Disability Insurance Bad Faith: Different States – Part 3 (Colorado)

In this series of blog posts, we have been outlining the first-party insurance bad faith law of ArizonaCalifornia, and other states.  Today’s post examines the bad faith law of Colorado.

Although the Colorado statute regarding unfair or deceptive acts or practices provides for state regulation of insurance companies and not for private lawsuits for damages, an insured can still bring a bad faith action against a disability insurer under Colorado tort law.  Nevertheless, in determining whether an insurance company’s delay in paying benefits or its denial of disability benefits was reasonable, the court or jury can consider evidence that the insurer’s conduct violated the Unfair Claims Settlement Practices Act statute.

The Statute: Col. Rev. Stat. § 10-3-1104

The Rules: An insurance company must:

  • Not misrepresent pertinent facts or policy provisions.
  • Acknowledge or act reasonably promptly upon communications.
  • Adopt and implement reasonable standards for the prompt investigation of claims.
  • Conduct a reasonable investigation based upon all available information before refusing to pay a disability insurance claim.
  • Affirm or deny coverage within a reasonable time.
  • Attempt in good faith to effectuate prompt, fair, and equitable settlement of claims in which liability has become reasonably clear.
  • Not compel insureds to institute litigation to recover amounts due under their policies by offering substantially less than the amounts ultimately recovered in legal actions brought by the insureds.
  • Not attempt to settle a claim for less than the amount that a reasonable person would have believed he or she was entitled to based upon the insurer’s advertising or policy application materials.
  • Not delay investigation or payment by requiring submission of multiple forms containing substantially the same information.
  • Promptly provide a reasonable explanation of the basis in the policy or law for a claim denial or compromise settlement offer.

The Tort Law Standard:  Disability insurance companies can be liable for first party bad faith if they act unreasonably and with knowledge of or reckless disregard of their unreasonableness.

In our next post, we will review the insurance bad faith standards for the State of Nevada.