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Basics of Bad Faith Insurance Claims

Colorado insurance companies owe a duty to their policyholders to act in good faith and to settle insurance claims fairly. If the insurance company fails to do so and their actions are unreasonable, they may be liable for acting in “bad faith.” Generally, insurance companies are required to do the following things during the claims-adjusting process:

  1. Promptly investigate the insurance claim;
  2. Promptly settle claims once it becomes clear that a benefit is owed;
  3. Communicate with the insured;
  4. Explain the terms of the policy;
  5. Affirm or deny coverage of claims within a reasonable time after the loss has been submitted; and,
  6. Numerous other duties.

Although insurance companies have a number of stringent duties they must follow in handling claims, it is fair to say that most people know bad faith when they see it. Actions like (1) denying coverage without any investigation, (2) offering ridiculously low offers to settle insurance claims, and (3) generally being unresponsive to the insured are all examples of conduct most people would consider unacceptable.

Under Colorado bad faith law, if an insurance carrier does indeed act unreasonably, the insured may be entitled to three times the amount of damages and attorney fees and costs. The statute that allows such damages is C.R.S. § 10-3-1116(1) and states:

A first-party claimant as defined in section 10-3-1115 whose claim for payment of benefits has been unreasonably delayed or denied may bring an action in a district court to recover reasonable attorney fees and court costs and two times the covered benefit.

Although the statute says “two times the covered benefit” the third multiple comes from the fact that the insured is also entitled to damages for breach of the insurance contract to begin with. High-dollar insurance claims are the ones most likely to be disputed. Those claims are often claims brought by commercial property owners, community associations, and other owners of valuable real estate where the losses sustained are enormous.

Griffiths Law represents policyholders in bad faith insurance claims related to all kinds of perils including hail, wind, and fire insurance claims as well as insurance claims arising from water leaks and other common hazards. Griffiths Law also represents policyholders in “unique” insurance claims related to less common issues such as theft and personal liability.