2021 Colorado Code
Title 10 - Insurance
Article 3 - Regulation of Insurance Companies
Part 11 - Unfair Competition - Deceptive Practices
§ 10-3-1113. Information to Trier of Fact in Civil Actions

1. In any civil action for damages founded upon contract, or tort, or both against an insurance company, the trier of fact may be instructed that the insurer owes its insured the duty of good faith and fair dealing, which duty is breached if the insurer delays or denies payment without a reasonable basis for its delay or denial.
2. Under a policy of liability insurance, the determination of whether the insurer's delay or denial was reasonable shall be based on whether the insurer's delay or denial was negligent.
3. Under a policy of first-party insurance, the determination of whether the insurer's delay or denial was reasonable shall be based on whether the insurer knew that its delay or denial was unreasonable or whether the insurer recklessly disregarded the fact that its delay or denial was unreasonable.
4. In determining whether an insurer's delay or denial was reasonable, the jury may be instructed that willful conduct of the kind set forth in section 10-3-1104 (1)(h)(I) to (1)(h)(XIV) is prohibited and may be considered if the delay or denial and the claimed injury, damage, or loss was caused by or contributed to by such prohibited conduct.

History. Source: L. 87: Entire section added, p. 423, § 1, effective July 1.

Law reviews. For article, “1988 Update on Colorado Tort Reform Legislation -- Part II”, see 17 Colo. Law. 1949 (1988). For comment, “Comprehensive General Liability Insurance Coverage for CERCLA Liabilities: A Recommendation for Judicial Adherence to State Canons of Insurance Contract Construction”, see 61 U. Colo. L. Rev. 407 (1990). For comment, “Comprehensive General Liability Insurance Coverage for CERCLA Liabilities: A Recommendation for Judicial Adherence to State Canons of Insurance Contract Construction”, see 61 U. Colo. L. Rev. 407 (1990).

Preemption of insurance provisions under the federal “Employee Retirement Income Security Act”. ERISA does not preempt persons from state laws which regulate insurance, banking, and securities. The test for whether a state law falls under the “business of insurance” is: (1) Whether the state law has the effect of transferring or spreading a policy holder's risk; (2) whether the state law is an integral part of the policy relationship between the insurer and the insured; and (3) whether the state law is limited to entities within the insurance industry. Denette v. Life of Indiana Ins. Co., 693 F. Supp. 959 (D. Colo. 1988 ).

Subsection (1)(a) and (1)(c) meet only the third requirement of the test and therefore does not regulate insurance. Denette v. Life of Indiana Ins. Co., 693 F. Supp. 959 (D. Colo. 1988 ).

Arbitration under this section may bar bad faith and punitive damage claim. Plaintiff who raised issue of unreasonable delay in arbitration was barred by collateral estoppel from asserting in court separate claims for bad faith and punitive damages. Leahy v. Guaranty Nat. Ins. Co., 907 P.2d 697 (Colo. App. 1995).

Supreme court overrules Leahy v. Guaranty Nat. Ins. Co., 907 P.2d 697 (Colo. App. 1995), to the extent it can be read as equating willful and wanton conduct under the no fault act and insurance bad faith. Dale v. Guaranty Nat'l Ins. Co., 948 P.2d 545 (Colo. 1997).

A surety is subject to a claim of bad faith by the beneficiary of a contract. Although no contract had been entered into between a school district and the surety for the contractor hired by the district, the trial court did not err in allowing the district's common law claim for bad faith breach of the performance bond contract to be submitted to the jury. Brighton Sch. Dist. 27J v. Transamerica Premier Ins. Co., 923 P.2d 328 (Colo. App. 1996), aff'd, 940 P.2d 348 (Colo. 1997).

This section applies only to insurers and not insurance brokerage firms. Sewell v. Great N. Ins. Co., 535 F.3d 1166 (10th Cir. 2008).

Jury instruction that failed to define “reasonable basis” was defective. Miller v. Byrne, 916 P.2d 566 (Colo. App. 1995).