Colo. Exclusivity Rules don’t Bar Injured Worker from Seeking UM/UIM Benefits

Case File

Colorado's top court decided that an employee injured in the course of his employment by the acts of an uninsured or underinsured third-party tortfeasor, and who receives workers' compensation benefits as a result, is not barred under state law from bringing suit against his employer's uninsured/underinsured motorist insurer. Simply Research subscribers have access to the full text of the decision.

Case

Klabon v. Travelers Property Casualty Company of America, 2024 WL 4341367 (Colo. 09/30/24)

What Happened

A technician for an air conditioning company was driving a van owned by his employer when a vehicle driven by a motorist who failed to stop at a traffic light struck him. Allegedly the technician suffered serious injuries in the accident that caused him to incur over $500,000 in medical expenses.

The technician sought and recovered workers' compensation benefits through his employer's carrier and subsequently settled a claim with the motorist's auto liability insurer for $25,000, the limit for bodily injury claims under the policy. In addition to liability coverage, the employer's automobile insurance policy provided up to $1 million in UM/UIM coverage.

The employer's UM/UIM insurer valued the technician's UIM claim at $78,766 and issued $45,766.68 in total payments for UIM benefits.

The technician sued the UM/UIM insurer, alleging that the insurer unreasonably denied and delayed payment of UIM payments and that the denial was done in bad faith and in breach of its contract.

The insurer argued that the technician's receipt of workers' compensation benefits barred his suit to recover UIM benefits, citing Colorado's exclusivity provisions.

Workers' Comp 101: UM/UIM coverage replaces the benefits an innocent injured insured would have recovered if the tortfeasor had been adequately insured for liability coverage. Another case involving UM/UIM overlapping with workers' compensation law was Aetna Casualty & Surety Co. v. McMichael, 906 P.2d 92 (Colo. 1995), in which the Colorado Supreme Court held that an employee's suit to recover UM/UIM damages sustained due to the negligence of a third party was not barred by a workers' compensation exclusion in the underlying policy. This was because the benefits sought were not workers' compensation benefits but were UM/UIM benefits that were substituted for benefits the worker would have received from the motorist who caused his injuries had the motorist been sufficiently insured.

A U.S. magistrate judge certified to the Colorado Supreme Court the question of whether an employee injured in the course of their employment by the acts of a third-party tortfeasor and who receives benefits under the Workers' Compensation Act is barred from bringing suit against their employer's UM/UIM carrier.

Rule of Law

Colorado's Workers' Compensation Act bars employees from bringing a civil action in tort against their employers for injuries that employees sustain while performing services arising during the course of their employment. This protection extends to insurance carriers insuring employers' liability under the act.

What the Colorado Supreme Court Said

The court ruled in the technician's favor and held that when an employee is injured by the negligence of a third party, rather than by an employer or a co-employee, a suit to recover UM/UIM benefits does not constitute a suit against the employer and, therefore, is not barred by the Workers' Compensation Act as an employee's exclusive remedy. The plain language of the exclusive remedy provision immunized the employer's workers' compensation carrier rather than the UM/UIM carrier.

While Colorado law limited injured employees' common law remedies and immunized employers and co-employees from tort claims, the Colorado Supreme Court reasoned that the exclusive remedy provisions did not bar injured employees from asserting all tort claims.

"Notably, the WCA expressly permits an employee to receive workers' compensation benefits and pursue a remedy against a third-party tortfeasor," the Colorado Supreme Court wrote. "That is, while an employee cannot pursue a remedy for an injury against an employer or a co-employee, an employee can pursue a remedy when the employee is injured by the negligence of a third party."

That's what happened in this case, and the court further noted that the employer's UM/UIM carrier was not an immunized insurer under the exclusive remedy provisions of Colorado law. Instead, the workers' compensation carrier was the immunized insurer because the language of the statute specified that neither the “employer or the insurance carrier, if any, insuring the employer's liability" would “be subject to any other liability for the death of or personal injury to any employe."

The court reasoned that immunizing an insurance carrier that does not insure the employer's workers' compensation liability would conflict with the plain language of the statute and undermine the basis of immunity provided by the act, which is "built upon an exchange between an employee and employer."

Moreover, the court pointed out that a suit to recover UM/UIM benefits did not constitute a suit against an employer or co-employee for exclusive remedy purposes.

The court noted:

(1) The technician was injured in the course of his employment, not by the employer or a co-employee, but by a third-party tortfeasor.

(2) By contracting to provide the employer and, by virtue of his employment, the technician, with UM/UIM benefits, the UM/UIM insurer agreed to assume liability for injuries caused by an uninsured or underinsured motorist.

(3) Because the technician's UIM claim arose from a third-party tortfeasor's liability, it did not violate the exclusivity principle set forth under Colorado law.

Takeaway

In Colorado, an employee's suit to recover UM/UIM benefits predicated on the liability of an uninsured or underinsured third party is not an action prohibited by the exclusive remedy clause of Colorado's Workers' Compensation Act.

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