Colorado Revised Statutes Section 10–3–1115 prohibits an insurance company from unreasonably delaying or denying payment of a claim for benefits owed to a first-party claimant. CRS § 10–3–1115(1)(a). Section 10-3-1116 further stipulates that “[a] First-party applicants as defined in § 10-3-1115 whose claim for the payment of benefits has been unreasonably delayed or rejected may bring an action at the district court to recover reasonable attorney’s fees and court costs as well as twice the compensation that is reimbursed.”1 An insurer’s delay is unreasonable “if the insurer delayed or refused to authorize payment of a covered benefit without a reasonable basis for that action.”;2
The statutes in question create a different cause of action than the Colorado common law tort of bad faith breach of an insurance contract and the “burden of proof[e] statutory claims are less burdensome than required to prove a common law claim for breach of the duty of good faith and fair dealing.”3 This is because, while a common law claim requires proof that the insurer acted unreasonably and that it knew or recklessly disregarded the fact that its conduct was unreasonable, “the only aspect at issue in the statutory claim is whether an insurer denied benefits without a reasonable basis.”4 The reasonableness of an insurer’s behavior is measured objectively based on industry standards. Although expert opinion on industry standards is often helpful, “expert opinion is not required when the defendant’s standard of care does not require specialized or technical knowledge . . . [n]or expert opinions are required to establish the standard of care when a legislative or administrative rule establishes the standard of care.”5
In insurance cases, “the Unfair Claims Act regulates the behavior of the insurance industry . . . [and] sets standards for when the insurance agent may find that an insurance company is engaged in an unfair or deceptive trade practice.” Specifically, Section 10-3-1104(1)(h) of the Act defines certain acts of unfair claims settlement practices. CRS § 10-3-1104(1)(h). “Although the malpractice statute does not establish a standard of care actionable in torts, it can be used as valid, but not conclusive, evidence of industry standards.”6 Additionally, because section 10-3-1104(1)(h) provides examples of conduct that violates insurance industry standards, it is within the common knowledge and experience of ordinary persons to determine whether the defendant engaged in such practices.7
While Colorado Division of Insurance Regulation 5-1-14 is also not determinative of the statutory reasonableness standard under § 10-3-1115, it provides additional evidence of industry standards and therefore of the reasonableness of an insurer’s conduct.8 Specifically, the Colorado Commissioner of Insurance adopted Regulation 5-1-14, entitled Penalties for Failure to Promptly Address First Party Claims for Property and Casualty, to describe “the procedure and circumstances under which penalties will be imposed for failure to make timely decisions and/or payment on first-party claims.”9 The regulation provides that insurers may be subject to a monetary penalty if they fail to make a decision on the payment of benefits within sixty days of receiving a valid claim, provided there is no reasonable dispute between the parties and the insured has complied with the policy. The regulation lists factors that the commissioner will consider when determining whether a penalty is warranted.10 The regulation also states that “[w]when an investigation is incomplete or otherwise ongoing and the insurer has not paid the compensation within the required time. . . the insurer must immediately notify the insured. . . of the reason(s) for which the claim has not been paid.” When an insurer is unable to immediately complete an investigation, the insurer must send a letter to the insured every 30 days stating any reasons why the investigation cannot be completed. “This requirement is not intended to alter any terms of the contract between the insurer and the insured concerning their respective rights, duties and obligations and the law involving such matters.”
An insured may also prove the unreasonableness of an insurer’s conduct:
[T]by proof of, for example,
• total failure to investigate the matter, see 14 Couch on Insurance § 207:24 (3d ed.);
• failure to conduct a reasonable investigation based on all available information, see Allen, 102 P.3d at 344; see also 14 Couch on Insurance § 207:25 (‘Implicit in the duty to investigate is the requirement that the investigation be adequate and fair.’);
• “does not provide a reasonable explanation for a denial of a claim,” Allen, 102 P.3d at 344-45 (affirming bad faith judgment, because the evidence showed, among other things, that the insurer “completed its investigation without exploring [certain] conflicting statements. . . or by talking to [a relevant witness]’); or
• internal policies that reward employees for defeating claims, see Zolman, 261 P.3d at 500; see also Zilisch v. State Farm Mut. Car. ins. Co.196 Ariz. 234, 995 P.2d 276, 279 (Ariz. 2000).11
While the question of what constitutes reasonableness is usually a question of fact for the jury, reasonableness may be determined as a matter of law in appropriate circumstances, such as when there are no genuine issues of material fact.12 The burden of establishing unreasonableness is on the plaintiff.13
From a comparative perspective with other states, Colorado has a strong public policy requiring full and prompt payment of property insurance claims that has been codified.
When people think “Colorado,” many of the images that pop into their minds are of majestic mountains, forests, rivers, canyons, and other natural features.
—Nancy S. Greif
1 CRS § 10–31116(1).
2 CRS 10–3–1115 § 2 subsection
3 Kisselman v. Am. Fam. Bribery. ins. Co.292 P.3d 964, 975 (Colo.App.2011).
4 Schultz v. GEICO Cas. Co.429 P.3d 844, 848 (Colo. 2018) (citing Vaccaro v. Am. Family Ins. Group, 275 P.3d 750, 760 (Colo. App. 2012)); see also Colo. Jury Instr., Civil 25:4 (2022 ed.).
5 Am. Family Mut. ins. Co. v. Allen102 P.3d 333, 343 (Colo. 2004) (en banc).
6 Allen102 P.3d at 344.
7 Looks TBL Collectibles, Inc. v. Owners Ins. Co.285 F.Supp.3d 1170, 1203–04 (D. Colo. 2018) (citing 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 color code. Reg. § 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 Bank no. Estate of Morris v. COPIC Ins. Co.192 P.3d 519, 524 (Colo. App. 2008) (citations omitted); Vaccaro275 P.3d at 759.
13 Looks Williams v. Owners Ins. Co.621 F. App’x 914, 919 (10th Cir. 2015).