Colorado Supreme Court Clarifies Bad Faith Standard

Ashley Harris | Property Insurance Coverage Law Blog | November 7, 2018

A recent Colorado Supreme Court opinion in Schultz v. GEICO Casualty Company, clarifies the standard for bad faith in Colorado. In the opinion, the court discusses both claims for common law bad faith and statutory unreasonable delay or denial of benefits.

Most notably, the court concluded that the insurance company’s conduct must be evaluated based on the evidence before it when it made its coverage decision, and that the insurance company may not create new evidence to try to support its earlier coverage decision.

This means that when defending against a bad faith claim by attempting to show it acted reasonably, the insurance company can only present the information it considered at the time it made the decision to delay or deny the claim.

The opinion also restates the standard for common law bad faith, which requires the insured to “establish that the insurer acted unreasonably and with knowledge of or reckless disregard for the fact that no reasonable basis existed for denying the claim.” Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1274 (Colo. 1985).

With regard to a statutory claim, Section 10-3-1115, C.R.S. (2018) provides, in part:

(1)(a) A person engaged in the business of insurance shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of ay first-party claimant.

. . . .

(2)…for the purposes of an action brought pursuant to this section and section 10-3-1116, an insurer’s delay or denial was unreasonable if the insurer delayed or denied authorizing payment of a covered benefit without a reasonable basis for that action.

The court confirmed what both the Colorado Court of Appeals and federal courts interpreting Colorado law have consistently recognized, which is that the proof of a statutory claim differs from the proof required in a common law bad faith claim:

[W]hereas a common law claim requires proof that the insurer acted unreasonably and that it knew or recklessly disregarded the fact that its conduct was unreasonable, ‘the only element at issue in the statutory claim is whether an insurer denied benefits without a reasonable basis.’ (Citations omitted).

This opinion is great for Colorado policyholders, because it limits insurance companies to the information they had at the time they delayed or denied the claim, prohibiting them from hiring “litigation experts” to bolster an unreasonable delay or denial of the claim.

Timely Paying Appraisal Award Exempted Insurer from Breach of Contract and Bad Faith Claim

Marle Laur | Property Insurance Coverage Law Blog | November 3, 2018

In the case Biasatti v. GuideOne National Ins. Co., No. 07-17-00044-CV (Tex. Ct.App. Aug. 16, 2018), Steven Biasatti and Paul Gross, d/b/a TopDog Properties, brought suit against its insurance company, GuideOne National Insurance Company for breach of contract.

TopDog Properties (“TopDog”) was insured through a commercial insurance policy issued by GuideOne National Insurance Company (“GuideOne”). The property suffered a loss as a result of wind and hail damage, and TopDog put GuideOne on notice of the loss. The insurer inspected the property and determined that the damage totaled $1,896.88. GuideOne did not issue payment to the insured since the damage was less than the $5,000.00 deductible. When GuideOne did not change its coverage determination after a second inspection, TopDog requested appraisal of the claim. GuideOne responded that under the policy, only the insurer could invoke appraisal, and it declined to do so. The insured filed suit.

Months after TopDog filed suit, GuideOne invoked appraisal. The insured resisted, and the trial court refused to compel the appraisal. On appeal, the trial court was directed to grant GuideOne’s motion to compel appraisal.

The appraisers and umpire set the amount of loss at $168,808.00. GuideOne sent TopDog a check for $146,927.30, which reflected the amount awarded less the deductible and depreciation.

TopDog then filed a motion for partial summary judgment against the insurer for breach of contract and failure to timely pay the insured’s claim. The insurer argued, in its own motion for summary judgment, that since it had promptly paid the appraisal award, the insured’s claims against GuideOne could no longer stand. The trial court ruled in favor of GuideOne’s motion. TopDog appealed.

The appellate court affirmed the trial court’s ruling, holding that since GuideOne invoked the appraisal clause following the benefits dispute, as permitted by the policy, then timely tendered the appraisal award, TopDog received the benefits it was entitled to under the policy and did not demonstrate that any policy benefits were withheld.

Florida Supreme Court Strengthens Policyholders’ Bad-faith Claims

Margo Meta | The Policyholder Report | September 27, 2018

Last week, a divided Florida Supreme Court strengthened policyholders’ bad-faith claims against insurers by overturning an appellate court’s decision, finding that the lower court had misapplied Florida’s well-established bad-faith precedent and had relied on inapplicable federal case law.

In Harvey v. GEICO General Insurance Co., James Harvey was involved in an automobile accident that resulted in a fatality. Following the accident, a paralegal with counsel for the deceased’s estate spoke to Fran Kourkas, a GEICO claims adjuster regarding the claim, requesting a statement from Harvey to determine the extent of his assets and other potential insurance coverage. Kourkas denied this request, despite knowledge that it was standard practice, and he failed to inform Harvey of the request.

Shortly thereafter, GEICO tendered the $100,000 policy limits to Sean Domnick, the lawyer representing the decedent’s estate. When Harvey learned of Domnick’s request, he informed Kourkas that he would provide a statement and requested that Kourkas inform Domnick, but Kourkas did not relay the message. Due to Kourkas’s failure to communicate, Domnick returned GEICO’s check and filed a wrongful-death action against Harvey. The case went to trial and Harvey was found 100% at fault. The estate was awarded $8.47 million in damages.

Harvey filed a bad-faith claim against GEICO based on the excess judgment. Domnick testified that he received no communication from GEICO after his request for a statement, and that if he had been aware that Harvey’s only other asset was a business account worth $85,000, he would have accepted the policy limits and would not have filed suit. The decedent’s wife testified that she would have settled for the policy limits at Domnick’s recommendation. At the trial on these bad-faith claims, the jury awarded Harvey $9.2 million. GEICO appealed, arguing that Harvey had failed to provide evidence of bad faith. The appellate court agreed and reversed, stating that “even if the insurer’s conduct was deficient, the insurer’s actions did not cause the excess judgment rendered against the insured.”

Bad-faith Standard

The Florida Supreme Court reversed the Court of Appeals. In its opinion, the Florida Supreme Court expressly disavowed the holding in Novoa v. GEICO Indemnity Co., in which the 11th Circuit Court of Appeals found that an insurer did not have to act “perfectly, prudently or even reasonably” as long as the insurer did not act solely out of self-interest.

The Florida Supreme Court also cited a 1980 case, Boston Old Colony v. Gutierrez, for the proposition that an insurer has a duty to handle defense claims with the same degree of care and diligence as person of ordinary care and prudence would exercise in the management of his own business. The Court noted that because the duty of good faith involves an insurer’s diligence and care, the insurer’s negligence is relevant to a question of bad faith.

The insurer has this duty because it controls all decisions related to the claim, and the insured has no control over the claim handling. The Court further relied on Boston Old Colony, finding that an insurer must provide certain advice to an insured, including the probable outcome of litigation, the possibility of an excess judgment, and steps to take to avoid such a judgment. The court cautioned that these requirements are not a “mere checklist.” Rather, the insurer must work diligently, with the same “haste and precision” as though it were in the insured’s shoes, in order to avoid an excess judgment.

The Court found that where liability is clear, and injuries or damages are so serious that an excess judgment is likely, the insurer has an affirmative duty to initiate settlement negotiations and any delay in making an offer could be viewed as bad faith. Further, an insurer cannot escape its obligations to the insured by simply tendering its policy limits. The insurer’s obligations to the insured continue throughout the duration of the claims-handling process.

The Court concluded that GEICO had failed to act as if Harvey’s potential financial exposure was “a ticking financial time bomb” and served as a “considerable impediment” to both Harvey and Dominick. GEICO failed to act with the same degree of care and diligence as an ordinary, prudent person would in the handling of his own business. Accordingly, it acted in bad faith.


The Court also disavowed the holding in Barnard v. GEICO General Insurance Co., in which the 11th Circuit Court of Appeals found that if an insured’s own actions or inactions result, at least in part, in an excess judgment, the insurer cannot be found liable for bad faith. The Court found that this statement was “fundamentally inconsistent” with Florida precedent, including Berges v. Infinity Insurance Co., which focuses on the actions of the insurer, not the insured. Florida law is clear that an insured’s actions do not excuse an insurer’s bad-faith handling of a claim.

The Court concluded that GEICO’s continued communication failures were a direct cause of the excess verdict, as Domnick had testified that had he been aware of Harvey’s assets, he would have accepted the policy limits and would not have filed suit. As such, GEICO acted in bad faith.

How does this Affect Policyholders?

This opinion is a valuable tool against insurers in future bad-faith cases, as it loosens and broadens the bad-faith standard in Florida. The opinion requires that an insurer put an insured’s interests first and work diligent and hastily to avoid excess judgments. The opinion also strengthens the argument that an insurer is under an affirmative obligation to initiate settlement negotiations in cases where excess judgments are likely, and that even negligent claim handling can result in a finding of bad faith.


Harvey is a win for policyholders. It simply and succinctly states Florida’s bad-faith standard and provides guidance to federal courts on the issue. It also underscores the importance of diligent, competent, and expedient handling of claims, while simultaneously preventing the insurer from shifting the blame for an excess judgment to the policyholder.

Insurance Companies Must Perform in Good Faith Regardless of Their Customer’s Imperfect Actions

Chip Merlin | Property Insurance Coverage Law Blog | September 21, 2018

Insurance companies routinely argue for immunity from their wrongful actions because acts of their customers are not perfect following a loss. Policyholders are not claims specialists. Policyholders generally are not in the insurance claims business much less the civil litigation business which the insurance industry is the number one participant by far.

In a third party “bad faith” case, the Florida Supreme Court yesterday reiterated these practical issues by stating:

To take the Fourth District’s reasoning to its logical conclusion, an insurer could argue that regardless of what evidence may be presented in support of the insured’s bad faith claim against the insurer, so long as the insurer can put forth any evidence that the insured acted imperfectly during the claims process, the insurer could be absolved of bad faith. As Harvey argues, this would essentially create a contributory negligence defense for insurers in bad faith cases where concurring and intervening causes are not at issue. We decline to create such a defense that is so inconsistent with our well-established bad faith jurisprudence which places the focus on the actions on the insurer—not the insured.1

It is unfortunate that we call these cases “bad faith” cases when they are really “lack of good faith” cases. Just read the ethical rules that historically called for insurance companies and their employees to act in the “utmost of good faith and fair dealing” with their customers.

My mother used to remind me that “Chip, two wrongs never equal a right.” The above-mentioned ruling emphasizes this idea. I often find myself reminding attorneys in my firm, as well as myself, that this is true regardless of what the other side is doing in a lawsuit, appraisal or insurance claim. Professionalism and ethical behavior call for honest, legal, proper and civil conduct regardless of how poorly a party on the other side behaves. Still, it is sometimes difficult to turn the other cheek, but it is also not proper for a professional to get walked over by those using improperly aggressive and unprofessional behavior.

I am writing, researching and preparing for a speech at the Georgia Association of Public Adjusters Association (GAPIA) Fall Meeting in Atlanta next week regarding insurance and public adjuster professionalism. My belief is that the most successful adjusters for insurers or pubic adjusters for insureds in the long run are extraordinary examples of consummate professionals. They know much more than others, are vested in becoming personally even better at what they do and are above the fray of any one claim.

These extraordinary performing claims handlers appreciate the other side and understand the other point of view. They look at the policyholder just as importantly a customer following the loss as before and that the insurance company is an important part and has an important societal responsibility of taking care of the policyholder and claimant’s problems promptly. They look at their personal insurance claims work as involving the public trust, do not game the system and look to act fairly, regardless of personal incentives and company objectives not aligned with honesty or fairness.

From the insurance company standpoint, claims educator Ken Brownlee CPCU wrote in Winning By The Rules:

Why, then, do so many insurers and their claims representatives treat third-party claimants and injured employees as if they were an enemy? Why do so many third-party claimants and employees seek attorneys to represent them in their claims against the insurer? Could it be that insurers have been treating these product users as if the insurer were in charge instead of the injured or damaged party?

If adjusters got back out on the streets and met with folks immediately after their accidents or losses, which is what used to occur forty of fifty years ago, the public might begin to trust the insurance industry again. It might not be so prone to sign up with those television-advertising attorneys. It might also reduce the number of lawsuits that have to be defended at great expense, because when the adjuster knows the claim is valid it would be quickly settled, and when the adjuster knew it wasn’t valid, the denial would be quick, authoritative, and well-documented.2

Little has been written about public adjusters and their obligations to the insurance industry, the public, and their clients. There are very fine public adjuster organizations now at state level promoting professionalism. NAPIA certainly has been stalwart in the growth of licensing the public adjusting profession. It has also been instrumental with The Institutes regarding certification for those seeking to be recognized for knowledge and expertise in their public adjuster profession.

Yet, I tell my Merlin Law Group lawyers to vet every case from every public adjuster. It is not just that we have an ethical obligation to do so. Some public adjusters do not tell their clients what they estimate the loss amount to be because they either overestimate the loss on purpose and do not want to create unrealistic expectations, or they are so poor at negotiating an exact estimate of loss that they leave fairness behind to collect their fee quickly, regardless of the consequence to the client policyholder.

Sometimes, both the public adjuster and insurance company adjuster play the Xactimate game of “who knows what the magic method is to control the Xactimate process” for determining loss. Sometimes, outcome-oriented engineering opinions from either side seem to be the critical suspect issue between the battling interests.

As lawyers for the policyholder, there is one way we now look at to build and repair damaged buildings, and that is legally. What are the contractor specifications to do the job? What is required for labor by the materials needed to be used to make the repair? What do the manufacturer’s specifications call for? What do laws require for safely performing the demolition and construction? What taxes and permits have to be paid? What professionals have to be hired to do the job legally and practically? What do Building Codes call for? What is required so that somebody inspects the job to ensure the people doing the job have done it right—meaning legally and to the specifications demanded?

I now often consult with and hire contract specification experts because there is so much gamesmanship and ignorance displayed by overworked adjusters and public adjusters that I cannot trust either side to get the construction scope and pricing right. I am finding myself saying to experts, “are you sure?” “Are you saying this just because you think I want to hear it?” “Please, do not embarrass me in front of a jury or judge—is this your honest and hard worked upon opinion?”

Again, two wrongs do not make a right! The insurance company is the long-term entity required to always investigate, evaluate and promptly settle or pay claims in good faith. I think that is the practical point of the Florida Supreme Court case from yesterday. Still, the rest of us also owe the public and our clients a duty to do our jobs as professionally as we can.


Thought For The Day

“Always place the best interests of your clients above your own direct or indirect interests.”
—True Blue Life Insurance Code of Ethics


Florida Appellate Court Finds Implications Of Bad Faith In Claims Handling Not Proper In First Party Insurance Coverage Dispute

Ashley Kellgren | Traub Lieberman Straus & Shrewsberry | August 17, 2018

In two separate opinions, Florida’s Fourth District Court of Appeals reiterated the longstanding principle that issues regarding the quality of an insurer’s adjustment of a claim and bad faith should not be interjected into a first party insurance coverage action. In Citizens Prop. Ins. Corp. v. Mendoza, 42 Fla. L. Weekly D. 1523 (Fla. 4th DCA 2018), an issue on appeal was whether the trial court properly instructed the jury on a duty to adjust the claim. In that case, the insureds incurred water damage to their home caused by a water heater leak. The insurer investigated the claim and denied coverage based on the policy’s constant or repeated seepage or leakage exclusion. At trial, the insureds took issue with the way the adjuster denied the claim, asserting that he violated ethical rules and the policy itself.   Over the insurer’s objection, the trial court instructed the jury regarding the adjuster’s “duty to adjust” the claim.

On appeal, the Fourth District reversed final judgment in favor of the insureds, explaining that the trial court’s instruction “transformed the case into a referendum on the quality of the adjuster’s performance instead of focusing the jury on the factual issue of whether the loss fell under the policy exclusion.” Continuing, the Court explained that, while issues regarding whether the adjuster “properly investigated” or “properly adjusted” the claim may be appropriate in a bad faith case, such considerations have no place in a simple breach of contract claim.

On that same day, the Fourth District issued a similar opinion in the case of Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 43 Fla. L. Weekly D 1513 (Fla. 4th DCA 2018). In Kuwas, the insured alleged two counts of breach of contract in connection with the insurer’s denial of coverage for two claims for property damage as a result of a water loss. At trial, the insured’s theory of his case focused on the insurer’s handling of his claim and other claims in general. For example, in opening statement and questioning of the insurer’s litigation manager, counsel for the insured commented that the insurer was “playing the odds” in hopes that the party seeking to be paid will not sue or it would deter others from making claims. Counsel for the insured suggested that this “playing the odds” was the wrong thing to do and would be a breach of the policy. The jury returned a verdict in favor of the insured and the trial court denied the insurer’s motion for a new trial.

On appeal, the insurer argued that “implications of bad faith should not form a basis to determine liability in a first party insurance coverage action.” The Fourth District agreed, finding that criticism of the insurer’s claim handling practices as a business practice was improper. The Court likewise agreed that the insured improperly used his questioning of the litigation manager as an opportunity to paint the insurer as a carrier that denies claims for any (or no) reason, which inappropriately shifted the focus to the insurer’s claim handling and bad faith. The issues of claim handling and bad faith were not before the jury and not proper considerations in a breach of contract action, where the insurer’s liability for coverage and damages has yet to be determined. The Court concluded that this, along with other errors at trial, warranted a new trial.