Court Opinion

ID: 4262667
Source: CourtListenerOpinion
Date Created: 2018-04-10 18:10:40.004229+00
Date Added: 2024-06-11T14:30:06.055578
License: Public Domain

The summaries of the Colorado Court of Appeals published opinions
  constitute no part of the opinion of the division but have been prepared by
  the division for the convenience of the reader. The summaries may not be
    cited or relied upon as they are not the official language of the division.
  Any discrepancy between the language in the summary and in the opinion
           should be resolved in favor of the language in the opinion.

                                                                   SUMMARY
                                                                 April 5, 2018

                                2018COA49

No. 17CA405, Preferred Professional Insurance Company v.
The Doctors Company — Insurance — Subrogation — Excess
Insurer

     A division of the court of appeals concludes that an excess

insurer seeking recovery under equitable subrogation for a primary

insurer’s failure to settle a case against their mutual insured “steps

in the shoes of the insured” and must plead and prove the primary

insurer’s bad faith.
COLORADO COURT OF APPEALS                                        2018COA49

Court of Appeals No. 17CA0405
City and County of Denver District Court No. 15CV31295
Honorable Elizabeth A. Starrs, Judge

Preferred Professional Insurance Company,

Plaintiff-Appellee,

v.

The Doctors Company,

Defendant-Appellant.

                       JUDGMENT REVERSED AND CASE
                        REMANDED WITH DIRECTIONS

                                  Division IV
                        Opinion by JUDGE DAVIDSON*
                       J. Jones and Richman, JJ., concur

                           Announced April 5, 2018

Sweetbaum Sands Anderson, P.C., Jon F. Sands, Marilyn S. Chappell, Denver,
Colorado, for Plaintiff-Appellee

Taylor Anderson, LLP, Kyle P. Seedorf, John M. Roche, Lauren E. Rhinehart,
Denver, Colorado, for Defendant-Appellant

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2017.
¶1    Suppose that an injured party sues a person who has both

 primary and excess insurance covering the claim. The injured party

 offers to settle for an amount within the primary coverage limit.

 The primary insurer exercises its contractual, discretionary right

 not to accept the settlement. But the excess insurer, perhaps

 spooked by the prospect of a judgment exceeding the primary

 coverage limit, pays the settlement demanded by the injured party.

 When the excess insurer sues the primary insurer to recover the

 amount paid in settlement, claiming that the primary insurer

 should have accepted the settlement offer, what sort of claim may

 the excess insurer assert? And must the excess insurer plead and

 prove that the primary insurer acted in bad faith in declining to

 settle?

¶2    We hold that an excess insurer in this situation must proceed

 on a theory of equitable subrogation premised on the rights of the

 insured under his contract with the primary insurer — that is, the

 excess insurer must step into the shoes of the insured. It follows

 that, under Colorado law, because the insured would have to prove

 bad faith in an action against his primary insurer based on the

                                   1
 insurer’s refusal to settle, the excess insurer must also plead and

 prove such bad faith.

¶3    The facts of this case match those of our hypothetical.

 Preferred Professional Insurance Company (PPIC) is the excess

 insurer that paid the settlement. The Doctors Company (TDC) is

 the primary insurer that declined to settle. But while PPIC

 purported to bring a claim of equitable subrogation against TDC, it

 disavowed any intent to proceed on the legal theory that it stands in

 the insured’s shoes. And it did not plead or attempt to show that

 TDC acted in bad faith. Instead, PPIC’s theory is that general

 equitable principles allow it to recover from TDC apart from any

 rights of the insured under his contract with TDC, and that it need

 not plead or prove that TDC acted in bad faith.

¶4    The district court accepted PPIC’s theory and granted

 summary judgment in its favor. But we conclude that PPIC’s theory

 of recovery is not viable under Colorado law. So we reverse the

 summary judgment and remand the case to the district court for

 entry of judgment in TDC’s favor.

                                     2
                            I.   Background

¶5    The undisputed facts establish that the parties both held

 separate professional liability policies for the same insured, Dr.

 Rupinder Singh. A medical malpractice suit was filed against Dr.

 Singh and other parties.

¶6    TDC defended Dr. Singh in the suit as required by its primary

 liability policy. The policy provided coverage up to a limit of $1

 million. TDC’s policy required Dr. Singh’s consent before accepting

 any settlement offers, but TDC retained the discretion whether to

 accept or reject any such offers.

¶7    PPIC’s insurance policy was an “excess policy,” which would

 cover any losses that exceeded TDC’s $1 million coverage up to an

 additional $1 million. As an excess insurer, PPIC did not have any

 duty to defend Dr. Singh in the suit.

¶8    The plaintiff in the medical malpractice suit offered to settle

 the case with Dr. Singh for $1 million. Dr. Singh conveyed his

 desire to accept the settlement offer to both insurers, but TDC

 declined the plaintiff’s offer. PPIC told Dr. Singh he should accept,

 and it paid the $1 million settlement.

                                     3
¶9     PPIC filed a claim for equitable subrogation, seeking payment

  of the $1 million from TDC. Both parties filed summary judgment

  motions. In its motion, PPIC argued that the applicable standard

  for recovery under equitable subrogation is a five-factor test set

  forth in Hicks v. Londre, 125 P.3d 452, 456 (Colo. 2005). TDC

  responded that in order to recover under equitable subrogation,

  PPIC was required to prove that TDC refused to settle in bad faith.

  In reply, PPIC argued that its claim for equitable subrogation was

  “not premised on the assertion that it has stepped into the shoes of

  its insured, Dr. Singh, through its payment of the settlement,” and

  that it was “not required to establish [bad faith]” to recover, relying

  exclusively on Unigard Mutual Insurance Co. v. Mission Insurance

  Co., 907 P.2d 94, 99 (Colo. App. 1994), and Hicks. The district

  court applied the Hicks factors and found in PPIC’s favor without

  addressing TDC’s argument concerning the need to show bad faith.

¶ 10   On appeal, TDC contends that the district court erred as a

  matter of law. TDC asserts that, under well-established Colorado

  insurance law, an equitable subrogation claim brought by an excess

  insurer against the primary insurer to recover the amount paid in

  settlement can only be derivative (“standing in the shoes”) of the

                                     4
  insured’s rights. Consequently, TDC argues, PPIC’s refusal to plead

  and present evidence that TDC acted in bad faith in declining to

  settle, under the circumstances here, requires dismissal of PPIC’s

  claim. We agree with TDC.

                        II.   Standard of Review

¶ 11   We review an appeal of a summary judgment de novo.

  Edwards v. Bank of Am., N.A., 2016 COA 121, ¶ 13. Summary

  judgment is a drastic remedy that should be granted only when the

  pleadings and the supporting documents demonstrate that no

  genuine issue of material fact exists and that the moving party is

  legally entitled to judgment. W. Elk Ranch, L.L.C. v. United States,

  65 P.3d 479, 481 (Colo. 2002). The moving party carries the

  burden to establish the lack of a genuine issue of fact. Any doubts

  in that regard must be resolved against the moving party. Bankr.

  Estate of Morris v. COPIC Ins. Co., 192 P.3d 519, 523 (Colo. App.

  2008).

¶ 12   An appellate court may “independently review the question of

  whether the doctrine of equitable subrogation applies to the

  circumstances.” Hicks, 125 P.3d at 455.

                                    5
                         III.   Issue Preservation

¶ 13   As a threshold matter, we address and reject PPIC’s argument

  that TDC did not properly preserve this issue in the district court.

  TDC argued in opposing PPIC’s motion for summary judgment that

  PPIC was pursuing a novel theory of recovery in the primary/excess

  insurance coverage context that should be rejected, and that the

  Hicks test has never been applied in this setting to allow an excess

  carrier to usurp the primary insurer’s role without a showing that

  the primary insurer acted in bad faith. TDC cited several bad faith

  failure to settle cases, including some arising in the insurance

  context between excess and primary insurers. So, while the words

  “step into the shoes of the insured” do not appear in TDC’s

  response, we conclude that the district court was alerted to the

  issue.

                                IV.   Analysis

¶ 14   From settled Colorado insurance law, we conclude that an

  excess carrier asserting an equitable subrogation claim against a

  primary carrier for failing to settle must plead and prove that the

  primary insurer’s settlement decisions were made in bad faith.

  Without such an allegation, the claim is not legally viable.

                                      6
       A.   In the Context of Colorado Insurance Law, the Claim of
         Equitable Subrogation Is Identified As Derivative of the Rights
                                 of the Insured

¶ 15    Subrogation is “a creature of equity having for its purpose the

  working out of an equitable adjustment between the parties by

  securing the ultimate discharge of a debt by the person who in

  equity and good conscience ought to pay it.” In re Estate of Boyd,

  972 P.2d 1075, 1077 (Colo. App. 1998) (quoting United Sec. Ins. Co.

  v. Sciarrota, 885 P.2d 273, 277 (Colo. App. 1994)); see Cedar Lane

  Invs. v. Am. Roofing Supply of Colo. Springs, Inc., 919 P.2d 879, 884

  (Colo. App. 1996) (Equitable subrogation arises “because it is

  imposed by courts to prevent unjust enrichment.” (quoting 1 Dan B.

  Dobbs, Law of Remedies § 4.3(4), at 606 (2d ed. 1993))).

¶ 16    In insurance cases, equitable subrogation is often used as a

  loss-shifting mechanism, dependent on the rights, obligations, and

  duties between the parties as set forth in the insurance policy.

  Thus, a subrogated insurer has “no greater rights than the insured,

  for one cannot acquire by subrogation what another, whose rights

  he or she claims, did not have.” Am. Family Mut. Ins. Co. v. DeWitt,

  218 P.3d 318, 323 (Colo. 2009) (citation omitted); see Bainbridge,

  Inc. v. Travelers Cas. Co. of Conn., 159 P.3d 748, 751 (Colo. App.

                                     7
  2006) (“[T]here must first exist a valid claim, right, or debt in order

  for another to become subrogated to it.”); Union Ins. Co. v. RCA

  Corp., 724 P.2d 80, 82 (Colo. App. 1986) (“The claim of a subrogee

  insurance carrier is derivative of the claim of its subrogor insured.

  Subrogation merely alters the beneficial ownership of the claim, not

  its identity, and gives the insuror the right to prosecute against

  responsible third parties whatever rights its insured possesses

  against them.”), overruled on other grounds by Mile Hi Concrete, Inc.

  v. Matz, 842 P.2d 198, 206 n.17 (Colo. 1992).

¶ 17   In the insurance context, regardless of how an insurer obtains

  ownership of subrogation rights (viz., under contract with the

  insured or through principles of equity), they are derivative of the

  rights of the insured. “Once an insurance company enjoys those

  rights, [it] ‘stand[s] in the shoes of the insured’ for all legal purposes

  and may pursue any rights held by the insured subrogor.” DeWitt,
218 P.3d at 323; see Cotter Corp. v. Am. Empire Surplus Lines Ins.

  Co., 90 P.3d 814, 834 (Colo. 2004) (by subrogation, a party who

  discharges another’s debt “stands in the shoes” of the subrogor);

  United Fire Grp. ex rel. Metamorphosis Salon v. Powers Elec., Inc.,

  240 P.3d 569, 573 (Colo. App. 2010) (same); Bainbridge, 159 P.3d
8
  at 751; Wright v. Estate of Valley, 827 P.2d 579, 582 (Colo. App.

  1992); Union Ins. Co., 724 P.2d at 82.

       B.    Under Colorado Insurance Law, Any Settlement Obligation
            Owed by TDC to PPIC Was Defined by TDC’s Insurance Policy
                                 With Dr. Singh

             1.   TDC Only Had a Duty to Dr. Singh to Make Reasonable
                                 Settlement Decisions

¶ 18        Under the terms of an insurance policy, a primary insurer, to

  the exclusion of the insured, may have complete discretion to

  accept or reject settlement offers. See Farmers Grp., Inc. v. Trimble,

  691 P.2d 1138, 1141 (Colo. 1984); Aetna Cas. & Sur. Co. v.

  Kornbluth, 28 Colo. App. 194, 199, 471 P.2d 609, 611 (1970).

  However, in deciding whether to accept a settlement offer, the

  insurer must give at least as much consideration to the insured’s

  interests as it does to its own. See Goodson v. Am. Standard Ins.

  Co. of Wis., 89 P.3d 409, 415 (Colo. 2004).

¶ 19        Because of the special nature of insurance contracts, Colorado

  courts have extended the duty of good faith and fair dealing implied

  in every bilateral contract to allow an insured to bring a separate

  tort action for bad faith refusal to settle. See id. at 414-15.

                                        9
¶ 20   Thus, Dr. Singh had a contractual right to bring a tort claim

  against TDC for breach of the insurance contract for alleged bad

  faith failure to settle. In that claim, Dr. Singh would be required to

  prove that TDC acted in bad faith, or “unreasonably under the

  circumstances.” Am. Family Mut. Ins. Co. v. Allen, 102 P.3d 333,

  342 (Colo. 2004) (quoting Goodson, 89 P.3d at 415). Under Dr.

  Singh’s policy, TDC would be liable for any excess damages

  awarded against Dr. Singh if TDC had unreasonably — that is, in

  bad faith — refused the $1 million pretrial settlement offer. See

  Lira v. Shelter Ins. Co., 903 P.2d 1147, 1149 (Colo. App. 1994),

  aff’d, 913 P.2d 514 (Colo. 1996).

¶ 21   Conversely, Dr. Singh could not recover against TDC for any

  liability he suffered if TDC’s settlement decisions were shown to

  have been objectively reasonable. See, e.g., Hazelrigg v. Am. Fid. &

  Cas. Co., 228 F.2d 953, 956 (10th Cir. 1955) (A primary insurer

  does not guarantee that its decision as to settlement will end

  advantageously, but it owes to its insured “the duty to exercise an

  honest discretion at the risk of liability beyond its policy limits.”).

  Premising liability on an insurer’s negligence for failure to settle

  reasonably reflects “the quasi-fiduciary relationship that exists

                                      10
  between the insurer and the insured by virtue of the insurance

  contract,” Trimble, 691 P.2d at 1141, which “necessarily imposes a

  correlative duty on the part of the insurance company to ascertain

  all facts” in making a decision to settle. Kornbluth, 28 Colo. App. at

  199, 471 P.2d at 611.

       2.   Numerous Other Jurisdictions Allow an Excess Insurer to
              “Stand in the Shoes of the Insured” to Seek Recovery
             From the Primary Insurer for Bad Faith Breach of the
                       Duty to Settle Owed to the Insured

¶ 22   As the excess carrier, PPIC assumed Dr. Singh’s risk of a

  judgment that exceeded the limits of his policy with TDC. PPIC and

  Dr. Singh contracted for the possibility of this exposure, but PPIC

  had no contractual relationship with TDC and, in that regard, no

  control over TDC’s settlement decisions. However, unlike Dr.

  Singh, PPIC did not have a contract or tort claim against TDC for

  any bad faith failure to accept the $1 million settlement offer.

¶ 23   Other jurisdictions, concerned that excess insurers were

  facing ever-increasing risks of excess verdict amounts without

  recourse against primary insurers, created a remedy for excess

  insurers through derivative equitable subrogation. They reasoned

  that the excess insurer is effectively the insured for the purpose of

                                    11
  any judgment exceeding primary policy limits and, therefore, it

  should be protected at least to the same extent that the insured is

  protected by the contractual obligations owed to it by its primary

  insurer. See, e.g., Twin City Fire Ins. Co. v. Country Mut. Ins. Co., 23
F.3d 1175, 1178 (7th Cir. 1994) (citing cases; the duty that a

  primary insurer owes an excess insurer is derivative of the primary

  insurer’s duty to the insured); Great Sw. Fire Ins. Co. v. CNA Ins.

  Companies, 547 So. 2d 1339, 1348 (La. Ct. App. 1989) (“[T]he

  excess insurer . . . stands in the shoes of the insured and should be

  permitted to assert all claims against the primary insurer which the

  insured himself could have asserted.”).

¶ 24     As one commentator has explained, regardless of the fact

  there is no contractual relationship between them, “the primary

  insurer should be held responsible to the excess for improper

  failure to settle, since the position of the latter is analogous to that

  of the insured when only one insurer is involved.” Robert E.

  Keeton, Insurance Law § 7.8(d) (1971).

¶ 25   Thus, an overwhelming number of courts allow an excess

  insurer to be equitably subrogated to the insured’s right to seek

  relief against the primary insurer for bad faith refusal to settle. See

                                     12
  W. Am. Ins. Co. v. RLI Ins. Co., 698 F.3d 1069 (8th Cir. 2012); Nat’l

  Sur. Corp. v. Hartford Cas. Ins. Co., 493 F.3d 752 (6th Cir. 2007)

  (collecting cases); Twin City Fire Ins., 23 F.3d at 1178; Hartford

  Accident & Indem. Co. v. Aetna Cas. & Sur. Co., 792 P.2d 749 (Ariz.

  1990); Morrison Assurance Co., 600 So. 2d at 1151; St. Paul Fire &

  Marine Ins. Co. v. Liberty Mut. Ins. Co., 353 P.3d 991 (Haw. 2015);

  Scottsdale Ins. Co. v. Addison Ins. Co., 448 S.W.3d 818 (Mo. 2014);

  Truck Ins. Exch. of Farmers Ins. Grp. v. Century Indem. Co., 887 P.2d
455, 460 (Wash. Ct. App. 1995).

¶ 26   According to these courts, equitable subrogation in this

  context works to remedy the situation because the primary

  insurer’s contractual obligation to the common insured “is not

  reduced merely because of another contract between the insured

  and its excess insurer.” Peter v. Travelers Ins. Co., 375 F. Supp.
1347, 1350 (C.D. Cal. 1974).

¶ 27   TDC asserts, and PPIC does not seem to disagree, that the

  reasoning of these decisions is sound and fully consistent with well-

  accepted principles of Colorado insurance law.

   C.   The Division in Unigard Did Not Recognize an “Independent
   Equitable Subrogation Claim” and Its Decision is Fully Consistent

                                    13
       with Settled Colorado Law Recognizing Only Derivative Equitable
                     Subrogation in the Insurance Context

¶ 28      Nevertheless, PPIC insists that regardless of the viability of a

  “standing in the shoes” claim, it is not pursuing such a claim. It

  asserts that it is not seeking equitable subrogation “in the shoes” of

  Dr. Singh, but an “independent equitable claim” — in which it need

  only prove that it “equitably should have been paid” by TDC — a

  theory recognized, according to PPIC, in Unigard, 907 P.2d 94. We

  disagree.

¶ 29      First, the issues presented in this case were not raised in

  Unigard, and the division did not address them. In Unigard, both

  insurers had agreed to settle and had paid differing portions of the

  settlement amount, which exceeded the limit of the primary

  coverage. The primary insurer had paid less than the limit of its

  primary coverage, and the insurers had reserved the right to a

  judicial determination of what each of them owed. The issue then

  was whether the primary insurer had to pay back the excess

  insurer for amounts paid by the excess insurer up to the limit of the

  primary coverage. Whether Colorado recognized an “independent,”

                                       14
  or non-derivative, claim of equitable subrogation simply had

  nothing to do with the case.

¶ 30   Second, the principles of equitable subrogation discussed by

  Unigard must be considered in that context. The division first

  noted that under contract principles, in some jurisdictions in the

  circumstances before it, “the excess insurer succeeds, under the

  excess policy’s subrogation provisions, to the insured’s contract

  rights under the primary policy.” Id. at 99. The Washington and

  New Mexico cases cited by the division as supporting this theory

  both addressed the situation where two insurers are battling over

  whether one of them has an absolute obligation to pay, and

  therefore should reimburse the other. And, the decisions turned on

  the terms of the primary policies. See State Farm Mut. Auto. Ins. Co.

  v. Found. Reserve Ins. Co., 431 P.2d 737, 741-42 (N.M. 1967)

  (“Plaintiff had a right of subrogation against defendant by

  contract.”); Millers Cas. Ins. Co., of Tex. v. Briggs, 665 P.2d 887, 890

  (Wash. 1983) (subrogating excess insurer to the primary insurer

  based on “the terms of its policy and under general principles”).

¶ 31   The Unigard division also noted a theory used in other

  jurisdictions “that equity will create a subrogation right in the

                                     15
  excess insurer because of that insurer’s payment of an obligation

  that equitably should have been paid by the primary insurer.” 907
P.2d at 99. The Pennsylvania case cited for the “equitably should

  have been paid” formulation also concerned a nondiscretionary

  obligation of the primary — to defend a claim — and turned on the

  terms of the primary policy. See F.B. Washburn Candy Corp. v.

  Fireman’s Fund, 541 A.2d 771, 774 (Pa. Super. Ct. 1988).

  Moreover, the F.B. Washburn court itself based its decision on

  derivative equitable subrogation principles to determine whether an

  excess insurer could recover:

            “It has often been said that the equitable
            doctrine of subrogation places the subrogee in
            the precise position of the one to whose rights
            and disabilities he is subrogated.” Based on
            this principle, we are of the opinion that [the
            excess insurer and subrogee] stands in the
            same place as [the insured] . . . .

  Id. (emphasis added) (quoting Allstate Ins. Co. v. Clarke, 527 A.2d
1021, 1024 (Pa. Super. Ct. 1987)).

¶ 32   Thus, fairly read, Unigard is fully consistent with our

  interpretation of fundamental principles of Colorado insurance law

  that any subrogation rights sought by an excess insurer in the

  settlement context are derivative of the insured’s as set forth by the

                                    16
  primary insurance policy’s terms. We simply do not read Unigard

  as implying that the rights of the insured under the primary policy

  are irrelevant. To the contrary, liability under either theory

  discussed in Unigard turned on the obligations imposed by the

  primary policy. And, the division observed that the debtor was

  asserting “a contract claim, based on the terms of the [primary]

  policy, that otherwise could have been enforced by [the insured].”

  Unigard, 907 P.2d at 99.

       D. Under the Insurance Policy, TDC’s Legal Obligation Was to
       Make Reasonable Settlement Decisions; Equity Will Not Require
       TDC to Pay Something It Was Otherwise Not Legally Obligated to
                                   Pay

¶ 33      Whether derivatively based or not, an equitable subrogation

  claim allows for recovery only against obligated parties. Conversely,

  equity will not impose on someone an obligation not otherwise

  required by law. See, e.g., Blue Cross of W. N.Y. v. Bukulmez, 736
P.2d 834, 840 (Colo. 1987); see also In re Masonite Corp. Hardboard

  Siding Prods. Liab. Litig., 21 F. Supp. 2d 593, 607 (E.D. La. 1998)

  (Equitable subrogation “is not an unchecked principle of conscience

  that allows recovery whenever it seems fair or right to make the

                                     17
  defendant pay for the subrogor’s losses that defendant is not legally

  obligated to pay.”).

¶ 34   As discussed above, in the insurance context, whether an

  insurer is legally obligated depends on the terms of the insurance

  policy and the relationship between or among the parties to that

  policy. See DeWitt, 218 P.3d at 323; Bainbridge, 159 P.3d at 751;

  Union Ins. Co., 724 P.2d at 82. In this case, TDC’s settlement

  obligation was defined by its contract with Dr. Singh. TDC

  bargained for the discretion to settle, subject only to the legally

  imposed obligation of good faith, and that bargained-for

  discretionary obligation was the only potential source of any

  obligation TDC had to settle. See Hazelrigg, 228 F.2d at 957 (A

  primary insurer “is not required to prophesy or foretell the results of

  litigation at its peril. If it acts in good faith and without negligence

  in refusing the proffered settlement, it has fulfilled its duty to its

  insured, and those in privity with it.”).

¶ 35   Absent a showing that a contractual provision violates public

  policy, equity should not be employed to defeat a party’s bargained-

  for contractual rights. See Dover Assocs. Joint Venture v. Ingram,

  768 A.2d 971, 974 (Del. Ch. 2000). That seems to be particularly

                                     18
  so when a primary insurer is being sued by another entity with

  which it has no contractual relationship, to which it owes no

  independent obligation imposed by law (as PPIC concedes), and

  whose actions it has no ability to control. As TDC points out, it is

  inequitable to allow an excess carrier to nullify the primary

  insurer’s contractual right merely because the excess insurer

  disagrees with the primary insurer over the risk of exposure.

¶ 36   Indeed, PPIC presents no good reason for ignoring the parties’

  rights under the insurance contract. To the contrary, if PPIC were

  allowed to seek recovery without a showing that TDC acted in bad

  faith in ordinary circumstances such as alleged here, an excess

  carrier could accept a pretrial settlement offer within the primary

  insurer’s policy limits, knowing it could collect reimbursement from

  the primary carrier for whatever settlement amount it, as the

  “equitable subrogee,” paid. This outcome would occur regardless of

  whether the primary carrier had fulfilled its contractual duty to its

  insured to make settlement decisions reasonably and in good faith.

  Were we to accept PPIC’s argument that equitable subrogation

  applies where the excess insurer shows merely that it “had a

  reasonable, good faith belief that it should make the payment to

                                    19
  settle the claim,” we would subvert a primary insurer’s contractual

  right to control the insured’s case by effectively giving control of

  settlement decisions to the excess insurer. That would incentivize

  excess carriers to settle claims within primary policy limits without

  regard to damages or liability, and with no risk to them.

      E.    As Applied to Equitable Subrogation Claims in the Insurance
              Context, the Hicks Factors Are, At Best, Incomplete

¶ 37       In Hicks v. Londre, the court set forth specific requirements for

  allowing equitable subrogation in mortgage/lien cases.1 Although,

  at PPIC’s urging, the district court analyzed PPIC’s equitable

  subrogation claim under these factors, we conclude that they have

  limited relevance in the context of Colorado insurance law. The

  Hicks factors were expressly tailored to the situation in that case,

  where a creditor was seeking to leapfrog another creditor in priority

  vis-a-vis the debtor’s real property because it had paid the

  mortgagor’s obligations to the primary and secondary creditors.

  1 Those factors are: (1) the subrogee made the payment to protect
  his or her own interest; (2) the subrogee did not act as a volunteer;
  (3) the subrogee was not primarily liable for the debt paid; (4) the
  subrogee paid off the entire encumbrance; and (5) subrogation
  would not work any injustice to the rights of the junior lienholder.
  Hicks v. Londre, 125 P.3d 452, 456 (Colo. 2005).
                                       20
  But, what is “inequitable” in the insurance context is, as discussed,

  tied to the insurance policy. See generally DeWitt, 218 P.3d at 323;

  Unigard, 907 P.2d at 99. Importing into insurance cases the

  requirements of equitable subrogation used in lien cases seems like

  forcing the proverbial square peg into a round hole.

¶ 38   Moreover, as our supreme court has noted, “the roots of

  equitable subrogation lie in the concept of remedying a mistake.”

  Joondeph v. Hicks, 235 P.3d 303, 307 (Colo. 2010). Applying the

  Hicks factors overlooks the central “mistake” in this context —

  whether a primary insurer’s failure to settle was in bad faith.

  Without that, there would be no wrong or mistake for equity to

  remedy. See Steiger v. Burroughs, 878 P.2d 131, 135 (Colo. App.

  1994); Fed. Deposit Ins. Corp. v. Mars, 821 P.2d 826, 832 (Colo.

  App. 1991).

   F.   PPIC Was Required to Plead and Prove That TDC’s Refusal to
    Accept the $1 Million Offer of Settlement Was Made in Bad Faith

¶ 39   We hold that in the insurance context, Colorado law

  recognizes equitable subrogation only as a derivative right

  dependent on the obligations of the insurance contract.

  Consequently, PPIC could assert an equitable subrogation claim

                                    21
  against TDC only to the extent of Dr. Singh’s rights under his

  insurance contract with TDC, which only obliged TDC to exercise its

  discretion to settle reasonably under the circumstances. Goodson,
89 P.3d at 415.

¶ 40   However, in concluding that PPIC must plead and prove that

  TDC acted in bad faith, we reject TDC’s proposed two-part bad faith

  test, as set forth in Continental Casualty Co. v. Reserve Insurance

  Co., 238 N.W.2d 862 (Minn. 1976), that would also require proof of

  the insured’s liability. Under Colorado law, “[t]he basis for tort

  liability is the insurer’s conduct in unreasonably refusing to pay a

  claim and failing to act in good faith, not the insured’s ultimate

  financial liability.” Goodson, 89 P.3d at 414; see Travelers Ins. Co.

  v. Savio, 706 P.2d 1258, 1270 (Colo. 1985) (“[B]ad faith depends on

  the conduct of the insurer regardless of the ultimate resolution of

  the underlying compensation claim.”).

                             V.    Disposition

¶ 41   PPIC argued in its reply brief in support of its summary

  judgment motion that its claim

             is premised on the general equitable remedy of
             equitable subrogation, as fleshed out in the
             Hicks standard. It is not premised on the

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             assertion that it has stepped into the shoes of
             its insured, Dr. Singh, through its payment of
             the settlement, and a follow-on argument that
             Dr. Singh could make that TDC’s refusal to
             settle was in bad faith.

  PPIC made the same argument in opposing TDC’s motion to

  dismiss. However, we have concluded that without an assertion

  that TDC acted in bad faith, PPIC’s equitable subrogation claim is

  not legally viable.

¶ 42   Therefore, because PPIC’s claim for recovery is not supported

  by law, we reverse the district court’s order granting summary

  judgment for PPIC and remand for entry of judgment of dismissal in

  TDC’s favor. See, e.g., Goeddel v. Aircraft Fin., Inc., 152 Colo. 419,

  382 P.2d 812 (1963) (dismissal is appropriate when there is an

  absence of law supporting the plaintiff’s claim); Mahaney v. City of

  Englewood, 226 P.3d 1214, 1220 (Colo. App. 2009) (reversing grant

  of summary judgment in favor of appellee and remanding for entry

  of judgment in favor of appellant); Geiger v. Am. Standard Ins. Co. of

  Wis., 192 P.3d 480, 484 (Colo. App. 2008) (same).

¶ 43   The district court’s grant of PPIC’s summary judgment motion

  is reversed, and the case is remanded to the district court to enter

  summary judgment in TDC’s favor.

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JUDGE J. JONES and JUDGE RICHMAN concur.

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