In a case that has drawn the attention and alarm of national industry groups, the Colorado Supreme Court considered this past week whether state law allows people to sue insurance claims adjusters personally for delaying or denying payments.

Lawyers for plaintiff Alexis Skillett attempted to reassure the court during oral arguments that lawsuits against claims adjusters would be no different than, for instance, suing commercial truck drivers for injuries they cause in addition to suing the trucking company. But the attorney arguing on behalf of Collin Draine and his employer, Allstate, said a decision imposing liability for individual claims handlers would be “unprecedented” and would force adjusters to make decisions based on fear.

In response, some members of the Supreme Court appeared concerned about endorsing an interpretation of the law under which a decision to deny payment could land a claims adjuster in court to answer for their actions.

“If we were to conclude that adjusters are individually liable,” said Justice Melissa Hart on Tuesday, “it seems to me that it would have a fairly significant distorting impact on whether people would take the job of adjuster and how adjusters

would do their job.”

Justice William W. Hood III put it more bluntly: “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?”

Skillett was the passenger in a car that collided with another motorist in 2020. The driver of Skillett’s car had an insurance policy with Allstate. Skillett entered into a settlement with the other motorist’s insurer for nearly $24,000, but still submitted her emergency room bill to Allstate to recover underinsured motorist benefits.

Skillett had sought $10,000 from Allstate, but Draine, the investigator on her claim, denied payment. She then sued Allstate for breach of contract and acting in bad faith, but also lodged a claim against Draine personally.

“Defendant Draine has denied and delayed payment of UIM benefits to Alexis Skillett without a reasonable basis for his action,” she wrote in her lawsuit.

According to Colorado law, a claimant who shows that their benefits were unreasonably delayed or denied can recover in court their attorney fees and up to two times the benefits they were owed. However, there was a heated dispute between the parties in Skillett’s case about whether the General Assembly intended to let claimants only go after the insurance company itself, or if lawmakers actually made insurance adjusters fair game in civil lawsuits.

The question came to the state’s highest court by way of the federal trial court located in Denver. Allstate, based in Delaware, transferred Skillett’s lawsuit from state to federal court, arguing that Skillett had only added Draine to the lawsuit because he was a Colorado resident whose presence would enable her claims to be heard in state court. (Research suggests that plaintiffs fare worse when their lawsuits shift to federal court, although Skillett’s lawyers did not provide a reason for the decision to file in state court.)

In June of last year, U.S. Magistrate Judge Michael E. Hegarty agreed to formally ask the Supreme Court to decide whether Colorado law allows claimants to sue individual employees of insurance companies.

“The answer to this question will likely exert substantial influence on who is sued in statutory bad faith cases, the venues where such litigation is decided, and various legal questions governing insurers and their employees,” Hegarty wrote.

The Supreme Court had never resolved the issue, and federal judges typically dismissed such claims against various parties who were not the insurance company itself.

That changed in November 2020. In a case in which Allstate and Draine were also defendants, U.S. District Court Chief Judge Philip A. Brimmer declined to rule that Draine and another Colorado insurance adjuster were improperly listed as defendants. Since both employees were residents of Colorado,

Brimmer returned the case to Larimer County District Court, where a judge subsequently refused to dismiss the claims against the two Allstate adjusters.

Hegarty, in turning to the Supreme Court for intervention, cited a need to clearly establish who is allowed to be sued under Colorado law as similar lawsuits mount.

The problem lies in how the General Assembly crafted different sections of law without making it clear how they operated. Skillett staked her argument on one provision of the law that reads, “A person engaged in the business of insurance shall not unreasonably delay or deny payment of a claim for benefits owed.” In a separate place, the law defines “person” to include claims adjusters.

To her, the interpretation was straightforward: Claims adjusters could be held liable, as persons “engaged in the business of insurance,” for unreasonably denying payments.

On the other hand, the defendants looked immediately below the sentence prohibiting persons engaged in the business of insurance from unreasonably delaying or denying payments. The law continued to say that “an insurer’s delay or denial” was unreasonable if it did not authorize a payment without a sufficient basis.

In that interpretation, the law only applied to the companies themselves. That ambiguity elicited frustration from some members of the Supreme Court.

“Why has the Legislature put us in this situation?”

Hart asked dryly.

Evan Stephenson, representing Draine and also speaking for Allstate, argued that it would be devastating to claims adjusters if Colorado were to take the “radical” position of establishing personal liability for decisions they make on behalf of their employer. The Washington Supreme Court in 2019 narrowly decided against imposing personal liability in such circumstances, as did the Iowa Supreme Court that same year on a question that, as in Colorado, was referred from federal court.

Claims handlers “would be out with their family at a restaurant, at a birthday party. They would be in any number of spaces or at home when a process server comes knocking. If you’re an adjuster with dozens of claims, at any moment of any day, you could be accosted by a process server, you could be accused of wrongdoing,” Stephenson said.

“There really is not a practical case for why the Legislature would have ever wanted this.”

Thomas Neville, representing Skillett, brushed aside concerns that people would be hesitant to work as claims adjusters or reach their decisions based on fear of being sued. He said the notion of holding an employee liable for harms they cause while working is “not a novel concept.”

“When I sue a trucker or trucking company that has injured a client, I sue both the employee and the employer,” Neville explained. “People still drive semi-trucks and they still crash them and cause horrible injuries. This disincentive doesn’t seem to exist for people in other career paths.”