Insurance Bad Faith Demand Letter - Colorado

INSURANCE BAD FAITH DEMAND LETTER

State of Colorado

[LAW FIRM LETTERHEAD]

PRIVILEGED AND CONFIDENTIAL
SETTLEMENT COMMUNICATION — CRE 408 / C.R.S. section 13-25-135
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(4), 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."

The Colorado Supreme Court has repeatedly confirmed that the two-times-the-covered-benefit recovery is in addition to the underlying policy benefit. A wrongly withheld $1,000,000 claim therefore exposes the Carrier to:

• $1,000,000 in policy benefits;
• $2,000,000 in statutory doubling under C.R.S. section 10-3-1116;
• Attorney's fees (mandatory — not discretionary);
• Court costs;
• Prejudgment interest at 8% compounded annually (C.R.S. section 5-12-102); and
• Any additional common law damages including emotional distress and exemplary damages under C.R.S. section 13-21-102.

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

"[T]he 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."

This provision eliminates the insurer tactic of paying a small portion while unreasonably denying the rest. Each segment of a claim is independently judged under the C.R.S. section 10-3-1115 reasonableness standard.

D. Two Bites, Not One — Separate Recoveries

In Am. Family Mut. Ins. Co. v. Barriga, 418 P.3d 1181 (Colo. 2018), and Rooftop Restoration, Inc. v. American Family Mut. Ins. Co., 418 P.3d 1173 (Colo. 2018), the Colorado Supreme Court confirmed:

1. The statutory remedy under sections 10-3-1115/1116 is not offset by payment of the underlying benefit; if the benefit is paid late, the statutory penalty still applies as long as payment was unreasonably delayed; and
2. Third-party beneficiaries such as restoration contractors may pursue the statutory cause of action when they qualify as first-party claimants.

E. Common Law Damages Available

Under Savio, Goodson, and DeHerrera v. Sentry Ins. Co., 30 P.3d 167 (Colo. 2001), available common law damages include:

• 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);
• Attorney's fees incurred as a direct consequence of bad faith (under "insurance exception" to American rule);
• Exemplary damages under C.R.S. section 13-21-102 when conduct is "willful and wanton";
• Pre- and post-judgment interest.

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), but the court may raise the cap to 3:1 if the defendant continues the wrongful conduct during litigation or if the conduct during the pendency of the case further aggravates the plaintiff's damages. C.R.S. section 13-21-102(3).

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 bad faith (10-3-1116): One year under C.R.S. section 13-80-103 (as the Colorado Supreme Court initially suggested in dicta) or two years (as subsequent decisions have clarified for penalty-type statutes). Attorney must verify per case; early filing is essential.

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:

• Conduct a thorough, fair, and objective investigation (C.R.S. section 10-3-1104(1)(h)(III));
• 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

C.R.S. section 10-3-1115(1)(b) expressly prohibits withholding undisputed portions while disputing other portions. The Carrier has nevertheless [________________________________].

G. Pattern or Practice Evidence

We anticipate discovery will reveal that the Carrier's conduct in this case reflects a pattern of claim-handling deficiencies consistent with those identified by the Colorado Division of Insurance in its market conduct examinations. Pattern-and-practice evidence is relevant and admissible to show bad faith state of mind and to support exemplary damages. See Colorado Civil Jury Instructions 25:2, 25:3.

VI. STATUTORY VIOLATIONS

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

The Carrier has violated each of the following enumerated statutory prohibitions:

• ☐ (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 known that carrier will not pay without sufficient funds;
• ☐ (11) Delaying the investigation or payment of claims by requiring an insured to submit preliminary claim report and then requiring subsequent duplicative submissions;
• ☐ (12) Failing to promptly provide a reasonable explanation of the basis for denial or compromise;
• ☐ (13) Failing to settle a claim promptly where liability is reasonably clear under one portion of the policy coverage in order to influence settlements under other portions;
• ☐ (14) Refusing to pay claims without stating a rational basis; and
• ☐ (15) Failing to provide forms necessary to present claims within fifteen working days.

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

Each of the acts described in Sections IV and V, standing alone, constitutes an unreasonable delay or denial of a covered benefit within the meaning of C.R.S. section 10-3-1115. The Carrier is therefore liable under C.R.S. section 10-3-1116 for:

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

The Carrier's willful and wanton pattern of conduct justifies exemplary damages capped at 1:1 compensatory (or 3:1 if conduct continues). Our client will seek the full 3:1 multiplier based on the Carrier's continuing refusal to honor clear policy obligations. $[____].

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 [__/__/____].

Any failure to accept by that date will be deemed an additional and continuing unreasonable denial under C.R.S. section 10-3-1115, further establishing the Carrier's liability under Savio and Goodson, and supporting trebled exemplary damages under C.R.S. section 13-21-102(3) based on continued willful and wanton conduct during the pendency of any subsequent litigation.

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;
   - Violations of C.R.S. section 10-3-1104;
   - Exemplary damages under C.R.S. section 13-21-102;
   - 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) 894-7490; [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

This letter constitutes formal notice to preserve all documents and electronically stored information related to this claim under Colorado Rules of Civil Procedure 26 and 37 and Cache La Poudre Feeds, LLC v. Land O'Lakes, Inc., 244 F.R.D. 614 (D. Colo. 2007). The preservation obligation includes:

• 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.

Any spoliation will be addressed through adverse inference instructions, monetary sanctions, and other remedies available under C.R.C.P. 37.

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)
• DeHerrera v. Sentry Ins. Co., 30 P.3d 167 (Colo. 2001)
• Colorado Courts Civil Jury Instructions, Chapter 25 (Bad Faith Breach) — https://www.courts.state.co.us/userfiles/file/Court_Probation/Supreme_Court/Committees/Civil_Jury_Instructions_Committee/Chapter%2025.pdf
• Colorado Division of Insurance (DORA) — https://doi.colorado.gov/
• United Policyholders: Colorado Insurance Consumer Rights — https://uphelp.org/claim-guidance-publications/insurance-consumer-legal-rights-in-colorado/