Chapter 5 - § 5.4 • DEFENSES
| Jurisdiction | Colorado |
§ 5.4.1—Statute of Limitations
Colorado's two-year statute of limitations period applies to common law bad faith actions.95
In May 2018, in answer to a certified question from the U.S. District Court for Colorado, the Colorado Supreme Court ruled unanimously that a claim for statutory first-party bad faith under C.R.S. § 10-3-1116 is not subject to the one-year statute of limitations applicable to claims under penal statutes.96 Thus, like common-law bad faith claims, statutory bad faith claims are subject to a two-year statute of limitations.97
In Colorado, "a cause of action for injury to person, property, reputation, possession, relationship, or status shall be considered to accrue on the date both the injury and its cause are known or should have been known by the exercise of reasonable diligence."98
If an insured includes in its bad faith lawsuit a claim for simple breach of the insurance contract, provisions of the insurance policy may shorten the three-year limitations period ordinarily applicable to such claims.99 Such shortening is permissible unless expressly prohibited by statute.100
§ 5.4.2—Absence of Insurance Contract
An insurer may allege as a defense that no contract of insurance existed or that the plaintiff is not an insured, representative of an insured, third-party beneficiary, or judgment creditor.101
§ 5.4.3—Comparative Negligence
The doctrine of contributory negligence applies to negligence actions in Colorado,102 and it is available as a defense in claims for bad faith breach of an insurance contract.103 Colorado has adopted by statute the affirmative defense of comparative negligence.104 The statute is actually referred to as the comparative fault statute. Under the statute, a plaintiff's negligence does not bar recovery in an action to recover damages for negligence105 resulting in death or in injury to person or property, provided the plaintiff's negligence was not as great as that of the person from whom recovery is sought.106 The Colorado Supreme Court has ruled that "[a] plaintiff may . . . recover as long as the combined fault of all named tortfeasors, whether joined as defendants or designated as nonparties, is more than that attributable to the person for whose injury recovery is sought."107 Any damages allowed must be reduced in proportion to the amount of negligence attributable to the plaintiff; however, exemplary damages are not subject to reduction by the comparative fault statute because such damages are awarded based on the defendant's misconduct.108 Comparative negligence is applicable only where there is evidence presented that would substantiate a finding that both parties are at fault.109 It is inapplicable where the defendant cannot prove any negligence by the plaintiff.110
§ 5.4.4—Designation of Nonparty at Fault
In civil liability cases, C.R.S. § 13-21-111.5 allows defendants to designate as a nonparty at fault an individual or entity "wholly or partially at fault" for the plaintiff's alleged damages.111 By designating another person or entity as a nonparty at fault, the defendant has the opportunity to allocate the damages among all responsible parties because the finder of fact will be required to apportion liability among the defendants and the nonparties at fault. An unidentified or unknown person may be designated as a nonparty pursuant to the statute.112 The designated nonparty may even be immune from suit.113
A nonparty at fault must be designated in a pleading that complies with C.R.S. § 13-21-111.5(3)(b). Specifically, the defendant must allege facts that establish the elements of negligence against the potential nonparty.114 A defendant wishing to designate a person or entity as a nonparty at fault must do so "within 90 days following commencement of the action unless the court determines that a longer period is necessary."115 If the nonparty is a licensed health-care professional and the defendant alleges that the nonparty has committed professional negligence, then the designating defendant must comply with the certificate of review requirements set forth in C.R.S. § 13-20-602.116 In the case of non-health-care professionals, the reader would be well advised to determine whether the certificate of review requirement applies.117
Colorado provides a variety of pattern jury instructions and special verdict forms related to non-parties at fault, which vary depending on the number of defendants and the number of designated non-parties.118
§ 5.4.5—Intervening Cause
An insured's unforeseeable conduct that causes his or her injury in whole or in part may comprise an intervening cause that breaks the chain of causation and precludes common law and/or statutory bad faith claims.119
§ 5.4.6—Preemption by Federal Law
Preemption by federal statute may be a defense to some bad faith claims. For example, preemption is an available defense under the National Flood Insurance Act (NFIA, 42 U.S.C. §§ 4001, et seq.).120 There is conflicting Colorado state and federal authority regarding preemption of bad faith claims under the Employee Retirement Income Security Act of 1974 (ERISA, 29 U.S.C. §§ 1001, et seq.). One Colorado federal court found that a common law first-party bad faith claim fell within the "savings clause" of ERISA and therefore was not preempted.121 Other state and federal courts have found ERISA does preempt common law bad faith claims.122 Whether ERISA preempts statutory bad faith claims may vary based upon the subsection of C.R.S. § 10-3-1116 under which the claim falls or is pursued. For instance, Colorado's federal district court has concluded that ERISA does preempt claims under C.R.S. § 10-3-1116(1)123 and does not preempt C.R.S. § 10-3-1116(2).124 There is conflicting Colorado federal authority on whether ERISA preempts claims under C.R.S. § 10-3-1116(3).125
§ 5.4.7—Rescission of Insurance Contract
If there are grounds for rescission of the insurance contract (e.g., fraudulent misrepresentation on an application for insurance), there can be no recovery for bad faith breach of the insurance contract.126
§ 5.4.8—Fraud or Collusion
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