U.S. Court of Appeals for the Tenth Circuit, Murphy-Sims, v. Owners Insurance Company, Docket No. 18-1392

Torts

Insurance Law

Nunn Agreement

Direct Lawsuit against Insurer

Arbitration

Colorado Law

On March 27, 2013, Mr. Switzer and Ms. Murphy-Sims were involved in a car accident in which Mr. Switzer was at fault. At the time, he was insured by Owners under an automobile policy that provided liability coverage of $100,000 per person and covered the vehicle that Mr. Switzer was driving.

Ms. Murphy-Sims maintained that she suffered extensive injuries, and consequently incurred significant medical costs, as a result of the accident. In February 2014, she sent Owners a letter demanding settlement claiming $41,000 in medical expenses. Owners timely replied with a request for more information. When Ms. Murphy-Sims failed to reply, Owners sent two additional follow-up requests. Finally, in June 2014, Ms. Murphy-Sims provided Owners with some of the requested information. It did not offer a settlement payment in response.

In July 2014, Ms. Murphy-Sims sued Mr. Switzer. The parties agreed roughly three weeks later to enter into a Nunn agreement wherein the parties agreed to submit the issue of damages to binding arbitration. The arbitrator awarded Ms. Murphy-Sims approximately $1.3 million and judgment was entered against Mr. Switzer. Pursuant to the agreement, Ms. Murphy-Sims did not execute on the judgment.

(Colorado law permits local insureds to enter into an agreement with a third party whereby the insured “assigns its bad faith claims [against the insurer] to the third party, and in exchange the third party agrees to pursue the insurer directly for payment of the excess judgment” that the insurer did not settle. Nunn v. Mid-Century Ins. Co., 244 P.3d 116, 119 (Colo. 2010)).

In March 2016, Ms. Murphy-Sims, standing in Mr. Switzer’s shoes as permitted under the Nunn agreement, filed the underlying lawsuit against Owners in state district court. She claimed that Owners had breached its contract with Mr. Switzer and had done so in bad faith. Owners removed the suit to federal court and the case proceeded to trial. A jury ultimately found that Owners did not breach its contract with Mr. Switzer, thereby declining to award $1.3 million in damages to Ms. Murphy-Sims. The jury did not reach the bad faith claim having been instructed that it need not be reached in the absence of a breach of contract.

(U.S. Court of Appeals for the Tenth Circuit, January 7, 2020, Murphy-Sims, v. Owners Insurance Company, Docket No. 18-1392, For Publication)