Colorado statutes of bad faith provide protection for insured persons when an insurance company unreasonably delays or rejects an insurance claim. The statutes specifically stipulate that "a person working in insurance shall not unreasonably delay or refuse payment of a claim for benefits due or on behalf of someone who is expelled." 1 The statutes also provide for a remedy when payment of due insurance benefits is unreasonably delayed or denied. 2
However, Canady v. Nationwide Affinity Insurance Company the Federal District of Colorado has provided that a requirement of statutory bad faith requires that "an insured must have a good and sufficient basis. in fact and law ” to pursue this remedy. 3 Just like my high school math teacher used to preach to my class, "You have to show your work."
Do I have a claim for unreasonable delay or unreasonable denial?
Insurance claims sometimes take a frustratingly long time to complete. However, a lengthy application does not in itself show that an insured's claim was unreasonably delayed or rejected. Allegations of unreasonable delay or denial require the insured to question the mistakes of their insurance companies, insufficient estimates or claims for damages or incorrect denials of liability.
In Canady 4 insured an insurance applicant for hail damage on their home roof in Aurora, Colorado. Nationwide gave an estimate to the insured who paid for site repair, not replacement, their roof. The insured contested Nationwide's position because they believed that roof replacement was necessary for several reasons. However, according to the court decision, the insured had not submitted this issue to Nationwide prior to the application. Without first announcing that they disputed the Nationwide estimate, the insured claimed that Nationwide unreasonably delayed the coverage by not providing a roof replacement.
While the court did not disagree that the insured may owe additional coverage for their roof, the court ruled the insured had not presented sufficient facts to support a claim of unreasonable delay because the insured could not describe how they had disputed Nationwide position before submitting a lawsuit. For example, while the lawsuit claimed that the roof repair was impossible because the roof tiles that covered their roofs ceased, national and local regulations and requirements of the building department, and the manufacturer's requirements for installation also made it necessary to replace full roofs, the insured had not presented these disputes. Nationwide before application. The court ruled that the insured had not demonstrated the unreasonableness of Nationwide's claim for decision by failing to present these disputes before the application. In other words, even though Nationwide presented an incorrect estimate of the insured's ceiling, because the insured had not shown their work before filing a lawsuit, they could not sufficiently show how Nationwide had unreasonably delayed or denied their claim.
Canady is a good reminder that when pursuing a claim for unreasonable delay or denial under state laws in Colorado, it is crucial for insureds to notify their insurance companies of the shortcomings and mistakes they have identified during the pre-application damages procedure.
2 Colo Rev. State. § 10-3-1116.
3 Canady v. Nationwide Affinity Ins. Co. of America No. 19-344, 2020 WL 376494 (D. Colo. Jan. 23, 2020).