On December 19, 2013, the Colorado Court of Appeals issued its opinion in the case Hansen v. American Family Insurance Company.1 In this case, American Family Mutual Insurance Company appealed the unreasonable delay or denial of a covered benefit judgment award of damages to one of its policyholders, Jennifer Hansen. In this case, Ms. Hansen settled her breach of contract claim against American Family Mutual Insurance Company for the full amount of the benefits owed ($75,000.00) six weeks prior to the trial. At the trial, the jury found that as to Ms. Hansen’s common law claim (bad faith), the jury found that the insurance company did not “unreasonably deny payment of [the claimant’s] insurance claim,” or “know its denial of such claim was unreasonable,” or “recklessly disregard the fact that its position was unreasonable”; and, although the claimant had incurred damages, the insurance company’s denial of the claim was not a cause of those damages.
As to Ms. Hansen’s statutory claims (C.R.S. 10-3-1115 and 10-3-1116), the jury found:
- Ms. Hansen incurred damages;
- The insurance company denied and/or delayed payment without a reasonable basis for its action; and
- The insurance company’s unreasonable conduct was a cause of the claimant’s damages and losses.
In addition, the jury found the UIM benefit for which payment was delayed or denied without reasonable basis was $0. The trial court entered judgment on the jury’s verdict in favor of Ms. Hansen on her statutory (C.R.S. 10-3-1116) claim, awarded her attorney fees and costs, but did not enter a monetary award. Ms. Hansen filed a motion to amend the judgment and requested that the court award a statutory penalty of two times the covered benefit, or $150,000, under section 10–13–1116(1), in addition to attorney fees and costs. The trial court granted the Ms. Hansen’s motion. In response to Ms. Hansen’s motion, American Family filed a motion to amend the judgment, arguing that the court had incorrectly calculated the statutory penalty. The trial court conducted a hearing on the insurance company’s motion, denied it, and issued a final judgment in favor of the claimant for $199,683.28 in attorney fees and costs, and a $150,000 penalty under section 10–3–1116.
American Family appealed the trial court’s ruling stating that there could not have been an un reasonable delay of denial as the policy of insurance was ambiguous that due to the fact that Ms. Hansen’s claim for coverage was fairly debatable. The court of appeals found that although the coverage may be fairly debatable, the insurer must still exercise reasonable care and good faith in defending a claim. The fact that American Family characterized Ms. Hansen’s claim for contractual benefits was “fairly debatable” was not enough to establish that American Family’s actions were reasonable as a matter of law.
American Family also appealed the trial court’s awarding of two times the covered benefit ($75,000.00) as the jury found that the amount of damages for the payment that was unreasonably delayed or denied was $0.00. The Court of Appeals looked to the plain meaning of Colorado Revised Statute Sections 10-3-1115 and 10-3-1116 and noted that in Colorado Revised Statute 10-3-1115, a first party claimant whose claim for 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.
The appeal court affirmed the final judgment, as 10-3-1116 does not state double the amount of damages (in this case, $0.00) as penalty, but the amount of the covered benefit (in this case, $75,000.00).
This case is a great step for policyholders as insurance companies may not unreasonably delay or deny payment of benefits even though the insurance company may believe the claim value is fairly debatable, and clarifies the penalty as double the amount of benefits owed and which payment was delayed.