Insurance companies have a general duty to an insured to investigate and resolve insurance claims promptly. In August 2008, the Colorado legislature passed a law that prohibits insurance companies from unreasonably delaying or denying payment of benefits owed under an insurance policy. See C.R.S. § 10-3-1115. In simple terms, the law prevents insurance companies from delaying or denying legitimate insurance claims by dragging their feet, arguing legal technicalities, or making unreasonable excuses to avoid paying on a claim.
The insurance bad faith statute, as it is commonly known, provides significant remedies to an insured who is successful in showing that an insurance company unreasonably denied or delayed a claim. See C.R.S. § 10-3-1116. The potential damages include attorney fees, court costs, and twice the covered benefit of the claim. Id. Because of these rules, there are serious ramifications for an insurance company that chooses to act unreasonably with respect to a claim.
On the other hand, insureds who are harmed by an insurance company’s delay or denial of a claim must act quickly. There are various statutes of limitation that extinguish an insured’s claim if the claim is not brought within a certain amount of time following the unreasonable denial or delay. With respect to a claim under the insurance bad faith statute, the general statute of limitations would be two years from the date that the insured knew or should have learned of the insurance company’s unreasonable denial or delay of the claim. See C.R.S. § 13-80-102.
However, insurance companies have long argued that because the bad faith statute is designed to punish insurance companies for acting unreasonably, the one-year statute of limitations for penalties must apply. See C.R.S. § 13-80-103(1)(d). This would halve the amount of time an insured has to investigate the delay, retain legal counsel, and timely file the claim.
Fortunately, the Colorado Supreme Court recently rejected the insurance companies’ argument in Rooftop Restoration, Inc. v. Am. Family Mut. Ins. Co., 2018 CO 44, 2018 WL 2407591 (Colo. 2018). In reaching its conclusion, the court focused on whether the insurance bad faith statute can really be considered “an action for any penalty or forfeiture of any penal statutes.” C.R.S. § 13-80-103(1)(d). The court concluded that “the legislature considered a defining feature of a cause of action for penalties to be a determination of either overpayment or delinquency and that defining feature is conspicuously absent from a cause of action under section 10-3-1116(1), where an insured must only file a complaint alleging that an insurer delayed or denied the payment of insurance benefits without a reasonable basis.” Rooftop Restoration, Inc., 2018 COA 44, ¶ 15. Under this new case, the statute of limitations is accordingly not governed by the one-year statute of limitations for penalties.
The Colorado Supreme Court’s decision is useful to practitioners who can now reasonably assume that the statute of limitations for insurance bad faith claim is two years from the date that the insured knew or should have learned of the insurance company’s unreasonable denial or delay of the claim. Practitioners should still be aware that other statutes of limitations may apply such as the statute of limitations for breach of contract and there may be requirements contained in the insurance policy that prescribe the amount of time an insured has to file a claim.
Duncan Griffiths focuses his practice on difficult and complex civil litigation and family law matters. In having resolved over sixty large cases ranging in value from $50,000 to as much as $13.5 million, Duncan has overall recovered in excess of $50 million in damages for his clients after attorney fees and litigation costs were paid.