Time-Limited Demand and Bad Faith Toolkit - Colorado

TIME-LIMITED DEMAND AND BAD FAITH TOOLKIT - COLORADO

JURISDICTION NOTE: Colorado provides one of the strongest statutory frameworks for policyholders in the country. C.R.S. sections 10-3-1115 and 10-3-1116 create a statutory cause of action for unreasonable delay or denial of insurance benefits, providing two times the covered benefit plus reasonable attorney fees as statutory remedies. This statutory claim has a LOWER standard than common law bad faith -- the insured need only show the delay or denial was "unreasonable," without proving the insurer's subjective knowledge. Colorado also recognizes a separate common law tort of bad faith (breach of the duty of good faith and fair dealing), which allows additional remedies including emotional distress and punitive damages. Practitioners should evaluate BOTH tracks for every case.

TABLE OF CONTENTS

1. Third-Party Time-Limited Settlement Demand Letter
2. First-Party Bad Faith Demand Letter
3. Colorado Bad Faith Elements Checklist
4. Damages Calculation Framework
5. Bad Faith Conduct Documentation Checklist
6. Pre-Suit Requirements
7. Colorado-Specific Practice Notes
8. Sample Time-Limited Demand Conditions
9. Sources and References

1. THIRD-PARTY TIME-LIMITED SETTLEMENT DEMAND LETTER

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

Date: [__/__/____]

To:
[________________________________] (Claims Adjuster)
[________________________________] (Insurance Company)
[________________________________] (Address)
[________________________________] (City, State, ZIP)

Re: Time-Limited Settlement Demand
Claimant: [________________________________]
Insured/Tortfeasor: [________________________________]
Claim Number: [________________________________]
Policy Number: [________________________________]
Date of Loss: [__/__/____]
Policy Limits: $[________________________________] per occurrence / $[________________________________] aggregate

Dear Claims Professional:

This firm represents [________________________________] ("Claimant") for injuries and damages arising from [________________________________] [describe incident] that occurred on [__/__/____] in [________________________________] County, Colorado, involving your insured, [________________________________] ("Insured").

A. LIABILITY SUMMARY

Liability against your Insured is clear:

[________________________________]
[________________________________]
[________________________________]

[Insert specific facts. Colorado applies modified comparative fault (C.R.S. section 13-21-111) -- the claimant's recovery is reduced by fault percentage and barred if 50% or more at fault. Address the insured's predominant fault and claimant's minimal or zero fault.]

Supporting documentation is attached as Exhibit A.

B. DAMAGES SUMMARY

Supporting documentation is attached as Exhibit B.

Note: Colorado caps noneconomic damages at $[________________] (currently $1,500,000 under C.R.S. section 13-21-102.5, as amended by HB24-1472 effective January 1, 2025; next CPI adjustment January 1, 2028). In cases of permanent physical impairment or disfigurement, the court may increase the cap.

C. COVERAGE

The applicable liability policy provides bodily injury coverage with limits of $[________________] per occurrence. No known exclusions or coverage defenses apply.

D. DEMAND

Claimant demands payment of $[________________] (the full per-occurrence policy limits) to settle all claims against the Insured.

E. TIME LIMIT

This demand expires at 5:00 p.m. Mountain Time on [__/__/____], which is [____] days from the date of this letter. Time is of the essence.

F. CONDITIONS FOR ACCEPTANCE

1. Written acceptance delivered to the undersigned by the deadline.
2. Payment of the full demanded amount within [____] business days of acceptance.
3. Release of the Insured only -- standard release, no confidentiality, no indemnification, no release of the insurer from independent claims.
4. No additional conditions. Any variation is a counteroffer and rejection.

G. NOTICE OF EXCESS LIABILITY EXPOSURE UNDER COLORADO LAW

Under Colorado common law, an insurer has a duty to act in good faith when handling third-party claims. An insurer that unreasonably refuses to accept a reasonable settlement demand within policy limits exposes itself to extra-contractual liability, including:

• The full excess judgment
• Compensatory damages including emotional distress (Goodson v. American Standard Ins. Co., 89 P.3d 409 (Colo. 2004))
• Punitive damages under C.R.S. section 13-21-102 (willful and wanton conduct)
• Attorney fees and costs
• Statutory penalties under C.R.S. sections 10-3-1115/1116 (if applicable to the first-party context)

We urge you to immediately notify the Insured of this demand and of the excess exposure.

H. DOCUMENTATION ENCLOSED

☐ Exhibit A: Liability Evidence Package
☐ Exhibit B: Damages Package
☐ Exhibit C: Photographs / Evidence
☐ Exhibit D: Expert Reports (if applicable)

Respectfully submitted,

________________________________________
[________________________________] (Attorney Name, Firm, Address, Phone, Email, Bar No.)

Counsel for [________________________________], Claimant

2. FIRST-PARTY BAD FAITH DEMAND LETTER

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

Date: [__/__/____]

To:
[________________________________] (Claims Manager / General Counsel)
[________________________________] (Insurance Company)
[________________________________] (Address)
[________________________________] (City, State, ZIP)

Re: Demand for Payment -- Notice of Unreasonable Delay/Denial and Bad Faith
Insured/Policyholder: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]

Dear [________________________________]:

This firm represents [________________________________] ("Insured") regarding the above-referenced claim under [________________________________] Policy No. [________________________________].

A. CLAIM HISTORY

On [__/__/____], the Insured suffered a covered loss consisting of [________________________________]. The claim was timely reported on [__/__/____]. The Insured has cooperated fully with all investigation and documentation requests, including [________________________________].

The policy provides coverage under [________________________________] with limits of $[________________________________].

B. COMPANY'S IMPROPER CONDUCT

☐ Denied the claim without reasonable basis on [__/__/____]
☐ Unreasonably delayed investigation or payment for [____] days
☐ Underpaid: offered $[________________] when the covered loss is $[________________]
☐ Failed to conduct a prompt and adequate investigation
☐ Misrepresented policy provisions
☐ Failed to provide a written explanation for the denial/delay
☐ Imposed unreasonable documentation requirements
☐ Used biased or outcome-oriented experts
☐ Delayed hoping the Insured would accept less than owed
☐ Other: [________________________________]

[Detailed factual narrative:]
[________________________________]
[________________________________]

C. STATUTORY CLAIM -- C.R.S. SECTIONS 10-3-1115 AND 10-3-1116

C.R.S. section 10-3-1115(1)(a) provides:

"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."

The Company's delay or denial of this claim is unreasonable because:
[________________________________]
[________________________________]

Under C.R.S. section 10-3-1116(1), a first-party claimant whose claim has been unreasonably delayed or denied may recover:

• Two times the covered benefit (the statutory penalty)
• Reasonable attorney fees and court costs

Important: The statutory claim under sections 10-3-1115/1116 does NOT require proof that the insurer knew its conduct was unreasonable. The standard is objective: was the delay or denial unreasonable? This is a lower bar than common law bad faith.

D. COMMON LAW BAD FAITH CLAIM

In addition to the statutory claim, the Company's conduct also constitutes a breach of the common law duty of good faith and fair dealing. Under Goodson v. American Standard Ins. Co., 89 P.3d 409 (Colo. 2004), and Dale v. Guaranty National Ins. Co., 948 P.2d 545 (Colo. 1997):

The common law bad faith test requires: (1) the insurer's conduct was unreasonable, AND (2) the insurer knew or recklessly disregarded the fact that its conduct was unreasonable.

The Company's conduct satisfies both elements because:
[________________________________]

E. DEMAND

1. Immediate payment of the full covered benefit: $[________________]
2. Two times the covered benefit under C.R.S. section 10-3-1116: $[________________]
3. Reasonable attorney fees and court costs under C.R.S. section 10-3-1116
4. Consequential damages from unreasonable delay/denial: $[________________]
5. Written explanation of any continued denial within [____] days
6. Preservation of the complete claim file

F. NOTICE OF BAD FAITH CLAIMS

If the Company fails to resolve this claim within [____] days, the Insured will pursue all Colorado remedies:

Statutory Claims (C.R.S. sections 10-3-1115/1116):

• Two times the covered benefit
• Reasonable attorney fees and court costs

Common Law Bad Faith Tort:

• Compensatory damages including emotional distress (Goodson)
• Consequential damages
• Punitive damages under C.R.S. section 13-21-102 (willful and wanton conduct)
• Additional attorney fees

Other Claims:

• Breach of insurance contract
• Violation of C.R.S. section 10-3-1104 (unfair claims settlement practices -- as evidence)
• All other available relief

Respectfully submitted,

________________________________________
[________________________________] (Attorney Name, Firm, Address, Phone, Email, Bar No.)

Counsel for [________________________________], Insured

3. COLORADO BAD FAITH ELEMENTS CHECKLIST

A. Statutory Claim -- Unreasonable Delay/Denial (C.R.S. Sections 10-3-1115/1116)

☐ The claimant is a "first-party claimant" (insured or beneficiary)
☐ The insurer is "a person engaged in the business of insurance"
☐ A claim for benefits was submitted under the policy
☐ The insurer delayed or denied payment of the claim
☐ The delay or denial was unreasonable (objective standard -- no scienter required)
☐ The insurer did not have a reasonable basis for the delay or denial
☐ The insured suffered damages

Standard: "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." The "fairly debatable" defense does NOT apply to the statutory claim (it applies only to common law bad faith). The standard is simply whether the delay or denial was objectively unreasonable.

Important Distinction: Delay vs. Denial:

• Unreasonable delay (section 10-3-1115(1)(a)): The insurer has not denied the claim but has unreasonably failed to pay in a timely manner
• Unreasonable denial (section 10-3-1115(1)(a)): The insurer denied the claim without a reasonable basis

B. Common Law Bad Faith (Breach of Duty of Good Faith and Fair Dealing)

Under Goodson and Dale, the Insured must prove:

☐ An insurance contract existed
☐ The insurer breached its duty of good faith and fair dealing
☐ The insurer's conduct was unreasonable (objective element)
☐ The insurer knew or recklessly disregarded the fact that its conduct was unreasonable (subjective/scienter element)
☐ The insured suffered damages

"Fairly Debatable" Defense: Unlike the statutory claim, the common law bad faith claim IS subject to the "fairly debatable" defense. If the insurer's position was fairly debatable, common law bad faith cannot be established. However, the insurer must actually investigate before claiming the issue was fairly debatable.

C. Third-Party Bad Faith (Failure to Settle)

☐ A valid liability policy covered the insured
☐ A reasonable demand was made within policy limits
☐ Liability was clear
☐ The insurer unreasonably failed to accept the demand
☐ An excess judgment was entered
☐ The insurer's conduct was unreasonable and the insurer knew or recklessly disregarded that fact

D. Key Differences Between Statutory and Common Law Claims

4. DAMAGES CALCULATION FRAMEWORK

A. Contract Damages

B. Statutory Damages (C.R.S. Sections 10-3-1115/1116)

Calculation Example: If the covered benefit (amount owed under the policy) is $100,000, the statutory penalty is $200,000 (two times the covered benefit), PLUS reasonable attorney fees and costs. The insured may also recover the underlying $100,000 in covered benefits through the breach of contract claim.

Note: The statutory two-times penalty applies to the "covered benefit" -- meaning the benefit that was unreasonably delayed or denied. If the insurer paid a portion of the claim, the penalty applies to the portion that was unreasonably withheld.

C. Common Law Tort Damages

Note: Under Goodson v. American Standard, 89 P.3d 409 (Colo. 2004), emotional distress damages are recoverable in a common law bad faith tort action without requiring proof of substantial property or economic loss. The insured need not show physical manifestation of the distress.

D. Punitive Damages (Common Law Bad Faith Only)

Colorado Punitive Damages Standards:

• Available only under the common law bad faith claim, NOT the statutory claim (C.R.S. section 10-3-1116(4))
• Standard: "Willful and wanton" conduct (C.R.S. section 13-21-102)
• Burden of Proof: Beyond a reasonable doubt (C.R.S. section 13-25-127(2))
• Cap: Generally capped at the amount of actual damages (1:1 ratio), but the court may increase to three times actual damages if the conduct was willful and wanton (C.R.S. section 13-21-102(1)(a))
• Bifurcation: The trial court may bifurcate the punitive damages phase
• Procedure: Punitive damages may only be claimed by amending the complaint after discovery; the initial complaint cannot include a punitive damages claim (C.R.S. section 13-21-102(1.5)(a))

E. Attorney Fees

F. Total Damages Summary

5. BAD FAITH CONDUCT DOCUMENTATION CHECKLIST

A. Unreasonable Delay Evidence (Statutory Claim)

☐ Date claim was submitted: [__/__/____]
☐ Date insurer acknowledged claim: [__/__/____]
☐ Date all requested documentation was provided: [__/__/____]
☐ Date insurer made coverage decision: [__/__/____]
☐ Total elapsed time from submission to decision: [____] days
☐ Was the delay attributable to the insurer or the insured?
☐ Did the insurer request unnecessary or repetitive documentation?
☐ Did the insurer fail to communicate the basis for delay?
☐ Was the delay designed to pressure the insured into accepting less?

B. Unreasonable Denial Evidence (Statutory Claim)

☐ What was the stated basis for the denial?
☐ Is the stated basis supported by the policy language?
☐ Is the stated basis supported by the facts?
☐ Did the insurer conduct a reasonable investigation before denying?
☐ Did the insurer consider the insured's evidence and arguments?
☐ Does the denial rely on a misreading of the policy?
☐ Does the denial rely on an exclusion that does not apply?

C. Scienter Evidence (Common Law Claim)

☐ Did the insurer know its conduct was unreasonable?
☐ Did internal documents show the adjuster recommended a different outcome?
☐ Was the adjuster's recommendation overridden by management?
☐ Did the insurer ignore its own claims handling guidelines?
☐ Did the insurer's conduct reflect a pattern of similar denials?
☐ Did the insurer have prior knowledge that similar conduct was unreasonable?

D. Documents to Preserve and Obtain

☐ Complete claim file
☐ All internal communications and adjuster notes
☐ Reserve history
☐ Expert reports and consultant communications
☐ Claims handling guidelines and manuals
☐ Training materials
☐ Prior DOI complaints regarding similar claims
☐ Prior bad faith verdicts or settlements against this insurer

6. PRE-SUIT REQUIREMENTS

Colorado Pre-Suit Requirements

Colorado does not require a mandatory pre-suit notice for bad faith or statutory delay/denial claims. There is no equivalent of Florida's Civil Remedy Notice.

Pre-Suit Checklist:

☐ Confirm the statute of limitations:

• Common law bad faith tort: 2 years (C.R.S. section 13-80-102(1)(a))
• Statutory unreasonable delay/denial: 2 years (treated as a tort-like claim)
• Breach of insurance contract: 3 years from accrual (C.R.S. section 13-80-101(1)(a))
• Accrual: "On the date both the injury and its cause are known or should have been known by the exercise of reasonable diligence"

☐ File a complaint with the Colorado Division of Insurance (optional): DORA - Division of Insurance, 1560 Broadway, Suite 850, Denver, CO 80202

☐ Send a pre-suit demand letter clearly triggering the insurer's notice of the unreasonable delay/denial (important for establishing the statutory claim timeline)

☐ Confirm venue: District Court in the county where the insured resides or where the loss occurred

☐ Note on punitive damages pleading: Under C.R.S. section 13-21-102(1.5)(a), punitive damages may NOT be claimed in the initial complaint. You must amend the complaint after a prima facie showing during discovery.

☐ Preserve evidence -- send a litigation hold letter

7. COLORADO-SPECIFIC PRACTICE NOTES

A. Key Colorado Bad Faith Cases

1. Goodson v. American Standard Ins. Co., 89 P.3d 409 (Colo. 2004)
   - Emotional distress damages are recoverable in common law bad faith without proof of substantial property or economic loss
   - Landmark case for policyholder rights in Colorado

2. Dale v. Guaranty National Ins. Co., 948 P.2d 545 (Colo. 1997)
   - Established the two-part common law bad faith test: unreasonable conduct + knowledge/reckless disregard
   - Overruled Leahy v. Guaranty National

3. Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985)
   - Confirmed that insurance companies owe a duty of good faith and fair dealing
   - Addressed the relationship between contract and tort bad faith claims

4. Bankr. Estate of Morris v. COPIC Ins. Co., 192 P.3d 519 (Colo. App. 2008)
   - Addressed the interaction between statutory and common law claims

B. The Two-Track Colorado Approach: Statutory + Common Law

Colorado practitioners should evaluate BOTH claims for every case:

Track 1 -- Statutory Claim (C.R.S. Sections 10-3-1115/1116):

• Lower burden: only need to show objectively unreasonable delay/denial
• No scienter required
• "Fairly debatable" defense does NOT apply
• Damages: 2x covered benefit + attorney fees + costs
• NO punitive damages or emotional distress damages
• First-party claims only

Track 2 -- Common Law Bad Faith Tort:

• Higher burden: must show insurer knew or recklessly disregarded unreasonableness
• "Fairly debatable" defense applies
• Damages: emotional distress, consequential damages, punitive damages, attorney fees
• Applies to first-party AND third-party claims

Strategic Considerations:

• The statutory claim is generally easier to prove and guarantees attorney fees
• The common law claim allows broader damages including emotional distress and punitives
• The two claims are independent -- success on one does not preclude the other
• However, note that punitive damages are specifically excluded from the statutory claim

C. "Unreasonable Delay" vs. "Unreasonable Denial" -- The Distinction

Colorado courts distinguish between unreasonable delay and unreasonable denial:

• Unreasonable Delay: The insurer has not denied the claim but has failed to pay in a timely manner. This can include slow investigation, repeated requests for unnecessary documentation, failure to communicate, or delay for no apparent reason.

• Unreasonable Denial: The insurer has affirmatively denied the claim without a reasonable basis. The denial may be based on misinterpretation of the policy, application of incorrect exclusions, or failure to investigate.

Both are actionable under C.R.S. section 10-3-1115, and both trigger the 2x penalty under section 10-3-1116.

D. Colorado Punitive Damages -- Unique Procedure

Colorado has a unique procedure for punitive damages:

1. Punitive damages cannot be claimed in the initial complaint
2. After discovery, the plaintiff must move to amend the complaint to add punitive damages
3. The court must find a prima facie showing of willful and wanton conduct
4. The standard of proof is beyond a reasonable doubt (highest standard in the country for punitives)
5. The cap is generally 1:1 (actual damages), but may be increased to 3:1 for willful and wanton conduct

E. Statute of Limitations

8. SAMPLE TIME-LIMITED DEMAND CONDITIONS

A. Payment and Release

☐ Full payment within [____] business days of acceptance
☐ Check payable to "[________________________________] and [________________________________], as Trustees"
☐ Standard release of the named insured only
☐ No confidentiality, indemnification, or hold-harmless provisions
☐ No release of the insurer from independent claims

B. Colorado-Specific Conditions

☐ The insurer must disclose all available policy limits
☐ The insurer must provide this demand to the insured within [____] business days
☐ The insurer must advise the insured of excess exposure and the right to personal counsel
☐ Any delay in responding to this demand will be considered in evaluating the reasonableness of the insurer's conduct under C.R.S. section 10-3-1115

C. Communication Requirements

☐ Written acceptance received at counsel's office by the deadline
☐ Any modification constitutes a counteroffer and rejection
☐ Insurer must confirm acceptance is binding on behalf of the insured

9. SOURCES AND REFERENCES

Colorado Statutes

• C.R.S. section 10-3-1115: https://law.justia.com/codes/colorado/2021/title-10/article-3/part-11/section-10-3-1115/
• C.R.S. section 10-3-1116: https://law.justia.com/codes/colorado/2021/title-10/article-3/part-11/section-10-3-1116/
• C.R.S. section 10-3-1104 -- Unfair Claims Settlement Practices
• C.R.S. section 13-80-102 -- Statute of Limitations (Tort)
• C.R.S. section 13-21-102 -- Punitive Damages

Key Cases

• Goodson v. American Standard Ins. Co., 89 P.3d 409 (Colo. 2004)
• Dale v. Guaranty National Ins. Co., 948 P.2d 545 (Colo. 1997)
• Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985)

Additional Resources

• Colorado Division of Insurance: https://doi.colorado.gov/
• Colorado Civil Jury Instructions -- Chapter 25 (Bad Faith): https://www.courts.state.co.us/userfiles/file/Court_Probation/Supreme_Court/Committees/Civil_Jury_Instructions_Committee/Chapter%2025.pdf
• Chartwell Law -- Colorado: https://www.chartwelllaw.com/bad-faith-claims-map/colorado

This template is provided by ezel.ai for informational purposes only. It does not constitute legal advice and should not be used as a substitute for consultation with a qualified attorney licensed in Colorado. Always verify current law and confirm all citations before use.

Last updated: 2026-02-26