Supreme Court Issues Life Insurance Opinion
General Assembly may not give interstate commission powers to overrule state law

by Jessica Folker

The Colorado Supreme Court on April 27 issued a decision clarifying whether Colorado law or an interstate compact should govern life insurance exclusions for suicide.

In a case that has been closely watched by plaintiffs’ attorneys and the insurance industry, the court concluded the state legislature may not give an interstate insurance commission the power to adopt regulations that effectively override state statute.

Since 2004, Colorado has been part of an interstate compact allowing the Interstate Insurance Product Regulation Commission to make rules and standards for insurance policies sold in member states. These standards allow for a two-year suicide exclusion for life insurance policies. A Colorado statute, however, says insurers doing business in the state may not deny life insurance payouts due to suicide after the first policy year.

The case stems from a dispute between plaintiff Amica Life Insurance Company and defendant Michael Wertz, the beneficiary of an Amica life insurance policy held by Martin Fisher. The policy included a suicide exclusion that said suicide by the policyholder, “while sane or insane,” is not covered within two years from the date of issue. Fisher killed himself a little over a year after the policy was issued, and Amica denied Wertz’s claim for the death benefit, citing the two-year exclusion.

Anticipating a challenge to its decision, Amica sought declaratory judgment in federal district court that it had properly denied Wertz’s claim. Wertz responded, saying the two-year suicide exclusion violated state law and should be declared unenforceable. He also brought counterclaims including breach of contract and bad faith breach of insurance contract.

The district court ruled against Wertz, concluding the two-year exclusion is valid and the state legislature may delegate an administrative agency power to make rules that modify a statute. Wertz appealed to the 10th Circuit, which sent the question to the Colorado Supreme Court.

The Supreme Court agreed to answer the question because, among other reasons, it involves “a significant question of first impression as to the reach of the non-delegation doctrine in Colorado.”

Under this doctrine, the court said, “it has long been settled” that the legislature may not delegate its legislative power to another agency or person. Giving the commission authority to adopt a standard that circumvents the clear language of a Colorado statute “is to confer legislative powers on the Commission,” the court said, concluding the “General Assembly may not properly do this.”

The high court added that if the Colorado Commissioner of Insurance believes the interstate commission should enact rules or standards that conflict with state statutes, the commissioner must request action from the Colorado General Assembly, since only the legislature can override laws it has enacted.

The Colorado Supreme Court said that while some regulations adopted under an interstate compact have trumped conflicting state law, those cases have involved interstate compacts approved by acts of Congress and rely on federal preemption or supremacy clause principles. The Interstate Insurance Product Regulation Compact has not been approved by Congress, so those principles don’t apply.