2021 Colorado Code
Title 10 - Insurance
Article 3 - Regulation of Insurance Companies
Part 11 - Unfair Competition - Deceptive Practices
§ 10-3-1116. Remedies for Unreasonable Delay or Denial of Benefits - Required Contract Provision - Frivolous Actions - Severability - Definition - Rules

1. A first-party claimant as defined in section 10-3-1115 whose claim for payment of benefits has been unreasonably delayed or denied may bring an action in a district court to recover reasonable attorney fees and court costs and two times the covered benefit.
2. An insurance policy, insurance contract, or plan that is issued in this state and that offers health or disability benefits shall not contain a provision purporting to reserve discretion to the insurer, plan administrator, or claim administrator to interpret the terms of the policy, contract, or plan or to determine eligibility for benefits. If an insurance policy, contract, or plan contains such a provision, the provision is void.
3. An insurance policy, insurance contract, or plan that is issued in this state shall provide that a person who claims health, life, or disability benefits, whose claim has been denied in whole or in part, and who has exhausted the person's administrative remedies:
   1. Is entitled to have the person's claim reviewed de novo in any court with jurisdiction; and
   2. Is entitled to a trial by jury.

4. The action authorized in this section is in addition to, and does not limit or affect, other actions available by statute or common law, now or in the future. Damages awarded pursuant to this section shall not be recoverable in any other action or claim.
5. If the court finds that an action brought pursuant to this section was frivolous as provided in article 17 of title 13, C.R.S., the court shall award costs and attorney fees to the defendant in the action.
6. If any provision of this section, or of any subsection or portion of this section, or its application to any person or circumstance is held illegal, invalid, or unenforceable, no other provisions or applications of this section shall be affected that can be given effect without the illegal, invalid, or unenforceable provision or application, and to this end the provisions of this section are severable.
7. The general assembly declares that this section is a law regulating insurance.
8. As used in this section, “issued in this state” refers to every health and disability insurance policy, insurance contract, insurance certificate, and insurance agreement existing, offered, issued, delivered, or renewed in the state of Colorado or providing health or disability benefits to a resident or domiciliary of the state of Colorado and every employee benefit plan covering a resident or domiciliary of the state of Colorado, whether or not on behalf of an employer located or domiciled in Colorado, on or after August 5, 2008, notwithstanding any contractual or statutory choice-of-law provision to the contrary.

History. Source: L. 2008: Entire section added, p. 2173, § 5, effective August 5. L. 2020: (2), (3), and (6) amended and (8) added,(SB 20-176), ch. 301, p. 1499, § 2, effective September 14.

For the legislative declaration in SB 20-176, see section 1 of chapter 301, Session Laws of Colorado 2020.

Law reviews. For article, “CRS §§ 10-3-1115 and -1116: Providing Remedies to First-Party Claimants”, see 39 Colo. Law. 69 (July 2010). For article, “CRS § 10-3-1116 , ERISA Preemption, and the Standard of Review”, see 39 Colo. Law. 75 (July 2010).

This section is not expressly preempted by the federal Employee Retirement Income Security Act of 1974 (ERISA). McClenahan v. Metro. Life Ins. Co., 621 F. Supp. 2d 1135 (D. Colo. 2009 ); Arapahoe Surgery Ctr., LLC v. Cigna Healthcare, Inc., 171 F. Supp. 3d 1092 (D. Colo. 2016 ); Ellis v. Liberty Life Assur. Co. of Boston, 333 F. Supp. 3d 1083 (D. Colo. 2018 ).

This section is saved from preemption by ERISA because it is a law regulating insurance within the meaning of 29 U.S.C. § 1144(b)(2)(A). Kohut v. Hartford Life & Acc. Ins. Co., 710 F. Supp. 2d 1139 (D. Colo. 2008 ).

Statutory insurance bad faith claim is preempted by ERISA. Claim based on unreasonable delay pursuant to subsection (1) is preempted under the principles of conflict preemption. Timm v. Prudential Ins. Co. of Am., 259 P.3d 521 (Colo. App. 2011).

ERISA preempts subsection (3) of this section in its entirety. Shafer v. Metro. Life Ins. Co., 80 F. Supp. 3d 1244 (D. Colo. 2015 ).

A mandatory arbitration clause in a health care insurance policy is invalidated by the policy's conformity clause for those claims covered by subsection (3). The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 to 10, does not preempt subsection (3) because the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 to 1015, exempts a state law from FAA preemption for the purpose of regulating the business of insurance. Meardon v. Freedom Life Ins. Co., 2018 COA 32 , 417 P.3d 929.

This section does not apply retroactively. There is no evidence suggesting that the general assembly intended this section to apply retroactively. Accordingly, it operates prospectively. Kohut v. Hartford Life & Acc. Ins. Co., 710 F. Supp. 2d 1139 (D. Colo. 2008 ).

Subsection (2) does not apply to a group disability income policy issued prior to its enactment. Ellis v. Liberty Life Assur. Co. of Boston, 333 F. Supp. 3d 1083 (D. Colo. 2018 ).

Application of this section to dispute involving termination of long-term disability benefits would constitute an improper retrospective application of the statute. Statute became effective after all of the events relevant to the case had occurred, including the filing of the lawsuit. McClenahan v. Metro. Life Ins. Co., 621 F. Supp. 2d 1135 (D. Colo. 2009 ).

The reasonableness of fees and costs available under subsection (1) is not a legal claim for purposes of whether a right to a jury trial is indicated within the meaning of the seventh amendment's civil jury trial guarantee, and, as a consequence, the guarantee does not apply to the resolution of the issue. Cope v. Auto-Owners Ins. Co., 437 F. Supp. 3d 890 (D. Colo. 2020 ).

Given the phrase “covered benefit” in subsection (1), a cause of action hangs on a finding of coverage; in other words, it cannot be unreasonable to delay or deny coverage that does not exist. Domokos v. Shelter Mut. Ins. Co., 416 F. Supp. 3d 1206 (D. Colo. 2019 ).

Subsection (2) cannot be applied to policies renewed after their effective date. The general assembly's failure to expressly state that subsection (2) would apply to insurance policies renewed after their effective date despite having done so with respect to other statutes was an intentional omission that precludes the prospective application of subsection (2) based on policy renewals. Ellis v. Liberty Life Assur. Co. of Boston, 333 F. Supp. 3d 1083 (D. Colo. 2018 ).

Renewal of a group long-term disability insurance policy that was issued 13 years prior to this section's effective date does not automatically render the policy susceptible to the terms and conditions of this section. Because this section does not apply retroactively, it does not apply to the long-term disability claim. Mustain-Wood v. Nw. Mut. Life Ins. Co., 938 F. Supp. 2d 1081 (D. Colo. 2013 ).

Under the plain language of § 10-3-1115 (1)(a) and this section, an insured can argue that benefits were unreasonably denied when an insurer denies a claim outright, and the insured can assert unreasonable delay when the insurer pays on a claim but disputes the value of that claim, thereby delaying payment of the claim's full value. Soicher v. State Farm Mut. Auto. Ins. Co., 2015 COA 46 , 351 P.3d 559.

Where insurer did not reject claim for benefits and made a partial payment to the insured but failed to pay the full amount being sought, the case does not involve the unreasonable denial of a claim; rather, it involves an alleged unreasonable delay in paying the benefits purportedly due. Soicher v. State Farm Mut. Auto. Ins. Co., 2015 COA 46 , 351 P.3d 559.

Insured may bring a claim to recover two times the amount of covered benefits that insurer unreasonably delayed or denied even though insurer paid a portion of those benefits and insured seeks the remainder in another claim. Rabin v. Fid. Nat'l Prop. & Cas. Ins. Co., 863 F. Supp. 2d 1107 (D. Colo. 2012 ); Nibert v. Geico Cas. Co., 2017 COA 23 , __ P.3d __.

Completion of a contractual insurance appraisal process, unlike arbitration, does not preclude breach of contract and statutory bad faith claims as a matter of law under this section and § 10-3-1115 . The appraisal process determines the value of insured property, it does not determine the insurance company's liability for breach of contract or statutory bad faith delay. Andres Trucking Co. v. United Fire & Cas. Co., 2018 COA 144 , __ P.3d __.

A statutory damages award of two times a delayed benefit -- even when that benefit has already been paid, resulting in an effective payment to an insured of three times the contracted benefit -- is contemplated by the plain meaning of this section. Nibert v. Geico Cas. Co., 2017 COA 23 , __ P.3d __.

This section and § 10-3-1115 impose on insurers a statutory standard of liability in addition to and different from that required to prove a claim for breach of the common law duty of good faith and fair dealing as expressed in § 10-3-1113 . Kisselman v. Am. Family Mut. Ins. Co., 292 P.3d 964 (Colo. App. 2011).

Because the repair vendor was “asserting an entitlement to benefits owed . . . on behalf of” the insureds, the repair vendor is a first-party claimant for purposes of § 10-3-1115 and this section. Kyle W. Larson Enters. v. Allstate Ins., 2012 COA 160 M, 305 P.3d 409.

Liability under this section and § 10-3-1115 is not limited to claims-handling conduct. Home Loan Inv. Co. v. St. Paul Mercury Ins. Co., 827 F.3d 1256 (10th Cir. 2016).

A third-party administrator or a plan advisor may not be held liable for unreasonable denial of benefits. “A person engaged in the business of insurance” includes only those individuals or entities against whom a common law claim of bad faith breach of insurance would lie. Riccatone v. Colo. Choice Health Plans, , 315 P.3d 203 .

Under this section, the measure of recovery for unreasonable delay or denial of benefits is the “covered benefit” the payment of which was unreasonably delayed or denied. There is no requirement under § 10-3-1115 that a claimant suffer and prove “damages” attributable to any unreasonable delay or denial. If an insurer unreasonably delayed payment of a covered benefit, the claimant is entitled under this section to an award of two times the covered benefit. Etherton v. Owners Ins. Co., 829 F.3d 1209 (10th Cir. 2016).

This section provides for an award of a penalty equaling two times the covered benefit in addition to a plaintiff's damages awarded in a breach of contract claim. Home Loan Inv. Co. v. St. Paul Mercury Ins. Co., 827 F.3d 1256 (10th Cir. 2016).

An insured may bring both a claim under this section and a breach-of-contract claim and, if successful, recover under both claims because the acts constituting the two claims are factually separate from each other. Am. Family Mut. Ins. Co. v. Barriga, 2018 CO 42, 418 P.3d 1181.

Where an adversarial proceeding is filed and a genuine disagreement as to the amount of compensatory damages exists, the duty to negotiate is suspended, and there is no duty to advance payment of claims. Baker v. Allied Prop. & Cas. Ins. Co., 939 F. Supp. 2d 1091 (D. Colo. 2013 ).

Attorney fees and costs must be determined before a trial court may enter a final judgment because attorney fees and costs are components of damages under this statute. Hall v. Am. Standard Ins. Co. of Wis., 2012 COA 201 , 292 P.3d 1196; Stresscon Corp. v. Travelers Prop. Cas. Co., 2013 COA 131 , 373 P.3d 615, rev'd on other grounds, 2016 CO 22M, 370 P.3d 140.

Award of attorney fees under this section is not limited to the date when delay began. The only limitation on the award of attorney fees is reasonableness after a factual determination of fees by the trial court. Nibert v. Geico Cas. Co., 2017 COA 23 , __ P.3d__.

A claim made pursuant to this section is not: a claim for slander or libel; a claim for punitive damages or a penalty; or a tort action based upon personal injury. Hence, under the survival statute, § 13-20-101 , the claim survives a plaintiff's death and neither the punitive damages limitation nor the pain and suffering limitation applies to the claim. Instead, attorney fees and costs can constitute actual damages and be considered in calculating punitive damages. Guarantee Trust Life v. Estate of Casper, 2018 CO 43, 418 P.3d 1163.

Unreasonable delay or denial is not a wrong done to the person or to personal or real property, and so it may not be the basis for punitive or exemplary damages. A claim premised on recovering “reasonable attorney fees and court costs and two times the covered benefit” under subsection (1), is not a claim for “a wrong done to the person or to personal or real property” under § 13-21-102 (1)(a) . Or, at the very least, it is no more a claim for “a wrong done to the person or to personal or real property” than the underlying claim for breach of insurance contract -- and the law is settled that punitive damages are unavailable for breach of contract. Residences at Olde Town Square Ass'n v. Travelers Cas. Ins. Co. of Am., 413 F. Supp. 3d 1070 (D. Colo. 2020 ).

This section was enacted as a remedial measure. Without the “fees-on-fees” provision, a successful insured's award of two times the covered benefit and attorney fees and costs would be substantially depleted by the costs of the fee proceeding. Stresscon Corp. v. Travelers Prop. Cas. Co., 2013 COA 131 , 373 P.3d 615, rev'd on other grounds, 2016 CO 22M, 370 P.3d 140.

Punitive or exemplary damages are not an available remedy for an unreasonable delay or denial cause of action created by this section and § 10-3-1115 . A claim premised on recovering reasonable attorney fees and court costs and two times the covered benefit is not a claim for “a wrong done to the person or to personal or real property” under § 13-21-102 (1)(a) . It is no more a claim for a wrong done to the person or to personal or real property than the underlying claim for breach of insurance contract -- and the law is settled that punitive damages are unavailable for breach of contract. Residences at Olde Town Square Ass'n v. Travelers Cas. Ins. Co. of Am., 430 F. Supp. 3d 743 (D. Colo. 2019 ).

The legislature did not intend for the one-year statute of limitations found in § 13-80-103 (1)(d) to apply to subsection (1) of this section. The three-part test described in Kruse v. McKenna, 178 P.3d 1198 (Colo. 2008), is not applicable when the intent of the legislature is clear that a particular cause of action is or is not governed by a certain statute of limitations. Rooftop Restoration, Inc. v. Am. Family Mut. Ins. Co., 2018 CO 44, 418 P.3d 1173.

The trial court erroneously deducted from the amount of damages awarded under this section an amount that the insurer eventually paid the first-party claimant, but the statute allows a first-party claimant to recover two times the entire covered benefit for an unreasonable delay in paying benefits. Am. Family Mut. Ins. Co. v. Barriga, 2018 CO 42, 418 P.3d 1181.

No error in denial of jury instruction on defendant's theory of the case when defendant had an opportunity to present evidence and argue theory. Defendant requested instruction that it is reasonable for an insurer to challenge claims that are “fairly debatable”. The requested instruction misstated the law, however, because the fairly debatable standard applies to common law bad faith claims and not a statutory delay claim under this section. Moreover, the trial court allowed the defendant to present testimony regarding reasonableness and argue the theory of defense to the jury. Nibert v. Geico Cas. Co., 2017 COA 23 , __ P.3d __.