Colorado Division of Insurance Reissues Bulletin on Colorado Homeowners’ Right to Obtain Additional or Enhanced Coverages

Timothy Burchard | Property Insurance Coverage Law Blog | January 5, 2019

Balancing the cost of insurance premiums and the potential costs related to being displaced from your home, repair costs required by local building code, or higher replacement costs can be challenging for a homeowner. For Colorado homeowners, it is important to understand that they have rights to additional and/or enhanced insurance coverage options if they so choose.

On January 1, 2019, the Colorado Division of Insurance reissued Bulletin No. B-5.35 providing guidance on Colorado Statutes §§ 10-4-110.8(6)(a) and 10-4-110.8(6)(b) pertaining to the requirement that insurance carriers offer the option of certain additional coverage or coverage enhancements to Colorado homeowners, including:

  • Extended Replacement-Cost coverage equal to at least twenty percent of the dwelling limit;
  • Colorado Law and Ordinance coverage equal to ten percent of the dwelling limit; and
  • Additional Living Expense coverage for a total of twenty-four (24) months in their homeowners’ insurance policy.

These coverage options are extremely important considerations for any homeowner. First, while the replacement-cost coverage selected when a homeowner may have been appropriate at the time they purchased the insurance policy, costs of repair, building materials, and other related issues can, and usually do, increase over time. Second, city, county, and state building codes also change to meet updated fire and safety standards, and if your policy does not include law and ordinance coverage, you could be stuck with the cost of updating insulation, electrical wiring, and/or plumbing to current code requirements, which may otherwise be excluded without law and ordinance coverage. Finally, if a disaster occurs displacing you from your home, Colorado state law requires insurance carriers to offer the option of Additional Living Expense coverage up to 24 months. This coverage provides the cost of obtaining housing during a period of displacement. While it is likely unfathomable for most to think of being displaced for two years, according to the Colorado state law insurance carriers must provide the option of this added protection.

By reissuing Bulletin No. B-5.35, the Colorado Division of Insurance has made it clear that it continues to believe these additional and/or enhanced coverage options provide significant protections for Colorado homeowners. While not every homeowner may feel the need to include these coverages, it is important to know that your insurance carrier must offer these additional or enhanced options in Colorado.

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.

Colorado Notice Standard Update For Residential and Commercial Property Damage

Timothy Burchard | Property Insurance Coverage Law Blog | August 24, 2018

Many of us in Central Colorado remember the hail storm that wreaked havoc on the Denver metro area in May 2017. What happens when hailstorm damage to your property does not manifest itself for a period of months, or even a year later? Should a claim be denied for being reported once discovered? Unfortunately, the standard surrounding late notice continues to be unclear in the Colorado courts today.

Earlier this year my colleague, Jonathan Bukowski, discussed the 2017 Colorado Federal Court decision rendered by Judge Arguello,1 where the trial court applied the Traditional Notice Ruleto the issue of late notice, providing that “failure to notify the insurer within a reasonable time constitutes a breach of that contract requiring a justifiable excuse or extenuating circumstances explaining the delay.” In relying upon the Traditional Notice Rule, Judge Arguello concluded that the policyholder’s lack of familiarity or sophistication in insurance matters was not a justifiable excuse for its delayed notice to the insurance carrier. In short, ignorance of contractual requirements, does not excuse the duty to notify your insurance carrier of a potential covered claim.

More recently, Colorado Federal District Court Judge Martinez, issued an opinion in Sunflower Condominium Association v. Owners Insurance Company,2 in which he applied the Notice-Prejudice Rule, instead of the Traditional Notice Rule. Importantly, unlike the more stringent Traditional Notice Rule which requires proof of a justifiable excuse for delay in notifying a carrier of covered damages, the Notice-Prejudice Rule offers policyholder’s the opportunity requires the court to:

  1. Determine whether an insured provided their notice timely, through evaluation of whether the timing of the notice and the reasonableness of any delay;
  2. If such notice is determined untimely was the delay unreasonable, determine whether the insurance carrier was prejudiced by such untimely notice.

Located in Aurora, Colorado, the Sunflower property is a multi-family complex of condominiums which sustained damages resulting from a hail and wind storm that occurred on September 29, 2014. Sunflower first submitted its claim for storm caused damages over fourteen months later in December 2015. When Sunflower and Owners could not agree upon the amount of loss, Sunflower filed suit for breach of contract and the unreasonable delay and denial of covered benefits.

During litigation, the court considered several facts demonstrating Sunflower may have been aware of the damages much earlier and could have provided notice sooner – a Sunflower board member had filed a claim for damages to her car one month after the hail storm, the board had received a work proposal for the property that indicated hail damage in April 2015, and a contractor informed a Sunflower board member of the hail damage during a phone call that summer.

Agreeing that Sunflower had multiple opportunities to deliver notice to Owners sooner, Judge Martinez ultimately determined that the timing of Sunflower’s notice was untimely and unreasonable. Judge Martinez then turned to the second step of the Notice-Prejudice Rule – did the untimely notice prejudice the insurance carrier’s investigation of the claim. Judge Martinez ultimately determined that Owners investigation had been prejudiced by Sunflower’s unreasonable delay in providing notice of the claimed damages, as multiple hail storms had occurred between the claim and the September 2014 hail storm.

While this decision led to the unfortunate demise of Sunflower’s claim, Judge Martinez’ pivot towards the Notice-Prejudice Rule may provide Colorado policyholders a step towards the majority approach applied throughout the country. This approach provides a more level playing field between policyholders and insurance carriers, and hopefully it is a step towards a new standard in Colorado. However, the Sunflower case provides an important reminder to always provide notice to the insurance carrier at the first sign of damage to your property to avoid any late notice arguments down the road. While you may have strong and supportable reasons for delaying notice to an insurance carrier of covered damages, the court can always see things differently.
1 Cherry Grove East II Condo. Assoc. v. Philadelphia Indem. Ins. Co., No.1:16-cv-02687 (Colo. D. Dec. 27, 2017).
2 Sunflower Condo. Assoc., Inc. v. Owners Ins. Co., No. 1:16-cv-2946-WJM-NYW (Colo. D. May 14, 2018).

Colorado Supreme Court Finds One-Year Statute of Limitations Inapplicable to Statutory Bad Faith Claims

Jessica C. Collier and Kayla D. Dreyer | Wilson Elser | June 7, 2018

The Colorado Supreme Court has provided some much-needed certainty as to the statute of limitations period for statutory bad faith claims. Chief Justice Nancy Rice, the author of the court’s May 29, 2018, opinion in Rooftop Restoration, Inc. v. American Family Mutual Insurance Company, determined the one-year statute of limitations reserved for penalty-type statutes to be inapplicable to statutory bad faith claims made against insurance carriers.


A homeowner experienced hail damage to the roof of her house, which was insured by American Family. The insurance carrier and insured disagreed about the cost to repair the hail damage, leading the insured to assign any potential claims against the carrier to the insured’s roofing contractor, Rooftop Restoration. A lawsuit against American Family for breach of contract and unreasonable delay or denial of insurance benefits pursuant to section 10-3-1116(1) C.R.S. followed. American Family moved to dismiss the statutory bad faith claim as barred by a one-year statute of limitations. Recognizing that the limitations period was an open question of law, the court certified it for consideration to the Supreme Court.

As an initial matter, the Colorado Legislature regulates the claims-handling practices of insurance carriers by providing insureds with a private right of action against their insurer. Insurance carriers may not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party claimant. Should a claimant be aggrieved pursuant to section 10-3-1115, then she is entitled to bring a claim and recover reasonable attorneys’ fees and court costs and two times the covered benefit. C.R.S. § 10-3-1116(1).

The bad faith statute previously lacked any explicit direction from the Legislature as to which limitations period should apply. Cf. Gargano v. Owners Ins. Co., No. 12-cv-01109-CMA—BNB, 2014 WL 1032303, at 3 (D. Colo. Mar. 18, 2014), aff’d 623 F. App’x 921 (10th Cir. 2015) (holding that the two-year limitation applied to both bad faith breach of an insurance contract claims and statutory bad faith claims); Mascarenas v. Am. Family Mut. Ins. Co., No. 14-cv-02799-KLM, 2015 WL 8303604, at 8 (D. Colo. Dec. 8, 2015) (explaining that statutory bad faith claims are subject to a one-year statute of limitations because such claims are penal in nature, and do not contemplate an award of actual damages).

Insurance carriers championed a one-year limitations period, which in Colorado applies to “all actions for any penalty or forfeiture of any penal statutes.” C.R.S. § 13-80-103(1)(d). Thus, the query before the Supreme Court turned on its determination as to whether section 10-3-1116 amounted to a penalty.

American Family urged the Colorado Supreme Court to apply the judicially created Kruse test in making its inquiry. Pursuant to Kruse, a statute is penal if (1) the statute asserted a new and distinct cause of action, (2) the claim would allow recovery without proof of actual damages and (3) the claim would allow an award in excess of actual damages. Kruse v. McKenna, 178 P.3d 1198, 1201 (Colo. 2008). The court declined to follow Kruse in this instance, abrogating the test when the legislative intent is “clear” that a particular cause of action is or is not governed by a certain limitations period.

The Decision

Quickly disposing of Kruse, the court turned to a purely textual analysis of the statutes. First, the court observed that the term “penalty” is defined as punishment imposed on a wrongdoer − a quality the bad faith statute lacks because Colorado does not directly impose a fine on the insurer acting in contravention of the law. Justice Rice then expanded her search into the broader statutory landscape by examining the interplay between the statute of limitations for penalties, the bad faith statute and the accrual statute for penalties. The accrual statute provides that a claim for penalties accrues for limitations purposes when the determination of overpayment or delinquency, for which a penalty may be assessed, is no longer subject to appeal. C.R.S. § 13-80-108(9).

The court observed that in accordance with section 10-3-1116(1), a statutory bad faith action can never result in a determination of overpayment or delinquency. Thus, the court found that if the bad faith statute is a penalty, the cause would never accrue under the statute, which the court deemed an impossible result because it would render the statute of limitations meaningless. Thus, the court held that the bad faith statute is not a penalty, and therefore not subject to the one-year statute of limitations.

This decision by the Colorado Supreme Court and another decision issued the same day in American Family Mutual Insurance Co. v. Barriga, continue the Colorado line of decisions interpreting the language of C.R.S. §§ 10-3-1115 and 10-3-1116 in favor of insureds.

Court Says Claims for Unreasonable Delay or Denial of Insurance Benefits Can Be Filed Beyond One Year

Jonathan Bukowski | Property Insurance Coverage Law Blog | June 12, 2018

As discussed in a previous post, Colorado allows policyholders—even repair vendors such as contractors or roofers where there has been an assignment of insurance benefits—to bring a cause of action for bad faith where an insurance company unreasonably delays or denies the payment of covered insurance benefits.1

This law allows the potential recovery of two times the covered insurance benefits that have not been paid, or that were paid after an unreasonable delay. The statute provides a powerful deterrent against the wrongful delay or denial of insurance benefits to policyholders. While the statute provides strong protection for policyholders, the legislature did not assign a timeframe for which a policyholder or repair vendor must bring a claim for the unreasonable delay or denial of insurance benefits leading to much uncertainty.

The Colorado Supreme Court issued two important decisions this week surrounding Colorado’s statutory bad faith law. My colleague, Ashley Harris, previously wrote about the Colorado Supreme Court’s decision in American Family Mutual Insurance Company v. Barriga, holding that an award for unreasonable delay or denial of insurance benefits cannot be reduced by payments delayed, but later paid by an insurance carrier. This post will discuss Rooftop Restoration, Inc. v. American Family Mutual Insurance Company, and the Colorado Supreme Court’s decision to strike down arguments made by insurance carriers that any claim for unreasonable denial or delay of payment of benefits must be brought within one year.

In late August 2013, the insureds timely filed a claim for hail damages to their property with American Family. American Family inspected the property several days later, determining that the damage to the insureds property did not exceed the $1000.00 deductible of their policy. The insureds assigned their insurance claim to Rooftop Restoration, who provided American Family an estimate for damages of approximately $70,000.00 in May 2014. Following a reinspection, American Family increased its estimate to $4,000.00 and issued payment less the policy’s deductible on May 28, 2014. Rooftop Restoration subsequently sued for breach of contract and unreasonable delay and denial of insurance benefits in September 2015. American Family moved to dismiss Rooftop Restoration’s bad faith claim for unreasonable delay and denial of benefits as untimely, arguing that a claim for the unreasonable delay or denial of insurance benefits is penal in nature and therefore must be brought within one year. Due to the lack of a controlling decision on the issue, the lower court requested that the Colorado Supreme Court provide direction.

After considering the legislative intent in creating the statute, the Colorado Supreme Court ultimately ruled that the one-year statute of limitations applicable to penal actions did not apply to Colorado’s unreasonable delay and denial statute because the legislature did not intend the statute to operate as a penalty. The Colorado Supreme Court decision is helpful to policyholders where even the property adjustment of an insurance claim can take well over one year to complete.

While the Court’s decision brings some clarity to the time requirements for filing a claim for the unreasonable delay or denial of insurance benefits, the Colorado Supreme Court did not specifically identify the limitation period applicable to a cause of action under for the unreasonable delay or denial of insurance benefits. Therefore, it remains important to pay attention to the claims process and identify unreasonable conduct by the insurance carrier. If you have been affected by one of the many recent Colorado hailstorms and feel that your insurance company has unreasonably delayed or denied the payment insurance benefits, consider contacting a Colorado licensed attorney experienced in protecting first-party policyholder claims.
1 Colorado Revised Statute § 10-3-1115 and § 10-3-1116.