In the following article, we explain to you what duties an insurance carrier owes to its insureds, possible claims an insured has against the carrier for failing to act in accordance with those duties, and what an insured can recover for this failure.
Duties an Insurance Carrier Owes to Its Policyholders
At the most basic level, insurance companies owe a duty to their insureds to act in good faith and settle insurance claims fairly and reasonably. If an insurance company fails to uphold this duty and acts unreasonably in handling a claim, the company may be liable for acting in bad faith.
While handling a claim, an insurance company must do several things, including:
- Promptly investigate the insured’s claim;
- Communicate with the insured, including explaining the terms of the policy, if needed;
- Promptly settle the claim if it is clear a benefit is owed to the insured under the policy; and
- Affirm or deny coverage of the insured’s claim within a reasonable amount of time after the insured’s loss was submitted.
Clear signs that an insurer has failed to meet its duty to a policyholder include denying coverage without any investigation, offering a ludicrously low settlement amount, and being unresponsive to the insured.
Claims a Policyholder Has Against Its Insurer
In filing a civil lawsuit against an insurer, the insured typically has three claims, or “causes of action,” that can be brought, including breach of contract, statutory bad faith, and common law bad faith. These causes of action arise from the insurance policy and the following bad faith insurance laws in Colorado.
Common law bad faith
The standard for common law bad faith requires the insured to “establish that the insurer acted unreasonably and with knowledge of or reckless disregard for the fact that no reasonable basis existed for denying the claim.” Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1274 (Colo. 1985).
Statutory bad faith
Section 10-3-1115 of the Colorado Revised Statutes provides, in part, “A person engaged in the business of insurance shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of ay first-party claimant,” and, “an 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.”
Thus, the difference between the proofs required for each of these bad faith claims is that, “whereas a common law claim requires proof that the insurer acted unreasonably and that it knew or recklessly disregarded the fact that its conduct was unreasonable, the only element at issue in the statutory claim is whether an insurer denied benefits without a reasonable basis.” Schultz v. GEICO Cas. Co., 429 P.3d 844, 848 (Colo. 2018) (citations and quotations omitted).
Additionally, in litigating the civil claim, insurance companies are limited to the information they had at the time they chose to delay or deny an insured’s claim.
What a Policyholder Can Recover for an Insurer’s Bad Faith Breach
Under Section 10-3-1116(1) of the Colorado Revised Statutes, an insured whose claim for benefits has been unreasonably delayed or denied may recover reasonable attorney’s fees and court costs and two times the covered benefit from an insurance company responsible for the unreasonable delay or denial of the claim. See also Schultz, 429 P.3d at 847–48.
A third multiple of damages can be awarded to an insurer for damages under the breach of the insurance contract claim. Accordingly, if an insurance company is found to have acted unreasonably, the policyholder may be entitled to three times the amount of damages, plus attorney’s fees and costs. See Am. Family Mut. Ins. Co. v. Barriga, 418 P.3d 1181 (Colo. 2018).
Contact Us Today
At Jorgensen, Brownell & Pepin, P.C., our bad faith insurance attorneys are happy to help you evaluate any possibly claims you may have against your insurance provider. Our attorneys are well-versed and can help you bring a claim against your insurance provider for breaching the policy and may possibly be able to obtain more for you if bad faith can be shown.