First-Party Property Damage Demand Letter - Colorado

FIRST-PARTY PROPERTY DAMAGE DEMAND LETTER

State of Colorado

[LAW FIRM LETTERHEAD]

PRIVILEGED AND CONFIDENTIAL
SETTLEMENT COMMUNICATION — CRE 408 / C.R.S. section 13-25-135

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [________________________________]

Date: [__/__/____]

[INSURANCE_COMPANY_NAME]
[________________________________]
[CITY], [STATE] [ZIP]

Attention: [________________________________], Property Claims Supervisor

Re: FORMAL DEMAND FOR PROPERTY INSURANCE BENEFITS — COLORADO LAW
Insured: [________________________________]
Property Address: [________________________________], Colorado [____]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Type of Loss: ☐ Wildfire ☐ Hail ☐ Wind ☐ Water ☐ Fire ☐ Theft ☐ Other: [____]
Coverage A Limit: $[____]
Response Deadline: [__/__/____] at 5:00 p.m. Mountain Time

Dear [________________________________]:

I. INTRODUCTION

This firm represents [________________________________] ("our client" or "the Insured") with respect to the above-referenced first-party property insurance claim arising from a covered loss at [________________________________], Colorado. This letter constitutes a formal demand for full payment of all amounts owed under the subject policy issued by [INSURANCE_COMPANY_NAME] ("the Carrier"), together with notice that continued delay or underpayment will trigger liability under Colorado's statutory bad faith regime, C.R.S. sections 10-3-1115 and 10-3-1116.

Colorado property policyholders — particularly in the Front Range and mountain communities devastated in recent years by wildfire, hail, and windstorm events — are protected by some of the nation's strongest first-party remedies. The Colorado General Assembly, in response to the Marshall Fire and other catastrophic losses, has repeatedly expanded policyholder protections. The Carrier is on notice that our client intends to pursue every remedy Colorado law affords.

II. COLORADO PROPERTY INSURANCE LAW OVERVIEW

A. Statutory Duty of Prompt, Fair, and Reasonable Claim Handling

Colorado's Unfair Claim Settlement Practices Act, C.R.S. section 10-3-1104(1)(h), specifically prohibits fifteen categories of claim-handling misconduct including:

1. Misrepresenting pertinent facts or insurance policy provisions;
2. Failing to acknowledge and act reasonably promptly upon communications regarding claims;
3. Failing to adopt and implement reasonable standards for prompt investigation of claims;
4. Refusing to pay claims without conducting a reasonable investigation based upon all available information;
5. Failing to affirm or deny coverage within a reasonable time after proof-of-loss statements have been completed;
6. Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear;
7. Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered; and
8. Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.

B. Statutory Bad Faith — C.R.S. sections 10-3-1115 and 10-3-1116

In 2008, Colorado enacted the most policyholder-favorable statutory bad faith scheme in the western United States. Under C.R.S. section 10-3-1115(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 any first-party claimant."

An insurer's conduct is "unreasonable" under C.R.S. section 10-3-1115(2) if the delay or denial occurred "without a reasonable basis for that action." Unlike common law bad faith, the statutory claim does not require proof of the insurer's knowing or reckless state of mind. Kisselman v. American Family Mut. Ins. Co., 292 P.3d 964, 970-72 (Colo. App. 2011).

The remedy under C.R.S. section 10-3-1116(1) is extraordinary:

"A first-party claimant . . . whose claim for payment of benefits has been unreasonably delayed or denied may bring an action in a district court to recover reasonable attorneys' fees and court costs and two times the covered benefit."

The two-times-the-benefit recovery is in addition to the policy benefit itself, meaning a wrongly withheld $500,000 covered benefit exposes the Carrier to $1.5 million in statutory recovery alone, plus attorney's fees, plus common law damages.

C. Partial-Denial Trap — C.R.S. section 10-3-1115(1)(b)

Colorado's statute specifically forecloses the common insurer tactic of paying some portion of the claim while unreasonably denying another. "The fact that an insurer had a reasonable basis to contest a portion of the claim shall not be a defense to the unreasonable delay or denial of any other portion of the claim." C.R.S. section 10-3-1115(1)(b).

D. Common Law Bad Faith — Savio and Goodson

Colorado also recognizes an independent common law tort for first-party bad faith. Under Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985), and Goodson v. American Standard Ins. Co., 89 P.3d 409 (Colo. 2004), the Insured may recover:

• All consequential economic damages;
• Emotional distress damages without proof of physical injury or economic loss (the Goodson rule);
• Exemplary damages under C.R.S. section 13-21-102; and
• Any additional tort damages naturally flowing from the breach.

E. Replacement Cost Timelines — C.R.S. section 10-4-110.8 and Related Reforms

Colorado's recent homeowner-protection legislation requires insurers offering replacement cost coverage to allow the Insured a minimum of 24 months to repair or rebuild following a declared catastrophic event (extended from the earlier 12-month window), and to provide ALE for up to 36 months in declared-disaster wildfire claims. Additionally, insurers must issue written disclosures explaining how replacement cost is calculated.

F. Appraisal — Governed by Policy but Enforceable Under CO Law

Colorado has no mandatory statutory appraisal regime; appraisal is enforced as a contractual mechanism. Colorado courts construe appraisal clauses narrowly to cover only disputes as to "amount of loss," not coverage, causation, or policy interpretation questions. See Am. Family Mut. Ins. Co. v. Hansen, 375 P.3d 115 (Colo. 2016). Invocation of appraisal does not waive statutory bad faith remedies.

III. POLICY INFORMATION AND COVERAGE

A. Policy Details

B. Coverage Triggered

The loss is covered because:

• ☐ The cause (wildfire / hail / wind / water / fire / theft) is a named or all-risk peril;
• ☐ The loss occurred during the policy period;
• ☐ The damaged property is scheduled or covered property;
• ☐ No exclusion applies, or any asserted exclusion is inapplicable under Colorado's ambiguity construction rule favoring the insured; and
• ☐ All post-loss conditions have been satisfied (timely notice, protection of property from further damage, proof of loss, cooperation).

Colorado follows the rule that ambiguous policy language is construed against the drafting insurer. Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294 (Colo. 2003). All reasonable doubts will be resolved in favor of coverage.

IV. THE LOSS EVENT

A. Narrative

On [__/__/____], at approximately [____] [AM/PM], the insured premises sustained severe damage when [________________________________].

[DETAILED_FACTS — type of storm/fire/event, NWS warnings, hail size, wind speed, fire behavior, smoke exposure, etc.]

B. Cause of Loss — Colorado-Specific Perils

Colorado's geography subjects its homeowners to a distinctive mix of first-party perils. The subject loss involves:

• ☐ Wildfire (defensible-space losses; smoke/soot/ash contamination)
• ☐ Hail — [____] inch diameter hail, meeting NOAA Storm Prediction Center threshold for severe weather
• ☐ Straight-line wind / microburst / downburst — [____] mph measured
• ☐ Chinook-driven wind damage
• ☐ Winter storm / ice dam / freeze-thaw plumbing rupture
• ☐ Ground water / snowmelt intrusion
• ☐ Fire (accidental, HVAC, electrical)
• ☐ Theft / vandalism
• ☐ Other: [________________________________]

C. Mitigation and Preservation

Our client promptly complied with all post-loss conditions, including immediate mitigation:

V. CLAIM HISTORY AND CARRIER'S RESPONSE

A. Claim Timeline

B. Carrier's Position

[CARRIER_SHORT_NAME] has taken the following position: [________________________________].

C. Why the Carrier's Position Is Unreasonable Under Colorado Law

• [________________________________]
• [________________________________]
• [________________________________]

Under C.R.S. section 10-3-1115(2), each of these acts or omissions constitutes a "delay or denial of payment without a reasonable basis."

VI. DAMAGES AND CLAIMED AMOUNTS

A. Dwelling (Coverage A)

Estimate prepared by [________________________________], licensed Colorado general contractor (License No. [________________________________]):

B. Overhead and Profit — Colorado Rule

Under Colorado's prevailing authority, general contractor overhead and profit ("O&P") must be included in the repair estimate — and may not be withheld from ACV — if the use of a general contractor is reasonably likely. The Colorado Division of Insurance has repeatedly reminded insurers that improperly withholding O&P violates C.R.S. section 10-3-1104(1)(h).

C. Other Structures (Coverage B)

$[____]

D. Personal Property (Coverage C)

E. Loss of Use / Additional Living Expense (Coverage D)

Colorado's post-Marshall Fire reforms require insurers to provide ALE for the full period reasonably necessary to restore the insured to pre-loss occupancy, subject to policy limits.

F. Claim Summary

VII. STATUTORY VIOLATIONS AND BAD FAITH EXPOSURE

A. Violations of C.R.S. section 10-3-1104 (Unfair Claim Settlement Practices Act)

[CARRIER_SHORT_NAME] has violated C.R.S. section 10-3-1104(1)(h) by (without limitation):

• ☐ Failing to acknowledge and act reasonably promptly on communications;
• ☐ Failing to adopt and implement reasonable investigation standards;
• ☐ Refusing to pay without conducting a reasonable investigation;
• ☐ Failing to effectuate prompt, fair, equitable settlement when liability was reasonably clear;
• ☐ Compelling litigation by offering substantially less than owed;
• ☐ Misrepresenting pertinent facts or policy provisions;
• ☐ Failing to promptly provide a reasonable explanation of the denial/underpayment; and
• ☐ Failing to pay claims without conducting a reasonable investigation.

B. Violations of C.R.S. sections 10-3-1115 and 10-3-1116

Each of the foregoing acts constitutes an unreasonable delay or denial of a covered benefit. Consequently, our client is entitled under C.R.S. section 10-3-1116 to:

C. Common Law Bad Faith — Savio / Goodson

The Carrier's conduct also satisfies the common law Savio standard: it has acted unreasonably with knowledge of or reckless disregard for the fact that no reasonable basis existed for its denial/delay. Damages accordingly include:

• Consequential economic damages;
• Emotional distress damages (recoverable without physical injury under Goodson);
• Loss of use of money (prejudgment interest at 8% compounded annually under C.R.S. section 5-12-102); and
• Exemplary damages under C.R.S. section 13-21-102 (1:1 cap, trebled if conduct continues during litigation).

VIII. APPRAISAL DEMAND (IF APPLICABLE)

A. Invocation

To the extent the only remaining dispute concerns the amount of loss, our client hereby invokes the policy's appraisal provision. Our client appoints [________________________________] as its competent and impartial appraiser. The Carrier is required to designate its own appraiser within twenty (20) days of this letter.

B. Reservation

This invocation is not a waiver of any coverage position, bad faith claim, statutory remedy, or right to litigate. See Am. Family Mut. Ins. Co. v. Hansen, 375 P.3d 115 (Colo. 2016). Coverage, causation, and policy interpretation disputes remain with the court and are not submitted to appraisal.

IX. FORMAL DEMAND

Our client demands payment of $[____] by 5:00 p.m. Mountain Time on [__/__/____].

The following breakdown reflects the minimum amounts owed:

X. CONSEQUENCES OF NON-RESPONSE

If the Carrier fails to tender the demanded amount by the deadline, our client will:

1. File suit in the District Court of [____] County, Colorado, asserting:
   - Breach of insurance contract;
   - Common law bad faith under Savio;
   - Statutory bad faith under C.R.S. sections 10-3-1115 and 10-3-1116;
   - Violations of C.R.S. section 10-3-1104;
   - Exemplary damages under C.R.S. section 13-21-102;
2. Complete appraisal (if applicable) concurrently with litigation;
3. File a regulatory complaint with the Colorado Division of Insurance (DORA), 1560 Broadway, Suite 850, Denver, CO 80202; (303) 894-7490; [email protected];
4. Report claim handling deficiencies to the NAIC and the Colorado Attorney General.

XI. DOCUMENT PRESERVATION NOTICE

The Carrier is on notice to preserve the complete claim file, including all ESI, claim notes, diary entries, reserve history, internal and external communications, adjuster assignments and notes, supervisor approvals, underwriting file, policy file, SIU referrals, claim handling manuals, training materials, and all related ESI. Any destruction will be addressed through spoliation remedies under C.R.C.P. 37.

XII. CONCLUSION

Colorado homeowners — from the wildfire-ravaged communities of Boulder, Larimer, and Jefferson Counties to the hail belts of the Front Range — depend on their insurers to honor the promises printed in their declarations pages. Colorado law does not tolerate unreasonable claim handling, and the statutory consequences are severe. The Carrier has an opportunity to fulfill its obligations and avoid the statutory double-damages and exemplary exposure described above.

Respectfully submitted,

[LAW_FIRM_NAME]

By: _______________________________
[ATTORNEY_NAME], Esq.
Colorado Reg. No. [________________________________]
[ADDRESS]
[CITY], CO [ZIP]
Telephone: [________________________________]
Email: [________________________________]

Counsel for [CLIENT_NAME]

ENCLOSURES:
- ☐ Policy declarations page and relevant endorsements
- ☐ Contractor's line-item estimate (Xactimate or equivalent)
- ☐ Roof / hail / engineering report
- ☐ Photographs and drone imagery
- ☐ Personal property inventory with receipts/comparables
- ☐ ALE invoices and ledger
- ☐ Mitigation invoices
- ☐ Sworn proof of loss (if required)

CC:
- [CLIENT_NAME]
- [MORTGAGEE_NAME] (if applicable)

COLORADO PROPERTY INSURANCE QUICK REFERENCE

SOURCES AND REFERENCES

• C.R.S. section 10-3-1104 — https://law.justia.com/codes/colorado/title-10/insurance/article-3/part-11/section-10-3-1104/
• C.R.S. section 10-3-1115 — https://law.justia.com/codes/colorado/title-10/insurance/article-3/part-11/section-10-3-1115/
• C.R.S. section 10-3-1116 — https://colorado.public.law/statutes/crs_10-3-1116
• Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985) — https://law.justia.com/cases/colorado/supreme-court/1985/83sc316-0.html
• Goodson v. American Standard Ins. Co., 89 P.3d 409 (Colo. 2004) — https://caselaw.findlaw.com/court/co-supreme-court/1058662.html
• Kisselman v. American Family Mut. Ins. Co., 292 P.3d 964 (Colo. App. 2011) — https://caselaw.findlaw.com/court/co-court-of-appeals/1587867.html
• Am. Family Mut. Ins. Co. v. Hansen, 375 P.3d 115 (Colo. 2016) — https://law.justia.com/cases/colorado/supreme-court/2016/14sc99.html
• Colorado Division of Insurance — https://doi.colorado.gov/
• Colorado Courts Civil Jury Instructions Ch. 25 (Bad Faith Breach) — https://www.courts.state.co.us/userfiles/file/Court_Probation/Supreme_Court/Committees/Civil_Jury_Instructions_Committee/Chapter%2025.pdf
• United Policyholders: Insurance Consumer Rights in Colorado — https://uphelp.org/claim-guidance-publications/insurance-consumer-legal-rights-in-colorado/