An Overview of Insurance “Bad Faith”

Insurance companies should give equal consideration to the insured's financial interests when handling a claim. They cannot give greater weight to their own financial interests.

Insurers as corporations must follow Colorado laws. The insurance policy allows the insurance company to control the absolute defense and payment of the claim. When an insured is careless and harms someone else, the injured person has to deal with the insurance company, not the party who hurt them.

If the insurance company "lowballs" the injured party, the insurer is allowed to conceal this practice from the judge and jury. That's because Colorado courts and lawmakers do not allow juries to know that it's the insurance company that controls the defense and settlement process.

Other states, such as Wisconsin, do not keep this a secret from juries. As a result of the successful efforts by the insurance industry, Colorado maintains the fiction that the careless driver, not his or her insurance company, directs the defense and pays any claim.

When people realize they are being subjected to unreasonable claim practices they may need help. We're here to provide that help so injured people can obtain a fair financial recovery for their losses.

If you have a question about the way in which your claim is being handled, please call or email us today. The Kaudy Law Firm is here to help.

Colorado Law Regarding Unfair Claim Settlement Practices

Colorado Revised Statute 10-3-1104 (1)(h): The Unfair Claim and Settlement Practices Act.

Here are some unfair claim settlement practices:

Committing or performing, either in willful violation of this part 11 or with such frequency as to indicate a tendency to engage in a general business practice, any of the following:

  • Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue; or

  • (II) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies; or

  • (III) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies; or

  • (IV) Refusing to pay claims without conducting a reasonable investigation based upon all available information; or

  • (V) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed; or

  • (VI) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear; or

  • (VII) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds; or

  • (VIII) Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application; or

  • (IX) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured; or

  • (X) Making claims payments to insureds or beneficiaries not accompanied by statement setting forth the coverage under which the payments are being made; or

  • (XI) Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration; or

  • (XII) Delaying the investigation or payment of claims by requiring an insured or claimant, or the physician of either of them, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information; or

  • (XIII) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage; or

  • (XIV) Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement; or

  • (XV) Raising as a defense or partial offset in the adjustment of a third-party claim the defense of comparative negligence as set forth in section 13-21-111, C.R.S., without conducting a reasonable investigation and developing substantial evidence in support thereof. At such time as the issue is raised under this subparagraph (XV), the insurer shall furnish to the commissioner a written statement setting forth reasons as to why a defense under the comparative negligence doctrine is valid; or

  • (XVI) Excluding medical benefits under health care coverage subject to article 16 of this title to any covered individual based solely on that individual's casual or nonprofessional participation in the following activities: Motorcycling; snowmobiling; off-highway vehicle riding; skiing; or snowboarding; or

  • (XVII) Failing to adopt and implement reasonable standards for the prompt resolution of medical payment claims.

    How Insurance Companies Should Handle Claims

    Here are some other suggestions for how insurers should handle claims. A version of this appeared in the Colorado Claims Association Fall Quarter 2004 newsletter.

    1. An insurer should investigate an insured's claim for benefits. Source: C.R.S. Section 10-3-1104(1)(h)(IV), Novell v. American Guaranty & Liability Ins. Co., 15 P.3d 775 (Colo. App. 1999).

    2. An insurer should give equal consideration to the interests of the insured as it does to its own interests with neither interest being superior. Bailey v. Allstate Insurance Co., 844 P.2d 1336 (Colo. App. 1992), Egan v. Mutual of Omaha Insurance Company, 598 P.2d 452 (Cal. 1979), cited with approval in Farmers Insurance Group, Inc. v. Trimble, 805 P.2d 419 (Colo. 1993).

    3. An insurer should not deny a claim based on surmise, speculation or conjecture. Rawlings v. Apodaca, 726 P.2d 565, 572 (Ariz. 1986).

    4. Insureds can recover damages for emotional distress alone for unreasonable delays by their insurers in providing benefits under a policy even if the insurer ultimately pays all benefits owed under the policy. Goodson v. American Standard Ins. Co., 89 P.3rd 409 (Colo. 2004), Burgess v. Mid-Century Ins. Co., 841 P.2d 325 (Colo. App. 1992).

    5. An insurer's decision to deny a claim should be based on file information contained at the time of denial. Pfeiffer v. State Farm Mutual Auto Insurance Company, 940 P.2d 967 (Colo. App. 1996, aff'd on other grounds, 955 P.2d 1008 (Colo. 1998).

    6. An insurer should exercise a quasi-fiduciary duty to its insured in the context of the insured making a claim for uninsured or underinsured motorist benefits. Brekke v. State Farm Mutual Automobile Ins. Co., 105 P.3rd 177 (Colo. 2004), Peterman v. State Farm Mutual Auto Insurance Co., 961 P.2d 487 (Colo. 1998). Handling uninsured or underinsured motorist claims should not be adversarial.

    7. An insurer should not deny a claim without substantial justification. Giampapa v. American Family Mutual Auto Insurance Company, 64 P.3d 230 (Colo. 2003).

    8. A willful and wanton breach is a refusal to pay insurance benefits when due. This is established when an insurer acts without justification and in disregard of the plaintiff's rights. Pham v. State Farm Mutual Auto Ins. Co., 70 P.3d 567, 572 (Colo. App. 2003). An insurer is responsible for non-economic damages caused by its willful and wanton denial of an insured's claim for first-party benefits. Giampapa v. American Family Mutual Auto Insurance Company, supra.

    9. An insurer must keep an insured reasonably apprised of the status of the insured's claim for benefits. C.R.S. Section 10-3-1104(1)(h)(II)(V)(VI)XIV).

    10. An insurer should not investigate, evaluate or deny a claim based on biased, one-sided information.Rawlings v. Apodaca, supra, Mariscal v. Old Republic Life Insurance Co., 50 Cal. Rptr. 224, 227, (Cal. App. 1996).

    11. An insurer must be honest with its insured and third-party claimants. Weigel v. Hardesty, 37 Colo. App. 541, 549 P.2d 1335 (1976)

    12. An {insurer's} attorney may be liable to the insured if the attorney engages in fraudulent or malicious conduct toward the insured. Weigel v. Hardesty, supra.

    13. An insurer should provide its insured with factual reasons for why the insurer is denying or delaying payment of an insured's claim for benefits. C.R.S. Section 10-3-1104(1)(h)(XIV).

    14. Insurers should not try to "low ball" insureds for unreasonably low amounts. Zilisch v. State Farm Mutual Auto Insurance Co. 995 P.2d 276 (Ariz. 2000)

    15. An insurer should tender to its insured the amount of benefits to which the insurer agrees the insured should be paid for which the insurer does not dispute. Borland v. Safeco Insurance Co., 147 Ariz. 195, 709 P.2d 552 (1985).

    16. An insurer should compensate an insured for financial losses, including interest on the benefits, caused to the insured by the insurer's unreasonable delay in investigating and evaluating an insured's claim. Bowen v. Farmers Insurance Exchange, 929 P.2d 14 (Colo. App. 1996).

    17. An insurer should not take advantage of the insured's vulnerable condition after experiencing a covered loss. Zilisch v. State Farm Mutual Auto Ins. Co., supra.

    Insurers deviating from these industry standards may harm their policyholders and insureds. They may become responsible for paying for the covered loss in addition to the human losses they cause through improper claims handling.

    In addition, you may be able to recover "punitive damages" against the insurance company if the company willfully and wantonly denied your claim.

    A willful and wanton denial is a refusal to pay insurance benefits when due. This is established when an insurance company acts without justification. When this occurs, the insurance company is responsible for non-economic damages, like mental anguish, emotional grief and inconvenience, caused by its willful and wanton denial of a claim.

    If you believe you have been victimized by insurer misconduct and are looking for answers, we offer help. Call or email us today if you have questions about the way your claim is being handled.