Chapter 5 - § 5.3 • STATUTORY BAD FAITH
| Jurisdiction | Colorado |
To recover on a statutory bad faith claim, an insured must prove the following elements by a preponderance of the evidence:
1) The insurer delayed or denied payment of benefits to the insured; and
2) The delay or denial of payment was without a reasonable basis.72
When the General Assembly enacted §§ 10-3-1115 and -1116 of the UCDPA, it created "a new private right of action for insureds in addition to and different from a common law bad faith claim," which imposes upon insurers additional liabilities and provides insureds with an additional means of recovery.73 An insured may bring both common law and statutory bad faith claims in one lawsuit.74
A cause of action for statutory bad faith breach of insurance contract is available under § 10-3-1115 for an insurer's unreasonable delay or denial of payment of a claim for benefits owed to or on behalf of any first-party claimant.75 C.R.S. § 10-3-1116 sets out the remedies available if the insured establishes the unlawful conduct identified in C.R.S. § 10-3-1115.76 Therefore, to successfully allege a claim for statutory bad faith, an insured must plead a violation of both § 1115 and § 1116.77
Only a "first-party claimant" may assert a statutory bad faith claim.78 Colorado courts have decided that first-party claimants include not only insureds under typical first-party insurance policies, such as property and healthcare policies, but also insureds under third-party, or "liability," insurance, such as commercial general liability policies.79
The Colorado Court of Appeals has held that first-party claimants include not only the insured, but also entities that can assert an entitlement to benefits on behalf of an insured, such as a third party to whom the insured owes money for the cost of repairs associated with an insured claim.80 Therefore, some Colorado courts have found roofers and builders to be "first-party claimants" entitled to sue property owners' insurance companies for costs of repairing hail and wind damage to the insured properties.81 At least two Colorado federal district courts have ruled that C.R.S. § 10-3-1115 does not permit a third party to bring an action on behalf of an insured, because the statute is penal in nature and claims for statutory penalties cannot be assigned to third parties.82 However, the Colorado Supreme Court may have effectively overruled the latter decisions when it held that C.R.S. § 10-3-1116 is not an "action[ ] for any penalty or forfeiture of any penal statute[ ]" in determining the statute of limitations applicable to statutory bad faith claims, as discussed below in § 5.4.1.83
Statutory bad faith claims may be based on any conduct by the insurer: "So long as the [insured proves] the claim was unreasonably delayed or denied, the plain language of section 10-3-1115 provides a remedy."84 The Colorado legislature intended "to capture all aspects of the insurance relationship and to impose liability for both bad faith breach of the obligation to indemnify — underwriting — and bad faith breach of the obligation to pay a specified or ascertainable amount — claims handling."85 Here, too, an insurer's invocation and completion of an appraisal process will not immunize it from a lawsuit alleging, or potential liability for, statutory bad faith.86
The insured has the burden of proving the amount of benefits the insurer improperly delayed or denied, if that amount is...
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