In the last two weeks, the Colorado Supreme Court has issued several important decisions for insurance policyholders—Am. Family Mut. Ins. Co. v. Barriga, No. 15SC934, issued May 29, 2018; Rooftop Restoration, Inc. v. Am. Family Mut. Ins. Co., No. 17SA31, issued May 29, 2018; and State Farm Mut. Auto. Ins. Co. v. Fisher, No. 15SC472, issued May 21, 2018. Through these opinions, the Colorado Supreme Court affirmed the strength of the Colorado Insurance Bad Faith Statue and its protection of policyholder rights.
The Statute of Limitations for Statutory Bad Faith Claims
In Rooftop Restoration, Inc. v. Am. Family Mut. Ins. Co., the Colorado Supreme Court issued a long-awaited opinion addressing whether a one-year statute of limitations applies to claims brought under the Bad Faith Statute. Insureds have historically taken the position that claims under the Bad Faith Statute are subject to a two-year statute of limitations. In contrast, insurers have been pushing the position that claims under the Bad Faith Statute fall within the one-year statute of limitations that only applies to actions for a “penalty.” With trial courts going both ways on the issue, this left a considerable amount of uncertainty for insureds as to how long they had to file a lawsuit against their insurers for wrongful delay or denial of covered insurance benefits. The Colorado Supreme Court put to rest this uncertainty. The Court, answering a certified question from the United States District Court for the District of Colorado, held “that the one-year statute of limitations does not apply to actions brought under Section 10-3-1116(1) because the legislature did not intend section 10-3-1116(1) to operate as a penalty within the context of the statutory scheme.” Thus, courts should continue to apply the two-year statute of limitations for claims asserted under the Bad Faith Statute. It is worth noting, however, that the Court did not specifically state a two-year limitations period applied.
This ruling is particularly helpful for insureds because it allows them time to negotiate with insurers before they have to decide whether to file suit. Also, where the insurer “unreasonably delays” in paying the covered benefit, it is difficult to identify when the “delay” began, when it became unreasonable and when the statute of limitations starts running. The Supreme Court’s ruling recognizes that the General Assembly did not intend to create a short fuse for statutory bad faith claims and is a win for insureds. Despite this ruling, prompt attention to delayed or denied claims remains critical. If you have a claim that your insurer has wrongfully denied or that you believe is being wrongfully delayed, seek counsel quickly.
Bad Faith Statute Provides Double Damages In Addition to Contract Damages
In American Family Mutual Insurance Co. v. Barriga, the Colorado Supreme Court addressed how to calculate damages awards under the Bad Faith Statute, section 10-3-1116(1), C.R.S. Insureds have long argued, and many courts have accepted, that the insured prevailing under the Bad Faith Statute may recover the value of the unreasonably delayed/denied benefit (whether as a contract claim or because the insurer paid it belatedly), plus two times the value of the unreasonably delayed/denied benefit (essentially treble damages). The insurer in Barriga claimed that based on its interpretation of the statute, the damages “must be reduced by the amount of an insurance benefit unreasonably delayed, but ultimately recovered by an insured outside of a lawsuit.” The Supreme Court disagreed. It held that under the plain text of the statute, a damages award under the Bad Faith Statute must not be reduced by an amount unreasonably delayed but eventually paid. In addition, the Court held that a litigant is not barred from recovering damages under both the Bad Faith Statute and under a claim for breach of contract “because the acts implicating the breach-of-contract claim are ‘factually separable’ from the acts underlying the statutory claim” and, therefore, “the two claims do not return an award for the same wrong.” In other words, a successful insured plaintiff could, in some cases, be entitled to recover treble damages from the insurance company as a result of its breach of the insurance contract and wrongful delay or denial of payment of covered benefits.
Insurers Must Pay the Undisputed Components of Covered Benefits Without Delay
In State Farm Mut. Auto. Ins. Co. v. Fisher, the Colorado Supreme Court grappled with whether insurers have a duty to pay undisputed portions of an insured’s claim even though other portions of the claim remain disputed. The case involved an insured driver who was struck by an underinsured motorist. State Farm agreed that the insured driver’s medical expenses were covered and reasonable, but disputed other portions of his claim, such as lost wages. Based on that dispute, State Farm also refused to pay the undisputed medical expenses. The Court ruled that refusal amounts to an unreasonable delay in paying covered benefits, in violation of the Bad Faith Statute. In reaching its decision, the Court hewed closely to the plain language of the statute and did not engage deeply in policy discussions. However, the Court was receptive to Fisher’s argument that State Farm had delayed paying the medical expenses as a form of leverage “to extract a cheaper, global settlement,” noting that an insurer cannot avoid the force of the Bad Faith Statute simply by disputing the amount of benefits owed. For its part, State Farm (and insurance industry representatives in “friend of the court” briefs) argued this will increase the cost of insurance premiums. The Court referred such arguments to the legislature, a harbinger that the 2019 session of the General Assembly could be a busy one for bills affecting the insurance industry. But, as it currently stands, insurers must pay undisputed amounts promptly - which should help policyholders substantially.
What Does This Mean For You?
In light of the above cases, the Colorado Bad Faith Statute remains a powerful tool for insureds and a deterrent against wrongful delay or denial of insurance coverage. The cases provide certainty to policyholders and should create a more efficient claim resolution process. However, all three cases were closely watched by insurers, and they generated “friend of the court” briefs from various insurance-related interest groups. Having failed to accomplish their goal of winnowing back the Bad Faith Statute by means of litigation, insurers may turn to different avenues – namely, legislative action. The answer may turn on results of General Assembly elections this fall.