Colo. Court: Insurer Can’t Be Sued By Another Insurer for Failing to Cancel Policy

May 20, 2011

A Colorado Court of Appeal has ruled that an insurer cannot file suit against another insurer for its failure to cancel a policy.

According to court documents in First Comp Insurance v. Industrial Claim Appeals Office of the State of Colorado, First Comp Insurance asked the court to review the finding of an administrative law judge that it was liable for funeral expenses arising out of a workplace fatality because Pinnacol Assurance, the insurer for the decedent’s direct employer, failed to properly cancel the employer’s workers’ compensation insurance policy.

According to court documents, when an employer was fatally injured in the state, the workers’ family sought workers’ compensation benefits from Pinnacol. At the time of the accident, however, direct employer’s workers’ compensation insurance through Pinnacol had lapsed for nonpayment of premium. Therefore, Pinnacol declined to provide coverage for the decedent’s funeral expenses.

Consequently, the decedent’s survivors also sought coverage from First Comp, which insured the decedent’s statutory employer.

First Comp also denied coverage, saying Pinnacol was responsible for the decedent’s funeral expenses because it had failed to properly cancel the policy. But an administrative law judge ruled that Pinnacol had substantially complied with the statutory cancellation requirements and that the policy Pinnacol had issued to direct employer was not in effect at the time of the accident. The judge then ruled First Comp to be liable for the funeral expenses.

“We therefore conclude that [Colorado low] does not confer upon First Comp a legally protected interest in Pinnacol’s compliance with the statutory cancellation procedures. Hence, First Comp lacks standing to challenge Pinnacol’s cancellation of direct employer’s policy,” the appeals court wrote.

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