Yesterday, the Colorado Supreme Court announced an important and potentially far-reaching Opinion regarding an insurer’s ability to obtain an Independent Medical Examination (“IME”) in an uninsured/underinsured motorist (“UM/UIM”) bad faith action. Schultz v. GEICO Casualty Company, 2018 CO 87.

Plaintiff was involved in a car accident where she was not at fault. Plaintiff alleged the accident caused injuries that required multiple knee surgeries. Plaintiff settled with the underlying tortfeasor for $25,000 policy limits and sought UM/UIM benefits of $25,000 policy limits from her insurer.

The insurer disputed the medical causation of the injuries. The insurer, without obtaining an IME, denied UM/UIM benefits. Plaintiff filed a bad faith action against the insurer for unreasonably delaying and denying UM/UIM benefits. As part of its defenses, the insurer asserted that medical causation was “fairly debatable”. To support its defenses the insurer sought a Colorado Rule of Civil Procedure Rule 35 IME over Plaintiff’s objection, and the district court granted the request.

In reversing the trial court’s decision, the Colorado Supreme Court held that it was abuse of discretion for the trial court to order the IME, because the insurer’s “conduct must be evaluated based on the evidence before it when it made its coverage decision and that, therefore, the [insurer] is not entitled to create new evidence in order to try to support its earlier coverage decision.” Schultz, 2018 CO 87 ¶ 29.

In other words, “use it or lose it.” If an insurer determines that medical causation is “fairly debatable”, then as part of its claim investigation the insurer must obtain an IME before making its coverage decision, or it will lose the right to obtain an IME in a subsequently filed bad faith action.

The Schultz Opinion could have far-reaching implications in the bad faith arena outside of UM/UIM disputes. Specifically, the opinion could limit what evidence trial courts can consider in support of an insurer’s defenses that it reasonably investigated a claim, and that the insurer’s denial of benefits was reasonable.

Click to read the full opinion.