Yesterday, while I was busy in federal court in Denver successfully arguing against lawyers for State Farm on most points, the Colorado Division of Insurance announced a new regulation1 to provide some relief to policyholders suffering from the historic Colorado wildfires that have affected this beautiful state in recent years.
The Colorado Division of Insurance stated the purpose of the new regulation as follows:
The purpose of this emergency ordinance is to protect homeowner policyholders who have suffered a loss during a catastrophic disaster, such as the 2020 Colorado East Troublesome Fire and the 2021Marshall and Middle Fork Fires, from insurance companies that cause unreasonable delays in claims management, which could further delay the rebuilding of the property. Such delays can be further aggravated by shortages of labor and materials. Further, this regulation identifies specific acts or practices that may constitute unfair claims settlement practices.
On October 14, 2020, the East Troublesome Fire damaged or destroyed more than 500 residential and commercial structures. As of December 30, 2021, the Marshall and Middle Fork fires—the most devastating fires in Colorado history—damaged or destroyed more than 1,000 residential and commercial structures. Given the unprecedented number of homeowners and renters affected by the recent fires, the division anticipates that locating temporary housing and the labor and materials needed to rebuild will be difficult and time-consuming.
The Division of Insurance (“Division”) finds, pursuant to § 24-4-103(6)(a), CRS, that immediate adoption of this regulation is absolutely necessary to preserve the public health, safety, or welfare. This emergency ordinance is necessary, in part, to provide immediate protection for the homeowner’s policyholders who were affected by these fires and are filing related claims to repair or replace damaged structures. Individuals affected by these fires will likely need an extension of the timelines listed in homeowners insurance policies to repair or replace lost property given the large amount of damaged or destroyed structures, complicated by potential labor and material shortages caused by the COVID-19 public health emergency . Complying with the requirements of § 24-4-103, CRS, would therefore be contrary to the public interest.
This is the new rule:
In the event of a catastrophic disaster, an insurer shall waive all waiting periods related to ALE benefits for those policyholders whose residence requires repair or replacement or if the policyholder permanently relocates.
In the event of a catastrophic disaster, an insurer must act in good faith and must consider any adverse circumstances beyond the insured’s control that may require the policyholder’s benefits to be maintained and extended beyond those offered by the timelines of the underlying policy. In determining whether certain benefits should be extended, insurers must take into account all circumstances affecting the claim, including, but not limited to, labor and material shortages and other circumstances affecting the claim but not directly caused by the catastrophic disaster.
The division deals specifically with ALE benefits and repair or replacement time limits for recoverable depreciation. If the insured has acted in good faith and with reasonable diligence, insurers must also act in good faith to maintain or withdraw insurance periods when necessary to protect their policyholders.
In the event of a catastrophic disaster, where an insurer causes an unreasonable delay in the settlement of a claim, the insurer shall:
1. Charge the ALE time limits for the time required to repair or replace the damaged property.
2. State the policy time limits for the policyholder to complete the repair or replacement of the damaged portion of the property required for issuance of the replacement cost value.
In the event of a catastrophic disaster, if the insurer has caused delays in providing the initial estimate of the claim and/or the actual cash value, the insurer shall act in good faith and pay the period during which the policyholder can recover ALE benefits and collect recoverable depreciation with a period of time corresponding to the insurer’s delayed action.
In the event of a catastrophic disaster, failure to pay policy term limits for ALE or recoverable depreciation (RCV) in excess of policy term limits, after causing an unreasonable delay in the settlement of a claim, may constitute an unfair claim settlement practice.
I’ve always believed that Arizona follows the best rule regarding these arbitrary time frames – they don’t apply unless the untimeliness damages the insurer. Why does someone have to replace all their personal property in 180 days? For many people, it has taken the better half of their lives to get. Insurers arbitrarily set a time frame to do this – why? I have never been given a definitive and substantiated reason why these time frames are in replacement cost policies.
I will be speaking about this new regulation and other new cases and laws in Colorado at the Rocky Mountain Association of Public Insurance Adjusters (RMAPIA) meeting on Monday. If you are a public adjuster doing business in Colorado, this two-day conference is essential.
It is of great importance to our country in general, and especially to our navigational and whaling interests, that the Pacific coast, and indeed all our territory west of the Rockies, should be rapidly filled up with a hardy and patriotic population.
—James K. Polk
1 Emergency regulation 23-E-03 Regarding the tolling of certain time limits on policyholder benefits in the event of a catastrophic disaster.