Insurance companies in Colorado are bound by statutory duties when handling claims. The Colorado Unfair Claims Settlement Practices Act, codified at C.R.S. § 10-3-1104, sets forth a comprehensive list of prohibited actions that insurers may not take when dealing with policyholders and claimants. While the Act does not create a private right of action for individual claimants, it provides the framework for administrative discipline by the Colorado Division of Insurance and informs the analysis of bad faith claims brought under common law or other statutes.
Scope of the Act: First-Party and Third-Party Claims
The Act applies to both first-party and third-party insurance claims. A first-party claim arises when a policyholder files a claim under their own insurance policy—for example, a claim for uninsured motorist benefits, medical payments coverage, or property damage under a homeowner's policy. A third-party claim arises when an injured person seeks compensation from the at-fault party's liability insurer. In either context, the insurer must handle the claim fairly and in accordance with statutory standards.
Prohibited Practices Under the Act
Colorado law enumerates specific actions that constitute unfair claims settlement practices. An insurer violates the Act if it knowingly commits or performs with such frequency as to indicate a general business practice any of the following:
Misrepresentation and Lack of Transparency
- Misrepresenting material facts or the terms of a policy's coverage to a claimant or policyholder.
- Making payments without providing a statement that clearly describes the coverage under which each payment is made.
- Attempting to settle a claim based on a policy that has been altered without the policyholder's informed consent.
- Attempting to resolve a claim for less than a reasonable person would expect based on written or printed advertising material accompanying an application.
Delays and Failure to Respond
- Failing to acknowledge and act promptly upon communications related to a claim.
- Failing to affirm or deny coverage, or to pay or deny a claim, within a reasonable time after proof of loss has been completed.
- Refusing to provide a reasonable written explanation for denial of a claim or compromise offer within a reasonable time after receiving a request from the claimant.
- Prolonging the investigation or payment process by requiring a claimant to submit both a preliminary claim report and formal proof of loss when both contain substantially the same information.
Inadequate Investigation Standards
- Failing to adopt and implement reasonable standards for the prompt investigation and resolution of claims.
- Failing to conduct a reasonable investigation before denying a claim or offering a settlement substantially less than the amount ultimately recovered in arbitration or litigation.
- Raising a defense of comparative negligence without first conducting a reasonable investigation and developing substantial evidence supporting the negligence claim.
Unfair Pressure and Coercive Tactics
- Compelling a policyholder to initiate litigation by offering substantially less than the amount reasonably owed under the policy in order to recover amounts due.
- Refusing to settle claims fairly and promptly under one portion of the policy in order to influence settlements under other portions of the same policy.
- Informing claimants that the insurer automatically appeals all arbitration awards in order to coerce them into accepting settlements for less than the arbitration award.
Medical Payment and Benefits Denials
- Failing to adopt and implement reasonable standards for the prompt investigation of claims for medical benefits and medical payment coverage.
- Denying medical benefits solely because the claimant participated in activities such as motorcycling, snowmobiling, off-highway vehicle riding, skiing, or snowboarding, unless the policy explicitly and conspicuously excludes coverage for such activities.
No Private Right of Action Under the Act
The Unfair Claims Settlement Practices Act is an administrative statute enforced by the Colorado Division of Insurance. It does not create a private right of action, meaning individual policyholders and claimants cannot file a lawsuit directly under the Act to recover damages. Instead, violations are investigated and prosecuted by the Division of Insurance, which has the authority to impose fines, sanctions, and other disciplinary measures against insurers that engage in the prohibited conduct.
How the Act Relates to Bad Faith Claims
Although the Act itself does not provide a private cause of action, it plays an important role in common-law bad faith claims. Colorado recognizes both first-party and third-party bad faith causes of action. Evidence that an insurer violated one or more provisions of the Unfair Claims Settlement Practices Act can be relevant to proving that the insurer acted unreasonably or in bad faith. Courts may look to the standards set forth in the Act when evaluating whether an insurer's conduct fell below acceptable industry practice.
Recognizing Unfair Claims Practices
Policyholders and claimants should be alert to patterns of behavior that may indicate an insurer is engaging in unfair claims settlement practices. Warning signs include:
- Repeated requests for the same information or documents.
- Unexplained delays in claim processing or investigation.
- Denials without clear written explanations.
- Settlement offers that are far below reasonable valuations of the claim.
- Pressure to accept a quick settlement without adequate time to assess damages or obtain legal advice.
- Refusal to communicate in writing or provide documentation of coverage.
When such conduct occurs, it may warrant further investigation and potential legal action for bad faith breach of the insurance contract.
Remedies for Bad Faith Conduct
While the Unfair Claims Settlement Practices Act does not itself provide a remedy, policyholders harmed by insurer misconduct may pursue a common-law bad faith claim. Successful bad faith claims can result in recovery of:
- The full amount of benefits owed under the policy.
- Consequential damages caused by the insurer's unreasonable delay or denial.
- In some cases, punitive damages if the insurer's conduct was willful and wanton.
- Attorney fees and costs, depending on the legal theory and policy language.
Importance of Legal Representation
Navigating insurance disputes and bad faith claims requires a thorough understanding of both statutory and common-law standards. Insurers have legal teams and claims adjusters trained to minimize payouts. Policyholders and injured claimants benefit from experienced counsel who can:
- Evaluate whether the insurer's conduct violates the Unfair Claims Settlement Practices Act or constitutes common-law bad faith.
- Gather and preserve evidence of the insurer's delays, misrepresentations, or inadequate investigation.
- Pursue administrative complaints with the Division of Insurance when appropriate.
- File a bad faith lawsuit when the insurer has breached its duty to act reasonably and in good faith.
- Negotiate from a position of strength or litigate to obtain fair compensation.
Contact McCormick & Murphy for a Free Consultation
If you believe an insurance company has engaged in unfair claims practices or acted in bad faith in handling your claim, McCormick & Murphy can help. Our firm represents policyholders and injured claimants in disputes with insurers throughout Colorado. We offer a free consultation to evaluate your case, and we work on a contingency fee basis in personal injury and bad faith matters—no attorney fee unless we achieve a recovery for you. Contact us today to discuss your rights and options.