If you have been in an auto accident you probably understand the hassle of dealing with the insurance company. However, did you know that an insurance company could owe you more than just compensating you for your injuries sustained in an auto accident?
In Colorado we have the common law tort of bad faith breach of an insurance contract. In other words, a person may have a legal action against an insurer for breach of their duty of good faith and fair dealing to the insured. This type of claim is not codified in statutes, but is shown through Colorado’s immense case law.
In 2008, Colorado also enacted statutes, C.R.S. §§ 10-3-1115 and -1116, which are separate from the common law tort of bad faith. These statutes provide for a separate cause of action, and I will discuss the differences between the common law and the statutes below.
The Tort of Bad Faith Breach of an Insurance Contract
An insurer has a duty to act in good faith when dealing with an insured that is implied by law as a covenant of the insurance contract. The insurance policy between the insurer and insured creates a quasi-fiduciary relationship between the two, and thus, the duty to act in good faith.
In order to prevail on breach of good faith, the insured must show that the insurer acted:
- Unreasonably in denying or delaying payment of a claim; and
- Did so with knowledge or reckless disregard that its actions were unreasonable.
You can bring a breach of good faith and fair dealing claim either as a first party claimant or as a third party claimant. If you are dealing directly with your insurance company, you are a first party claimant. If you are dealing with the at-fault person’s insurance company, then you are a third-party claimant.
A claimant may also recover damages from the emotional distress associated with an insurer’s bad faith conduct. The recovery of those damages does not require that the insured prove property or economic loss; they may recover based solely on non-economic loss.
Furthermore, to recover punitive damages (damages to punish the wrong-doer) the insured must prove that the breach of good faith was done through fraud, malice, or willful and wanton conduct. This is a much higher standard than the unreasonableness standard stated above. An experienced Colorado attorney can help determine when an insurance company has acted in bad faith, even if it is not readily apparent to you.
Bad Faith Claim in Workers’ Compensation Cases
In Savio v. Travelers Insurance Co. the Colorado Supreme Court held that individuals could seek damages from breach of good faith from insurance companies in workers’ compensation cases. The standard is the same in these cases as mentioned above, that is, the insurance company acted unreasonably in denying or delaying the claim and did so with knowledge or reckless disregard that its actions were unreasonable.
Colorado Revised Statutes §§ 10-3-1115 and -1116
In 2008, Colorado enacted new laws to provide remedies for first-party claimants when an insurer unreasonably delays or denies payment of benefits.
Section 10-3-1115 does not require that the insurer have knowledge or reckless disregard of its unreasonable actions. The insurer must merely act unreasonably.
Section 10-3-1116 provides remedies to first-party claimants in the form of recovery of attorney fees and court costs, as well as, damages for two times the covered benefits. This statute does not require the claimant to prove damages resulting from the insurer’s bad faith —it simply provides twice the amount. The insured is only required to prove the insurer’s unreasonableness in delay or denial of the benefits. These statutes create a separate action from the common law tort of bad faith breach.
These statutes do not apply to workers’ compensation insurance. Additionally, the statutes do not apply to title insurance.
The laws and facts associated with a claim against an insurance company for bad faith action are complicated and not easy to navigate. We recommend that any time you are dealing with an insurance company that you exercise your right to an attorney. If you believe an insurance company has acted unreasonably with you, contact the team at McDivitt Law Firm. We are here to assist you and ensure that you receive the damages you are entitled to.