On appeal, the heirs argued that Old Republic had consented to the underlying judgment, and that it was barred under the doctrines of waiver, estoppel, res judicata, and collateral estoppel from attacking the judgment. After rejecting each of these arguments, the division proceeded to analyze whether Old Republic could be bound by the judgment. Citing to Serna, the division concluded that the agreement in question was not a true Bashor agreement, noting that: (1) it was entered into prior to the entry of judgment; (2) it was more akin to a profit-sharing agreement; and (3) the heirs were seeking to utilize it to collect in a garnishment proceeding, as opposed to a tort claim for bad faith. Then, after stating than an enforceable judgment against the insured's never existed apart from the confessed judgment to which they stipulated, the division cited Miller v. Byrne and concluded that the judgment was not binding on Old Republic because it was entered without an evidentiary hearing and without Old Republics participation. The division went on to hold, however, that the plaintiffs were entitled to statutory interest pursuant to C.R.S. 5-12-102, and remanded the case to the trial court to determine the amount of interest owing under the statute.
From review of the opinions that have been generated in connection with this now 12 year-old dispute, as well as the briefs of the parties, the Colorado Supreme Court may well decide that it need not reach the Bashor issue, included among the questions accepted for review. The underlying settlement agreement was entered into as a consequence of Old Republics failure and refusal to settle the Rosses claims against its insured's within policy limits, and specifically contemplated the prosecution of a bad faith action against Old Republic to recover damages arising from the insurance carriers conduct, including the amount of the judgment against the insured's, other compensatory damages, punitive damages, interest, and costs. Subsequently, however, the Rosses abandoned their bad faith claims against Old Republic, and instead sought only interest on their judgment in a garnishment proceeding.
The cogency of the pre-judgment agreement in this context is uncertain. For instance, if the supreme court were to decide that, consistent with the court of appeals ruling, Old Republic agreed to indemnify its insured's to the extent of the determined insurance coverage and that Old Republic must pay interest on the $1.5 million amount from the date that this agreement was made until the date when the limits were paid, there may be no need to consider whether the agreement was valid. That is, the court could find, irrespective of the judgment, that Old Republic bound itself in November 1998 to indemnify its insured's to the extent of the determined insurance coverage, and that it therefore owes interest on that amount until payment was ultimately made in May 2002. Alternatively, the court could hold that, by payment of insurance proceeds totaling $1.7 million, Old Republic acknowledged the validity and propriety of the judgment to the extent of its payment, such that Old Republic remains liable for post-judgment interest due under the comprehensive general liability policy's Supplementary Payments provision. Again, the court could reach this conclusion based solely on its evaluation of Old Republics actions, without ruling on the enforceability question.
In sum, it is concerning that Sernas sweeping language has been extended into the insurance arena with no discussion or analysis of the numerous, contrary authorities from other jurisdictions that have approved the use pre-judgment agreements. Even more alarming is the fact that the extension has taken place without any discussion of the legitimate interest that an insured has in protecting itself from insurer misconduct. While the question may not get decided by the supreme court in Ross, when finally resolved, the authors expect that Colorado will join the majority of jurisdictions that recognize the validity of pre-judgment agreements in appropriate cases involving insurer misconduct.
Bradley A. Levin and Michael J. Rosenberg are shareholders in the Denver-based law firm Levin Rosenberg PC, where they dedicate the majority of their time practice to insurance coverage and insurance bad faith litigation.
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