trial Lawyers Association, where he co-chaired the Amicus Curiae Committee from 2010-2018 and still serves as Chair Emeritus of that Committee. Nelson was CTLA’s 2012 New Trial Lawyer of the Year. Nelson speaks regularly on ethics and professional responsibility topics.