My August 10, 2011 post, How Will Colorado Courts Calculate Damages and Penalties Under Colorado’s Prompt Payment Statutes? discussed the relatively new statutes in Colorado which provide penalties against insurers including two times the covered insurance benefit, attorney’s fees, and costs to first party policyholders whose insurance benefits were unreasonably delayed or denied. The post specifically discussed the Vaccaro v. American Family Insurance Group district court opinion because it is one of the few cases where a court calculated damages and penalties under C.R.S. 10-3-1115 and 10-3-1116 (“the Statutes”).


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One of my favorite Winston Churchill quotes is, “If you are going through hell, keep going.” This continuing review of recent Colorado insurance coverage law is another reminder to policyholders, public adjusters, and plaintiff’s insurance coverage lawyers of the light at the end of the tunnel. (Also, the Broncos’ two losses forced me to change my blog post focus from NFL adrenaline last week, to holiday gifts this week.)

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In Cherry v. Audubon Insurance Company, the Court awarded bad faith penalties against the carrier because it failed to timely pay a covered claim. In that case, Ms. Reilly was insured with Audubon Insurance Company when part of her home caught fire on May 4, 2002. Within a few days of the loss, Ms. Reilly submitted a proof of loss to Audubon that included part of her contents claim. Ms. Reilly then hired Carr & Associates to prepared a dwelling estimate of $149,589.50 and a $196,229.14 contents estimate. Both estimates were provided to Audubon on October 10, 2002. When Audubon finally paid the $40,000 policy limit on contents, almost five (5) months had passed since Ms. Reilly had submitted her proof of loss.

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An insurer’s duty of good faith and fair dealing to its insured continues even after litigation is filed against the insurer. Colorado recognizes that an insurer’s litigation tactics may be considered by the jury in determining unreasonableness and punitive damages. See Tait ex rel. Tait v. Hartford Underwriters Ins. Co., 49 P.3d 337 (2001) (trial court increased punitive damages because during litigation the insurer committed discovery violations and delegated to counsel many of its continuing obligations to the insured despite insurer’s ongoing duty to insured pursuant to Southerland v. Argonaut Insurance Co., 794 P.2d 1102 (Colo. App. 1990); Dale v. Guaranty National Insurance Co., 948 P.2d 545 (Colo. 1997) (an insurer’s conduct even after an arbitration proceeding is relevant to a claim of bad faith breach of an insurance contract); and Coors v. Security Life of Denver Ins. Co., 112 P.3d 59 (2005) (Supreme Court upheld punitive damages award because insurer’s bad faith conduct continued after the lawsuit was filed).


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Before August 2008, property policyholders in Colorado who were wrongfully denied insurance benefits largely relied on lawsuits alleging claims for breach of contract, breach of the covenant of good faith and fair dealing (the common law tort of bad faith), and requests for exemplary damages as a means of redress against their insurance companies. In August 2008, Colorado House Bill 08-1407 became effective. The Prompt Payment statutes are codified at CRS §§ 10-3-1115 and –1116 and provide remedies to certain first-party insurance claimants, including recovery of two times the covered benefit, attorney fees, and court costs.


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In Colorado, actions for common law bad faith require the insured to prove unreasonable denial or delay in payment of a claim and that the insurer knew or recklessly disregarded the unreasonableness of its actions. Colorado’s 2008 prompt payment statute, C.R.S. § 10-3-1115, carves out a standard different from common law bad faith, based only on reasonableness:

[A]n insurer’s delay or denial was unreasonable if the insurer delayed or denied authorizing payment of a covered benefit without a reasonable basis for that action.


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