What are insurance bad faith laws in Colorado?

What are your rights when your car or home insurance company unfairly denies or delays paying a valid claim? In car-accident cases, this problem occurs most frequently when the at-fault driver lacks sufficient insurance, and the insurance company denies or delays uninsured/underinsured motorist benefits. In homeowner cases, this problem can occur when the owner’s home suffers storm or water damage that the insurance company refuses to fully cover. Luckily, Colorado law provides insured car owners and homeowners with extensive protection from insurance-company bad faith. There are three different claims available to remedy insurance-company misconduct: breach of contract, common-law bad faith and statutory bad faith.

The Breach Of Contract Claim

An insured party can always bring a claim against his or her insurance company for breach of the insurance contract. In this claim, the insured party would assert that he or she has satisfied all of the terms of the insurance contract (e.g., payment of premiums, providing documentation of loss, cooperating with the insurance company investigation) and that the insurance company has breached the insurance contract by failing to pay the valid claim. Under a claim for breach of contract, the insured party can recover the value of the insurance proceeds that have been denied by the insurance company.

The Common-Law Claim

An insured party can also bring a claim for common-law bad faith by an insurance company. Under this claim, the insured party would allege that the insurance company acted unreasonably, and that it did so with knowledge of or reckless disregard for the fact that no reasonable basis existed for its action. If these elements are proven, the insured party can recover not only the value of the unpaid insurance proceeds, but also the value of the emotional distress caused by the insurance company’s bad faith conduct. In addition, if the misconduct of the insurance company was willful and wanton, the insured party can potentially recover punitive damages in an amount equal to the value of the actual damages.

The Statutory Claim

An insured car owner or homeowner can also bring a statutory bad faith claim under the Colorado Revised Statutes (“C.R.S.”). C.R.S. §10-3-1116(1) provides that an insured party “whose claim for payment of benefits has been unreasonably delayed or denied may bring an action in a district court to recover reasonable attorney fees and court costs and two times the covered benefit.” Under this statute, an insured party has an opportunity to recover a total of three times the value of the unpaid insurance proceeds, plus attorney fees. This statute provides powerful protection to insured car owners and homeowners who are treated unfairly by their own insurance company.

Each of the three claims discussed above – breach of contract, common-law bad faith and statutory bad faith – has its own advantages and rewards. A car owner or homeowner who has been the victim of insurance-company bad faith should consider bringing all three claims together, so as to recover the largest possible damage award.