Colorado’s Legislature Significantly Modifies Failure to Cooperate Defense
February 8, 2021
The Colorado Supreme Court has long recognized that there are reciprocal duties owed by insurers and their insureds; namely, the insurance provider has a duty to act in good faith in investigating claims and insureds owe contractual duties of cooperation and reporting. State Farm Mut. Auto. Ins. Co. v. Brekke, 105 P.3d 177, 186-189 (Colo. 2004). Nonetheless, the Colorado legislature recently passed legislation imposing significant hurdles on insurers seeking to invoke the failure to cooperate defense, thereby making it materially difficult to enforce policy terms and conditions.
The Insured’s duty of cooperation and reporting generally require the insured to assist the insurer when asked in the process of negotiating settlement, securing and giving evidence, attending hearing and trials, and assisting witnesses to attend hearings and trials. See, Brekke supra at 189. The insured is also generally required to assure that the insurer has all of the information about the nature of the claim before it pays the claim. Id. If the insured’s duties are complied with, “the insured will provide extensive information to the insurance provider that it may use to determine what occurred in the accident underlying the [UM/UIM] claim.” Id.
Notwithstanding this, Colorado’s legislature recently enacted a new law which significantly frustrates the failure to cooperate defense and protects insureds who do not provide complete, timely and accurate information to insurance companies. The new law, C.R.S. §10-3-1118, creates loopholes that are likely to frustrate the investigatory process and delay the handling of claims. Any carrier who fails to jump through the many hoops established by the legislation will be precluded from asserting that the claimant failed to cooperate with the insurer’s attempts to investigate the claim.
Effective September 15, 2020, C.R.S. §10-3-1118 provides that each of the following conditions must be met before a failure to cooperate defense can be asserted in a court of law or an arbitration:
(a) Written Request for the Information. The Insurer must submit a written request to the insured (or the insured’s representative) for the information the insurer seeks via (a) electronic means, if the insured or the insured’s representative has consented to receive electronic documents from the insurer; or (b) certified mail;
(b) Not Otherwise Available. The information sought must be unavailable to the insurer without the assistance of the insured;
(c) Insured’s Time to Respond. The written request must provide the insured sixty (60) days to respond;
(d) Reasonable Person Standard. The written request must be for information a “reasonable person” would determine the insurer needs to adjust the claim filed by the insured or to prevent fraud [although the statute identifies a “reasonable person” standard, the courts may interpret this to require a “reasonable insurer” standard]; and
(e) Opportunity to cure. The insurer must give the insured an opportunity to cure, which must (i) include the furnishing of written notice to the insured of the alleged failure to cooperate, describing with particularity the alleged failure, within sixty days after the alleged failure; and (ii) allow the insured sixty (60) days after the receipt of the written notice to cure the alleged failure to cooperate.
C.R.S. §10-3-1118 also provides that the 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” and that the “existence of a duty to cooperate in a policy does not relieve the insurer of its duty to investigate or to comply with section 10-3-1104.”
Last, the statute provides that “an insurer is not liable for a claim in a civil action based upon a bad-faith breach of contract under common law or sections 103-1115 and 10-3-1116 because the insurer solely provides the insured with the required amount of time to: (a) to respond to the insurer’s written request as specified under subsection (1)(c) of this section; and (b) to cure the alleged failure to cooperate as specified under subsection 1(e) of this section.” Pursuant to the statute, any language in a policy that conflicts with the statute is void as against public policy.
This statute significantly modifies the failure to cooperate defense in Colorado 1st party insurance matters. Revision of claims handling procedures by insurers is necessary to ensure that insurers are able to enforce the language in their policies.