Insurance Bad Faith Demand Letter - Colorado

INSURANCE BAD FAITH DEMAND LETTER

State of Colorado

[LAW FIRM LETTERHEAD]

SETTLEMENT COMMUNICATION — SUBJECT TO CRE 408
TIME-LIMITED DEMAND — NOTICE OF STATUTORY AND COMMON LAW BAD FAITH

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

Date: [__/__/____]

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

Attention: [________________________________], Claims Director / General Counsel

Re: FORMAL NOTICE OF BAD FAITH AND TIME-LIMITED DEMAND — COLORADO LAW
Insured: [________________________________]
Claimant: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Policy Limits: $[____]
Response Deadline: [__/__/____] at 5:00 p.m. Mountain Time

Dear [________________________________]:

I. INTRODUCTION

This firm represents [________________________________] ("our client" or "the Insured") in connection with the above-referenced first-party insurance claim governed by Colorado law. This letter constitutes a formal demand for payment of wrongfully withheld policy benefits and serves as written notice that [INSURANCE_COMPANY_NAME] ("the Carrier") has engaged in bad faith claim handling actionable under both Colorado common law and Colorado's statutory bad faith regime, C.R.S. sections 10-3-1115 and 10-3-1116.

Colorado is one of the most policyholder-protective jurisdictions in the nation. In 2008, in direct response to decades of abusive claim handling, the Colorado General Assembly enacted what is known as the "Colorado Bad Faith Statute" — a pair of statutes (C.R.S. sections 10-3-1115 and 10-3-1116) that permit first-party claimants to recover two times the covered benefit plus reasonable attorney's fees and court costs whenever an insurer unreasonably delays or denies a covered benefit. This remedy is in addition to the common law tort of bad faith recognized in Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985), and reaffirmed in Goodson v. American Standard Ins. Co., 89 P.3d 409 (Colo. 2004), and is in addition to any applicable exemplary damages under C.R.S. section 13-21-102.

This is a time-limited demand. The Carrier must tender the full amount owed of $[____] by 5:00 p.m. Mountain Time on [__/__/____] or face immediate litigation.

II. COLORADO BAD FAITH LAW — COMPREHENSIVE ANALYSIS

A. Colorado Recognizes Two Parallel Bad Faith Remedies

Colorado is distinctive in that it provides first-party insureds with two separate and coexisting causes of action:

(1) Common Law Bad Faith Tort — Savio / Goodson Line

The Colorado Supreme Court first recognized the tort of first-party bad faith in Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985). Under Savio and its progeny, an insured must establish that (a) the insurer acted unreasonably and (b) knew of or recklessly disregarded the fact that no reasonable basis existed for denying or delaying the claim. See Goodson v. American Standard Ins. Co., 89 P.3d 409, 414 (Colo. 2004). The Goodson court held that an insured may recover emotional distress damages flowing from bad faith denial without proof of substantial economic or physical injury — a unique feature of Colorado law designed to deter insurers from weaponizing their superior economic position.

(2) Statutory Bad Faith — C.R.S. sections 10-3-1115 and 10-3-1116

In 2008, Colorado enacted C.R.S. sections 10-3-1115 and 10-3-1116, which the Colorado Court of Appeals has expressly held impose "a standard of conduct . . . in addition to and less onerous than" the common law standard. Kisselman v. American Family Mut. Ins. Co., 292 P.3d 964, 970-72 (Colo. App. 2011).

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."

Under C.R.S. section 10-3-1115(2): "Notwithstanding section 10-3-1113(3), for the purposes of an action brought pursuant to this section and section 10-3-1116, an insurer's delay or denial was unreasonable if the insurer delayed or denied authorizing payment of a covered benefit without a reasonable basis for that action."

Importantly, the statutory claim does not require proof of the insurer's state of mind. The Kisselman court expressly rejected the insurer's argument that the common law scienter element must be imported into the statute, noting that the General Assembly intended a broader, more easily proven cause of action.

B. The Statutory Remedy — Doubled Benefit Plus Fees

Under C.R.S. section 10-3-1116(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 attorneys' fees and court costs and two times the covered benefit."

On proof of unreasonable delay or denial, section 10-3-1116(1) authorizes statutory damages of two times the covered benefit, reasonable attorney fees, and court costs. A separate contract claim may seek unpaid policy benefits. Section 10-3-1116(4) bars recovering the same statutory damages in another action or claim. Interest, common law damages, and exemplary damages require their own legal and factual grounds.

C. Undisputed Covered Benefits

An insurer may not withhold an undisputed covered benefit merely because another portion remains reasonably disputed. State Farm Mutual Automobile Insurance Co. v. Fisher, 2018 CO 39. Whether any particular amount is undisputed remains evidence-specific. Fear v. GEICO Casualty Co., 2024 CO 77.

D. Statutory Remedy and Claimant Status

Am. Family Mut. Ins. Co. v. Barriga, 2018 CO 42, held that an award of two times the covered benefit under section 10-3-1116(1) is not reduced by an unreasonably delayed benefit paid before judgment. Rooftop Restoration, Inc. v. American Family Mut. Ins. Co., 2018 CO 44, held that the one-year limitations period for a statutory penalty does not govern a claim under section 10-3-1116(1). Rooftop did not decide whether a restoration contractor may bring that claim. Under section 10-3-1115(1)(b), a person or entity seeking the statutory remedy must establish an entitlement to benefits owed directly to or on behalf of an insured, subject to the statutory exclusions.

Payment of an underlying benefit does not itself erase a proven unreasonable delay under sections 10-3-1115 and 10-3-1116; evaluate the covered benefit and claimant's entitlement on the facts.

E. Common Law Damages Available

For a common-law bad-faith claim, Colorado Jury Instructions Civil 25:9 directs the jury to consider economic and noneconomic losses caused by the insurer's bad faith; Goodson confirms that emotional distress does not require an accompanying substantial financial or property loss. Depending on the facts and applicable law, potential recovery includes:

• The covered benefit plus interest;
• Consequential damages (loss of use of money, increased borrowing costs, credit damage, business interruption);
• Emotional distress damages (recoverable without physical injury per Goodson);
• Exemplary damages under C.R.S. section 13-21-102 if the statutory conditions and proof standard are met; any litigation claim must be added by amendment after initial disclosures;
• Pre- and post-judgment interest.

Fees spent prosecuting a common-law bad faith tort are not recoverable as damages on that tort claim. C.R.S. section 10-3-1116(1) separately authorizes reasonable attorney fees and court costs on a qualifying statutory claim.

F. Exemplary Damages — C.R.S. section 13-21-102

Colorado allows exemplary (punitive) damages when the injury was attended by "fraud, malice, or willful and wanton conduct," proved beyond a reasonable doubt. C.R.S. section 13-25-127(2). "Willful and wanton conduct" is defined as "conduct purposefully committed which the actor must have realized as dangerous, done heedlessly and recklessly, without regard to consequences, or of the rights and safety of others."

The default cap is 1:1 (equal to compensatory damages). Under C.R.S. section 13-21-102(3), the court may raise an award to no more than three times actual damages if the defendant willfully and wantonly continues or repeats the underlying conduct during the case, or willfully and wantonly aggravates the plaintiff's damages during the case with actual or constructive knowledge of that effect.

G. Statute of Limitations

• Common law bad faith: Two years under C.R.S. section 13-80-102.
• Contract claim (policy benefits): Three years under C.R.S. section 13-80-101(1)(a).
• Statutory unreasonable delay or denial (10-3-1116): The one-year penalty limitation does not apply under Rooftop Restoration. Calendar the two-year period in C.R.S. section 13-80-102, subject to claim-specific accrual analysis.

III. POLICY INFORMATION AND COVERAGE

A. Policy Details

B. Coverage Analysis

The Carrier has acknowledged coverage by [________________________________]. Having accepted coverage, the Carrier assumed enforceable obligations under Colorado law to:

• Adopt and implement reasonable standards for prompt claim investigation (C.R.S. section 10-3-1104(1)(h)(III)), and avoid refusing payment without a reasonable investigation based on all available information (subsection (IV));
• Effectuate prompt, fair, and equitable settlement when liability is reasonably clear;
• Refrain from compelling litigation to obtain benefits due;
• Pay undisputed amounts without waiting for resolution of disputed portions;
• Provide prompt, reasonable explanations of coverage positions; and
• Act in good faith throughout the claim process.

IV. FACTUAL BACKGROUND AND TIMELINE OF BAD FAITH

A. The Underlying Loss

On [__/__/____], [________________________________]. [DETAILED_NARRATIVE]

B. Chronological Record of the Carrier's Bad Faith Conduct

V. SPECIFIC BAD FAITH CONDUCT

A. Unreasonable Delay

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

B. Inadequate Investigation

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

C. Lowball / Below-Market Offers

D. Misrepresentation of Policy Provisions

[________________________________]

E. Failure to Communicate / Stonewalling

[________________________________]

F. Refusal to Pay Undisputed Portions

Colorado law (State Farm Mut. Auto. Ins. Co. v. Fisher, 2018 CO 39) prohibits withholding undisputed portions of a covered benefit while disputing other portions. The Carrier has nevertheless [________________________________].

G. Pattern or Practice Evidence

If discovery identifies comparable claim-handling conduct, we will evaluate its relevance to this claim and whether it is admissible under the applicable evidence rules. Colorado Civil Jury Instructions 25:2 and 25:3 address the elements of a first-party common-law bad-faith claim and the definition of unreasonable conduct; they do not determine admissibility of other-claims evidence.

VI. STATUTORY VIOLATIONS

A. Colorado Unfair Claim Settlement Practices Act — C.R.S. section 10-3-1104(1)(h)

The following C.R.S. section 10-3-1104(1)(h) grounds are asserted only where the evidence supports them:

These unfair-practice standards may be evidence in a bad faith claim. Section 10-3-1104 does not itself give an insured a private claim for damages.

• ☐ (1) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
• ☐ (2) Failing to acknowledge and act reasonably promptly upon communications;
• ☐ (3) Failing to adopt and implement reasonable standards for prompt investigation;
• ☐ (4) Refusing to pay claims without conducting a reasonable investigation;
• ☐ (5) Failing to affirm or deny coverage within a reasonable time after proofs of loss;
• ☐ (6) Not attempting in good faith to effectuate prompt, fair, equitable settlements where liability has become reasonably clear;
• ☐ (7) Compelling insureds to institute litigation by offering substantially less than amounts ultimately recovered;
• ☐ (8) Attempting to settle for less than the amount to which a reasonable person would believe he/she was entitled;
• ☐ (9) Attempting to settle on basis of altered application;
• ☐ (10) Making a claim payment without a statement of the coverage under which it is made;
• ☐ (11) Publicizing a practice of appealing favorable arbitration awards to pressure claimants into lower settlements;
• ☐ (12) Requiring duplicative preliminary and formal proof-of-loss submissions to delay investigation or payment;
• ☐ (13) Delaying settlement under one policy coverage to influence settlement under another;
• ☐ (14) Failing to promptly explain a denial or compromise offer by reference to policy terms, facts, or law; and
• ☐ (15) Asserting comparative negligence in a third-party claim without a reasonable investigation and substantial supporting evidence.

B. Improper Denial / Delay — C.R.S. sections 10-3-1115 and 10-3-1116

The claim-handling acts described in Sections IV and V support a statutory claim if the evidence shows that the Carrier delayed or denied payment of a covered benefit without a reasonable basis. C.R.S. § 10-3-1115(2). Poor communication or an unfair settlement practice alone does not establish that statutory element. If the delay or denial is proven, our client seeks the remedies under C.R.S. § 10-3-1116, including:

VII. DAMAGES

A. Contract Damages

B. Consequential Damages (Savio / Goodson)

C. Emotional Distress Damages — Goodson Rule

Under Goodson v. American Standard Ins. Co., 89 P.3d 409 (Colo. 2004), our client may recover emotional distress damages for the Carrier's bad faith without proof of physical injury or substantial economic loss. Our client has experienced [________________________________] as a direct consequence of the Carrier's conduct. We value these damages conservatively at $[____].

D. Statutory Double Damages

Under C.R.S. section 10-3-1116: $[____] (2x covered benefit).

E. Exemplary Damages — C.R.S. section 13-21-102

If later evidence supports it, our client may seek leave after initial disclosures to plead exemplary damages. C.R.S. section 13-21-102 generally caps an award at actual damages. A court may increase an award to no more than three times actual damages only for the willful and wanton conduct specified in subsection (3) during the pending case. This pre-suit demand does not assume that increase.

F. Attorney's Fees and Costs

Mandatory under C.R.S. section 10-3-1116(1). $[____].

VIII. FORMAL DEMAND

A. Monetary Demand

The Carrier shall pay $[____] comprising:

B. Non-Monetary Terms

• ☐ Full and unconditional release of all claims in favor of our client;
• ☐ Written acknowledgment that the claim is paid in full;
• ☐ Correction of any adverse reporting to CLUE, ISO, or industry databases;
• ☐ [Optional] Confidentiality of settlement amount and terms;
• ☐ [Optional] Written corrective action plan for this type of claim.

IX. TIME-LIMITED DEMAND — DEADLINE

THIS DEMAND EXPIRES AT 5:00 P.M. MOUNTAIN TIME ON [__/__/____].

If the Carrier does not respond by that date, we will evaluate its stated position and claim-handling record under C.R.S. sections 10-3-1115 and 10-3-1116 and the common law. Nonacceptance alone does not establish unreasonable denial or support increased exemplary damages. Under section 13-21-102(3), a court may increase an exemplary award, up to three times actual damages, only on a showing of the specified willful and wanton conduct during the pending action.

Consequences of Non-Response

If the Carrier fails to tender payment by the deadline, we will:

1. File suit in the District Court of [____] County, Colorado asserting:

   • Breach of insurance contract;
   • Common law bad faith breach of insurance contract (Savio/Goodson);
   • Statutory bad faith under C.R.S. sections 10-3-1115 and 10-3-1116;
   • Bad faith supported, where applicable, by evidence of practices listed in C.R.S. section 10-3-1104(1)(h);
   • Exemplary damages under C.R.S. section 13-21-102, if supported, through a later motion to amend after initial disclosures;
   • All consequential, emotional distress, and punitive damages available under Colorado law.

2. File a regulatory complaint with the Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, CO 80202; (303) 894-7499; [email protected].

3. Report the Carrier's pattern of conduct to the Colorado Attorney General's Consumer Protection Section and the NAIC market conduct database.

4. Withdraw all prior offers of compromise; the demand as stated in this letter will not be extended.

X. DOCUMENT PRESERVATION NOTICE

Please preserve documents and electronically stored information relevant to this claim and the reasonably anticipated litigation described in this letter. Under Terra Management Group, LLC v. Keaten, 2025 CO 40, ¶ 6, a preservation duty arises when litigation is pending or reasonably foreseeable, a fact-specific inquiry. This request identifies the following potentially relevant categories:

• The complete claim file, including all drafts and prior versions;
• All internal email, instant messaging, and collaboration tool communications concerning the claim;
• Adjuster notes, diary entries, and activity logs;
• All communications with the insured, claimant, and counsel;
• Photographs, videos, inspection reports, engineering reports;
• Expert reports, estimates, and valuations;
• Reserve history and all reserve-change documentation;
• Claim handling guidelines, manuals, bulletins, best-practices documents;
• Training materials relevant to this claim type;
• Supervisor notes, approvals, and referral escalations;
• SIU referrals and related materials;
• Quality assurance, audit, compliance, and market conduct exam materials;
• Performance metrics, bonus structures, and incentive plans tied to claim handling;
• Pattern-and-practice evidence regarding similar claims.

If relevant evidence is lost after a preservation duty arose, we may ask the court for an appropriate remedy. The court has inherent power to consider spoliation sanctions, including an adverse inference where warranted by the facts. Keaten, 2025 CO 40, ¶¶ 30-32.

XI. CONCLUSION

The Colorado General Assembly enacted C.R.S. sections 10-3-1115 and 10-3-1116 precisely to deter the type of claim-handling misconduct demonstrated by the Carrier in this matter. The statutory double-damages-plus-fees regime exists to make it economically irrational for insurers to stonewall legitimate first-party claims. The common law bad faith tort recognized in Savio and expanded in Goodson ensures that insurers cannot hide behind technical defenses to avoid accountability for emotional and consequential injuries caused by bad faith conduct.

The Carrier now has a choice: honor its first-party obligations, or face liability for two times the benefit owed, plus attorney's fees, plus common law damages, plus exemplary damages. We strongly urge the Carrier to use this opportunity to resolve the matter fairly.

Please direct all further communications to the undersigned.

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
• ☐ Claim correspondence chronology
• ☐ Proof of loss and supporting documentation
• ☐ Expert reports and independent estimates
• ☐ Photographs and damage documentation
• ☐ Medical records (if applicable)
• ☐ Declaration of consequential and emotional distress damages

CC:

• [CLIENT_NAME]
• [________________________________] (co-counsel, if any)

COLORADO BAD FAITH 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
• C.R.S. section 13-21-102 — https://codes.findlaw.com/co/title-13-courts-and-court-procedure/co-rev-st-sect-13-21-102/
• C.R.S. section 5-12-102 — https://colorado.public.law/statutes/crs_5-12-102
• 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. Barriga, 418 P.3d 1181 (Colo. 2018)
• Rooftop Restoration, Inc. v. American Family Mut. Ins. Co., 418 P.3d 1173 (Colo. 2018)
• Colorado Courts Civil Jury Instructions, Chapter 25 (Bad Faith Breach) — https://www.coloradojudicial.gov/media/19702
• Colorado Division of Insurance contact details — https://dora.colorado.gov/help-center
• United Policyholders: Colorado Insurance Consumer Rights — https://uphelp.org/claim-guidance-publications/insurance-consumer-legal-rights-in-colorado/