“Fairly debatable” bad faith claims

The term “fairly debatable” is frequently discussed in the context of bad faith claims in Colorado. In Sanderson,1 the district court and appellate court had different ideas as to the meaning of the phrase. They looked to the Arizona Supreme Court’s statement2 that “[w]hile it is clear that an insurer may defend a fairly debatable claim, all that means is that it may not defend one that is not fairly debatable. But in defending a fairly debatable claim, an insurer must exercise reasonable care and good faith.”

This term is also discussed in the context of statutory claims, such as one brought pursuant to C.R.S. §10-3-1116. In the Vaccaro case,3 the insurance company made a nominal offer. Once more information was gleaned about the insured’s damages, the insurance company did not reconsider its offer so suit was filed. The jury found for the insured and the insurance company filed a motion for judgment notwithstanding the verdict, claiming that the damages sustained by the insured were “fairly debatable.” The court stated:

[W]e note that a legal standard derived from common law bad faith cases does not necessarily govern plaintiff’s claim under the statutes. This is particularly true because the “fairly debatable” defense goes as much to the knowledge or recklessness prong of common law bad faith as it does to unreasonable conduct. See Pham v. State Farm Mut. Auto. Ins. Co., 70 P.3d 567, 575 (Colo.App. 2003) (“If an insurer does not know that its denial of a claim is unreasonable and does not act with reckless disregard of a valid claim, the insurer’s conduct would be based upon a permissible, albeit mistaken, belief that the claim is not compensable.”) By contrast, the only element at issue in the statutory claim is whether an insurer denied benefits without a reasonable basis. Even if plaintiff’s claim for … benefits were “fairly debatable” in the common law context, that would not alone establish that defendant’s action here were reasonable as a matter of law. See Sanderson, 251 P.3d at 1218.

What does “two times the covered benefit” really mean?

Sections 10-3-1115 and 1116 of the Colorado Revised Statutes deal with the unreasonable delay and denial of payment of a covered benefit. The amount of damage can be determined by an appraisal award, an agreement between the insured and insurance company, or by litigation. In the Hansen case,4 the damages were determined by a settlement in mediation during the litigation process. The parties agreed on $75,000. By doing so, they defined the covered benefit and disposed of the claimant’s contract claim.

Following the plain language of §10-3-1115, the claimant was required to prove that payment of an insurance covered benefit was unreasonably delayed or denied. There is no requirement under the statutory claim that the claimant suffer and prove damages attributable to the delay or denial in the payment of the “covered benefit.”5

Section 10–13–1116 “expressly creates a private right of action to obtain certain remedies” for the unreasonable delay or denial of benefits in violation of section 10–3–1115.6

In Hansen, there was no dispute as to the amount of the covered benefit because it was determined in mediation to be $75,000. The insured was successful at trial, thus statutory damages for unreasonable delay/denial were awarded. The court followed the precise language of the statutes and awarded “reasonable attorney fees and court costs and two times the covered benefit.” Two times the covered benefit is $150,000. The court recognized that the insured would receive three times the covered benefit, but the awards came from different claims: $75,000 was for breach of contract and $150,000 was for the statutory claim under §10-3-1116, for a total award of $225,000 plus attorneys fees and costs.

The claimant’s ability to recover these amounts is supported by section 10–3–1116(4), which states that “[t]he 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.7

Colorado is a great state for policyholders because of the above discussed statute. It gives leverage over the insurance company and holds their feet to the fire when they don’t pay. ‘Two times the covered benefit’ is music to an insured’s ears. Along that same line, please click on the link below to enjoy some other applicable music – Love me Two Times, by The Doors.


1 Sanderson v. Am. Fam. Mut. Ins. Co., 251 P.3d 1213 (Colo.App.2010).
2 Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 995 P.2d 276, 279 (2000).
3 Vaccaro v. Am. Fam. Mut. Ins. Grp., 275 P.3d 750, 761 (Colo. App. 2012).
4 Hansen v. Am. Fam. Mut. Ins. Co., 2013 WL6673066 (Colo.App. Dec. 19, 2013).
5 Turner v. State Farm Mut. Auto. Ins. Co., 2010 WL 3239270 (D.Colo. Aug. 12, 2010); see generally Erin Robson Kristofco, CRS §§ 10–3–1115 and –1116: Providing Remedies to First–Party Claimants, 39 Colo. Law. 69, 71 (July 2010).
6 Kisselman v. American Family Mur. Ins. Co., 292 P.3d 964, at 972 (Colo. App. 2011)(“What [section 10–3–1116] does is increase the penalties on companies that unreasonably delay or deny payments by offering consumers in those situations …. a private right of action beyond the remedies in existing law.” (quoting Hearing on H.B. 1407 Before the H. Comm. on Business Affairs & Labor, 66th Gen. Assemb., 2d Sess. (Apr. 24, 2008) (comments of Speaker Romanoff))).
7 See also Rabin v. Fidelity Nat’l Prop. & Cas. Ins. Co., 863 F.Supp.2d 1107, 1112 (D.Colo.2012).