Steven Plitt, Expert Witness Steven Plitt, Expert Witness
Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

THE COLORADO SUPREME COURT HOLDS THAT INSURANCE COMPANY SUBROGATION ACTIONS ARE NOT SUBJECT TO COLORADO'S FAIR DEBT COLLECTION PRACTICES ACT

In Ybarra v. Greenberg & Sada, P.C., 2018 CO 81, 429 P.3d 839, reh'g denied (Nov. 19, 2018), the high court rejected a claim that the lawyers hired by the insurance company to pursue a subrogation action violated Colorado's Fair Debt Collection Practices Act. The claimant alleged that the law firm had violated the Act by using a deceptive means in attempting to collect a debt by filing for damages in tort. It was also alleged that the subrogation law firm filed the insurer's negligence action in the wrong location, as well as having made false representations regarding the character, amount, or legal status of the debt.

In rejecting the Fair Debt Collection Practices claim, the Court held that a tort, as opposed to a judgment awarding damages for its commission, did not operate to obligate the tortfeasor to pay damages and therefore was not an obligation to pay money was required in order to constitute a debt within the meaning of the Act. An insurance contract which provided subrogation rights did not involve a transaction giving rise to an obligation of the tortfeasor to pay money and did not constitute a transaction creating a debt within the contemplation of the Act. Instead of creating an obligation, subrogation was nothing more than an assignment of claims or rights in which one claimholder was substituted for another. This relationship did not alter the nature of the debt, nor could it create a debt that did not already exist. Additionally, the insurance contract which subrogated State Farm to the tort claim of its insured did not obligate the plaintiff to pay money and therefore there was no conversion of the original tort claim of the victim to a debt.

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