Colorado passed very pro-consumer legislation stopping insurance companies from overusing the cooperation clause in property insurance policies.1 Denver based Merlin Law Group attorney Jon Bukowski explained that some insurance defense counsel have aggressively used the cooperation clause in property insurance policies as a sword in an attempt to obtain a forfeiture of insurance policy benefits.

Carriers in Colorado are becoming increasingly aggressive in fraud, misrepresentation, and failure to cooperate defenses. We are especially seeing onerous demands in theft and fire claims, and occasionally in hail/wind claims. I can give you numerous other examples of unreasonable 30-40 line document requests for materials completely irrelevant to the adjustment of a simple hail claim. They are taking unnecessary 8-hour EUO’s. They are being instructed to use these document requests and EUO to set a failure to cooperate defense.

This at least restricts their ability to set a trap on an unsuspecting policyholder who is trying their best to cooperate. This now makes the carrier demonstrate that the onerous request for information is reasonably needed to adjust the claim or prevent fraud. It also requires the carrier to point out why they believe it is necessary, and then allows the insured 60 days to cure the alleged failure to cooperate.

I personally think this is great….

The Colorado General Assembly provided a summary of the new law and what it will accomplish:

The act bars an insurer from using a failure-to-cooperate defense in an action regarding the insurer’s request for information from the insured about a claim unless:

• The insurer has submitted a written request to the insured for the information;
• The information necessary for litigation is not available to the insurer without the assistance of the insured;
• The request provides the insured 60 days to respond;
• The written request is for information a reasonable person would determine the insurer needs to adjust the claim filed by the insured or to prevent fraud; and
• The insurer gives the insured an opportunity to cure within 60 days and provides notice to the insured within 60 days, describing, with particularity, the alleged failure to cooperate.

A failure-to-cooperate defense acts as a defense to the portion of the claim that is materially and substantially prejudiced to the extent the insurer could not evaluate or pay that portion of the claim. Any language in an insurance contract that conflicts with the act is void. If an insurer is giving the insured the time to respond or cure under the act, the insurer is not liable for failing to pay the claim while providing the time.

How many times does an insurance company get to ask for more information and more time to investigate a property insurance claim? After weeks and sometimes months, claims adjusters send “experts” for further investigation and they often ask for even more information which could have been sought right after the catastrophe happened. Nearly a decade ago on this blog, I noted:2

Some insurance companies treat their customers horribly, with slow and delayed investigation, because the companies lack a sufficient number of motivated adjusters and investigators who determine losses in good faith. Requests for tens of thousands of documents are made, along with multiple examinations. The attorneys for some of these companies wrongly take months to review documents and make follow up requests for information. It is disgusting treatment if one were to use the “golden rule” as a gauge for fairness.

Laws like the one just enacted in Colorado, do not happen by accident. Colorado policyholders were being harmed and their political leaders stood up to stop the wrongful practice with consumer protection laws. Political leaders in other states should do the same thing so policy benefits are not being lost by technical forfeitures.

Today on Tuesday at 2 With Chip Merlin, I will be discussing this new law, the topic of forfeiture of policy benefits, and why consumer organizations, trade organizations, and public interest groups should organize to better help policyholders obtain insurance that works for them. I will also have a more in-depth follow-up on yesterday’s related post, Forfeiture of Insurance Contract Benefits Is Not Favored in The Law.

I look forward to your comments and questions on this topic. Here is a link for today’s session where you can hear the answers.

Thought For The Day

I would love to rent a little cottage or cabin in Colorado and learn to ski or snowboard. And on the warmer side, I also want to rent a house in Hawaii and learn to surf!
—Karlie Kloss

A Colorado Song For The Day

1 Colorado HB 20-1290.
2 Ask for Appraisal–Get a Lawsuit and Appeal, Property Insurance Coverage Law Blog, Dec. 30, 2010.