Colorado Supreme Court Will Hear Insurance Case Impacting State Legislative Authority

The Colorado Supreme Court has agreed to hear a life insurance case that plaintiffs’ lawyers say could reverberate beyond the industry. 

The 10th Circuit Court of Appeals asked the state Supreme Court to hear In Re Amica Life v. Michael Wertz. The unsettled question in Colorado constitutional law, wrote clerk Elisabeth Shumaker in a July 24 order, is whether the state legislature can “delegate power to amend statutes to an interstate administrative agency.”

The Supreme Court narrowed the question to policy language, framing it as, “May the Colorado General Assembly delegate power to an interstate administrative commission to approve insurance policies sold in Colorado under a standard that differs from Colorado statute?”

The central dispute in this case is whether Colorado law or an interstate compact rule governs life insurance exclusions for suicide. State law says life insurance providers can’t deny claims for payouts after the first year a policy has been held, whether the policyholder had intent to kill themselves or whether they were sane or insane.

A previous case decided by the Colorado Supreme Court interpreted state law to mean that for a suicide exclusion to apply, the person had to have intent to kill themselves, regardless of their sanity.

But a rule made by the Interstate Insurance Product Regulation Commission allows a two-year period for suicide exclusion. The commission is a creation of the Insurance Product Regulation Compact, which more than 40 states are currently part of.

Martin Fisher held a life insurance policy from Amica Life Insurance Co. with Michael Wertz as the beneficiary. Fisher took his life about 13 months after the policy’s issuance. The policy contained a 2-year exclusion for suicide, and Amica denied Wertz’ claim. 

The U.S. District Court certified the question about whether state law or the compact should control to the Colorado Supreme Court. When the state court declined to take the case, the federal court made a summary judgment ruling in favor of Amica. Judge William Martinez found the Colorado legislature can delegate power to interstate agencies to make regulations that amend state statutes.

Zachary Warzel of Keating Wagner Polidori Free said the Supreme Court will probably limit its decision to the question it granted cert on. But he said he believes the case opens the door for bringing similar questions in other areas of law.

In Martinez’ summary judgment order in favor of Amica, he expressed concern about the possibility that the state legislature could create an “All-Statutes Review Commission” with the power to replace all the Colorado Revised Statutes with administrative regulations. 

“In other words, the Legislature could relegate itself to a purely veto role,” Martinez wrote.

Colorado’s legislature has the power to veto rules made by the Interstate Insurance Product Regulation Commission. Tim Garvey, who filed an amicus brief on behalf of the Colorado Trial Lawyers Association when the case was in federal court, said he thinks any other efforts to shore up the authority of the interstate commission would be best addressed by the legislature, since it’s a statute-authorized body.

Warzel said compacts such as the Interstate Insurance Product Regulation Commission occupy an odd gray area between state legislatures and the federal government. They’re established to regulate and create efficiency in interstate commerce, but members aren’t elected and use an administrative process rather than a legislative one. 

“There’s always questions with administrative law whether or not whatever body passed these rules or regulations has complied with the [Administrative Procedures Act],” he said. Administrative bodies are created by statute and aren’t supposed to step outside the authorities that the legislature has given them. 

Warzel represented Melissa Renfandt in Renfandt v. New York Life Insurance Company, another case that started in U.S. District Court and ended up in the Colorado Supreme Court to resolve a state law question. The state court interpreted the law’s “sane or insane” wording for a suicide exclusion to mean an insurance company has to show the policyholder intended to kill themselves for the company to deny an insurance claim. 

In an amicus brief filed with the U.S. District Court in 2017, the Interstate Insurance Product Regulation Commission supported the summary judgment ruling in favor of Amica. The commission argued a ruling that the Colorado legislature acted outside its authority when it delegated power to the commission could undermine the interstate compact.

“The success of the Insurance Compact relies on the Uniform Standards having the force and effect of law, with the result that the insurance products it has approved are enforceable as written,” reads the brief.

The National Association of Insurance Commissioners filed a separate amicus brief with the district court asking for a ruling in favor of Amica. The brief argued the insurance market relies on the existence of the commission’s streamlined process to get insurance products approved.

“With more insurance companies using the commission every year for an increasing proportion of their product portfolios, the potential for disruption to the marketplace of a decision undermining the commission’s authority is concerning.”

Damian Arguello of the Colorado Insurance Law Center said the rule contrasts with the process of debating and adopting model statutes. State legislatures can get stakeholder input, weigh impacts and make their own decisions about adopting model statutes. 

“The way the compact works, it seems to me that by delegating through regulation to this administrative body, you kind of sidestep that process.”

— Julia Cardi

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