Colorado General Assembly Sets Forth Prerequisites for an Insurance Company to Use Failure to Cooperate as a Defense to a Claim for First Party Insurance Benefits
Despite first party insurance policies generally requiring cooperation from an insured in the investigation of a claim, insurers can no longer rely on the failure to cooperate as a defense in a claim for first party insurance benefits in Colorado unless certain conditions are met.
On July 2, 2020, Colorado Governor Jared S. Polis signed House Bill 20-1290 which addresses the ability of an insurer to use a failure to cooperate defense in an action where the insured has made a claim for benefits under an insurance policy. This bill bars an insurer from raising the failure to cooperate unless the following conditions are met:
- The insurer submitted a written request to the insured or the insured’s representative for the information (via electronic means if consent was given by insured or insured’s representative, or via certified mail);
- The information is not available to the insurer without the assistance of the insured;
- The written request provides the insured 60 days to respond;
- The written request is for information a reasonable person would determine the insurer needs to adjust the claim filed by the insured or to prevent fraud; and
- The insurer gives the insured an opportunity to cure, which must:
- Provide written notice to the insured of the alleged failure to cooperate, describing with particularity the alleged failure within 60 days after the alleged failure; and
- Allow the insured 60 days after receipt of the written notice to cure the alleged failure to cooperate.
A failure to cooperate defense acts as a defense to the portion of the claim materially and substantially prejudiced to the extent the insurer could not evaluate or pay that portion of the claim.
The duty to cooperate in a policy does not relieve the insurer of its duty to investigate or to comply with Colo. Rev. Stat. § 10-3-1104, the Unfair Claim Settlement Practices Act. Any language in a first-party policy that conflicts with this section is void as against Colorado public policy.
An insurer is not liable in a civil action based on a common law bad faith claim or under statutory violation of Colo. Rev. Stat. §§ 10-3-1115 and -1116 because the insurer provides the insured with the required amount of time to: (a) respond to the insurer’s written request with 60 days and (b) to cure the alleged failure to cooperate as required by the statute.
This act takes effect on September 14, 2020, except that if a referendum petition is filed against this act or an item, section, or part of this act within such period, then the act, item, section or part will not take effect unless approved by the people at the general election in the November 2020 election. In such case, it will take effect on the date of the official declaration of the vote by the governor.
Effect on Claims Handling:
Consistent with prior Colorado legal decisions, for an insurer to assert the failure to cooperate as a defense, the insurer must prove the insured failed to cooperate in some material and substantial respect and that the insurer was prejudiced. If these conditions were met, the insured forfeited his or her right to benefits under the insurance policy. This bill now requires an insurer to give written notice of a request for information, give the insured 60 days to respond, and the requested information must be information that a reasonable person would determine the insurer needs to adjust the claim or to prevent fraud. Further, the insurer must give the insured an opportunity to cure the failure to cooperate, including furnishing written notice of the failure to cooperate within 60 days of the alleged failure. These steps must be taken in advance of pleading a failure to cooperate defense in a court of law or an arbitration.
Attention must be paid to this bill as it will impact claims handling in first party insurance matters. If there are any questions regarding the above or if you need assistance with bad faith issues in Colorado, please contact the attorneys at Gordon Rees Scully Mansukhani, LLP.