What is the Bad Faith Standard Under the Colorado Insurance Code? | | Merlin Law Group

Colorado Revised Statutes Section 10–3–1115 prohibits an insurance company from unreasonably delaying or refusing to pay a first-party payer’s claim. CRS § 10–3–1115(1)(a). Section 10–3–1116 also provides that “[a] A first-party plaintiff as provided in section 10-3-1115 whose demand for benefits is unreasonably delayed or denied may file an action in the district court to recover reasonable attorney’s fees and court costs and double the benefits awarded.”1 Insurance delay is not understood “if the insurer delays or refuses to agree to pay covered benefits without reasonable cause for doing so.”2

The statutes at issue create a basis for exception to the Colorado Common Law breach of bad faith contract of insurance and the “burden of proof.”[e] Statutory claims are more complex than those required to prove common law claims for breach of the duty of good faith and fair dealing.”3 That is because, while a common law claim requires proof that the insurer acted unreasonably and that it knew or ignored the fact that its conduct was unreasonable, “the only thing that exists in the common law is that the insurer denies benefits without reasonable grounds.”4 The suitability of the insurance policy is properly assessed based on industry standards. Although expert testimony about industry standards is often helpful, “expert testimony is not required where the defendant’s standard of care does not require special knowledge or skill . . . [n]or is expert testimony necessary to establish a standard of care when a statute or administrative order establishes a standard of care.”5

In insurance matters, “the Unfair Claims Practices Act regulates the conduct of insurance companies . . . [and] sets standards for when the Insurance Commissioner may find that an insurance company is engaging in unfair or deceptive practices.” Specifically, Section 10-3-1104(1)(h) of the Act describes a specific act of foreclosure. CRS § 10-3-1104(1)(h). “Although the Unfair Claims Practices Act does not establish a standard of care that can be used in a tort, it can be used as valid, but not conclusive, evidence of industry standards.”6 Additionally, since Section 10-3-1104(1)(h) provides examples of conduct that violates insurance company standards, it is common knowledge and experience for the general public to determine whether a defendant is engaging in such conduct.7

Although the Colorado Division of Insurance Regulation 5-1-14 similarly does not comply with the statutory regulations under § 10-3-1115, it provides additional evidence of industry standards, and therefore is reasonable for the quality of insurance.8 Specifically, the Colorado Division of Insurance Regulation 5-1-14, which has the title Penalties for Failure to Respond Promptly to Property and First Injured, was approved by the Colorado Commissioner of Insurance with the purpose of defining “the methods and circumstances in which the penalties will expire. will be charged for failing to make timely decisions and/or pay the first person’s demands.”9 The law provides that insurers may face a financial penalty if they fail to make a decision on the payment of benefits within sixty days after receiving a valid decision, unless there is no reasonable dispute between the parties and the insurer has followed this procedure. The Act sets out the factors that the Commissioner may consider in determining whether a penalty is appropriate.10 The law also states that “[w]The investigation has not been completed or is being continued in another way and the insurer has not paid the money when it is required. . . the insurer immediately informs the insured. . . for the reason(s) that the request was not submitted.” If the insurance company is unable to complete the investigation, the insurer must send a letter to the insured every 30 days explaining any reasons why the investigation cannot be completed. work, and their responsibilities and the law concerning the matter.”

The insurer may also prove the ambiguity of the insurance policy:

[T]by evidence of, for example, among others:

• complete failure to investigate the claim, see 14 Couch on Insurance § 207:24 (3d ed.);

• Failure to make a reasonable inquiry based on all available information, see Allen, 102 P.3d at 344; see also 14 Couch on Insurance § 207:25 (‘The facts of the duty to investigate are necessary to the fullness and fairness of the investigation.’);

• ‘failed to provide a reasonable explanation for the denial of the claim,’ Allen, 102 P.3d at 344-45 (affirming an adverse judgment because, among other things, the evidence showed that the insurer ‘completed its investigation without an investigation.’ [certain] opposite words. . . or by talking to [a relevant witness]’); or

• domestic policies that reward employees for defeating claims, see Zolman, 261 P.3d at 500; see also Zilisch v. State Farm Mut. Emergency. Ins. Co., 196 Ariz. 234, 995 P.2d 276, 279 (Ariz. 2000).11

While the issue of what constitutes tolerance is often a matter of discretion for judges, discretion can be decided as a matter of law in appropriate circumstances, such as when there are no specific issues of material fact.12 The burden of establishing negligence rests with the Defendant.13

Compared to other states, Colorado has strict public policies that require prompt payment of property insurance claims that are filed.

Thought of the Day

When people think of ‘Colorado’, most of the images that come to mind are big mountains, forests, rivers, valleys, and other natural features.
—Nancy S. Greif
1 CRS § 10-31116(1).
2 CRS § 10-3–1115(2).
3 Kisselman v. The United States Is. Farm. Mut. Ins. Co. Co.292 P.3d 964, 975 (Colo.App.2011).
4 Schultz v. GEICO Cas. Co.429 P.3d 844, 848 (Colo. 2018) (writing Vaccaro v. Am. Family Ins. Grp.275 P.3d 750, 760 (Colo. App. 2012)); see also Colo. Jury Instr., Civil 25:4 (2022 Edition).
5 I am. Family Mut. Ins. Co. v. Allen102 P.3d 333, 343 (Colo. 2004) (on white).
6 Allen102 P.3d at 344.
7 You see TBL Collectibles, Inc. v. Owners Ins. Co.285 F.Supp.3d 1170, 1203–04 (D.Colo. 2018) (to mention Leeper v. Allstate Fire & Cas. Ins. Co.2016 WL 1089701, at *6 (D. Colo. Mar. 21, 2016)
8 Goodman v. State Farm Mutual Automobile Ins. Co., no. 13-cv-1376, 2014 US Dist. LEXIS 146866, at *12 (D. Colo. Oct. 15, 2014).
9 3 Colo. Regs. § 702-5:5-1-14 § 2.
10 Id. at § 4(A)(2).
11 Sandoval v. Unum Life Ins. Co. of Am., no. 17-cv-0644, 2018 US Dist. LEXIS 147184, at *31 (D. Colo. Aug. 29, 2018).
12 A banker. Estate of Morris v. COPIC Ins. Co., 192 P.3d 519, 524 (Colo. App. 2008) (citations omitted); Vaccaro275 P.3d at 759.
13 You see Williams v. Owners Ins. Co.621 F. App’x 914, 919 (10th Cir. 2015).