As discussed in my prior posts on August 10, 2011 and February 16, 2012, Colorado law on calculation of C.R.S. § 10-3-1116 statutory penalties is slowly developing.

The Prompt Payment statutes, CRS §§ 10-3-1115 and 10-3-1116 (the “Statutes”), provide remedies to certain first-party insurance claimants, including recovery of two times the covered benefit, attorney fees, and court costs.

C.R.S. § 10-3-1116 states:

The action authorized in this section is in addition to, and does not limit or affect, other actions available by statute or common law, now or in the future. Damages awarded pursuant to this section shall not be recoverable in any other action or claim.

The statute allows a successful plaintiff to recover damages for breach of contract, plus damages resulting from bad faith, punitive damages, and damages pursuant to the Statutes.

Cases addressing calculation of penalties under the Statutes now emerging

In Vacarro,1 District Court Judge Margie Enquist issued an order assessing damages and penalties under the Statutes as follows:

The jury awarded the plaintiff $75,000 on his breach of contract claim and $75,000 on his statutory claim. Pursuant to C.R.S. 10-3-1116, Judge Enquist doubled the statutory award to $150,000.

    $ 75,000
+ $150,000
   $225,000

The trial court also awarded the policyholder $40,539.07 in prejudgment interest, $14,906.59 in costs, and $52,830.45 in attorney fees.2

Vacarro was appealed on other issues. The Colorado Court of Appeals recently issued its opinion3 affirming the district court on all issues raised except the assessment of prejudgment interest. Although the Court of Appeals overturned the award of prejudgment interest, it remains a significant verdict. The insurer ultimately paid $292,737.00 on a claim that could have been limited to the $75,000 policy limits, had the insurer paid the claim timely.

Insurers argue the calculation in Vacarro is actually “three times” the insurance benefit, or treble damages

Not surprisingly, insurers want courts to read C.R.S. 10-3-1116 differently, hoping to gut the financial penalty provided for in the Statutes. In nearly every case where a verdict is rendered related to the Statutes, insurers and defense counsel now argue that the courts miscalculated the penalty, assessing improper “treble” damages.

Thus far, courts are not buying the insurers’ argument. Recently, U.S. District Court Judge Lewis Babcock issued a thorough and well-reasoned opinion arriving at the same conclusion as Judge Enquist in Vacarro.

To begin, [insurer] distorts [policyholder’s] section 1116 claim. The claim is not seeking "three times” the covered benefits that [insurer] allegedly unreasonably delayed or denied; it seeks two times the covered benefit-exactly what the statute provides. Nor is the claim seeking to recover the covered benefits themselves and two-times that amount; rather, it seeks only two times the amount of those benefits as a penalty for [insurer’s] allegedly unreasonable delay and denial. See Kisselman, 2011 WL 6091708, at *9 ("What [section 1116] does is increase the penalties on companies that unreasonably delay or deny payment . . .) (quoting Speaker Romanoff, Hearings on H.B. 1407 before the H. Comm. on Business Affairs & Labor, 66th Gen. Assem., 2d Sess. (Apr. 24, 2008)).

It is true that under [policyholder]’s interpretation, were he successful on his claims, his total receipt could be approximately three times the benefits at issue in his section 1116 claim, but that receipt would derive from multiple sources: one-third of it from the sum of the prior payments from [insurer] and breach of contract damages, and two-thirds from the section 1116 claim. This is different from receiving three times the covered benefit directly and entirely from the section 1116 claim.

.  .  .
[T]he damages [policyholder] seeks in the section 1116 claim are consonant with the statute. He seeks two times those covered benefits that he claims [insurer] unreasonably delayed or denied. Hence, language need not be read in to arrive at [policyholder]’s position. To the contrary, [insurer]’s interpretation requires me to read in language. [Insurer] argues that section 1116 effectively prohibits [policyholder] from recovering two times those benefits when it has already paid them. But nowhere does the section state that "two times the covered benefit" shall include or account for those benefits already paid or sought in another claim. Nor does it state that an insured-plaintiffs total recovery is capped at two times the amount of covered benefits or that the court must subtract from the section 1116 verdict any benefits already paid or awarded elsewhere. Section 1116 prescribes what a plaintiff may recover under a claim brought thereunder, not what a plaintiff may be left with after aggregating a section 1116 award, other claims, and prior payments. I thus read section 1116(1) as allowing [policyholder] to recover two times those benefits that he claims were unreasonably delayed or denied while also receiving those benefits themselves from prior payments or other claim awards.4

The same issue is currently pending at the Colorado Court of Appeals, in American Family Insurance Company v. Hansen.5 Assuming the Court of Appeals agrees with the majority of district court state and federal judges, policyholders will no longer have to spend additional time and money on motions and appeals before they can receive insurance proceeds and penalties due.


1 Vacarro v. American Family, No. 09CV5006 (Jefferson Co. Dist. Court).
2 West’s Jury Verdicts – Colorado Reports.
3 Vaccaro v. American Family, 275 P.3d 750, 2012 WL 150068, at *2-3 (Colo. App. 2012).
4 Rabin v. Fidelity National Ins. Co., — F.Supp.2d —-, 2012 WL 1884507 (D. Colo. May 23, 2012) pp.5-7 (Emphasis added).
5 American Family Ins. Co. v. Hansen, Docket No. 11CA1430 (Colo. App.).

  • William S Cook

    What would a properly worded, ten percent fee, public adjuster contract allow the public adjuster to be paid in the above award? IE, would the PA particpate in the extra contractual money and if so how much?

  • Sam Hagreen

    Do you know if Colorado is the only state with such a statute (particularly with regard to the recovery of two times the covered benefit, attorney fees, and court costs.)?