In the 2020 Legislative Session, Colorado’s General Assembly enacted legislation (House Bill 20-1290) placing additional barriers to asserting the failure to cooperate defense in litigation between an insured and their insurer. Failure to cooperate is a defense an insurer can assert in court if an insured fails to provide the necessary information required to adjust a claim.
The new statute, C.R.S. §10-3-1118, went into effect on September 14, 2020. It establishes five steps an insurer must take to be eligible to use the failure to cooperate defense:
- An insurer must request information from the insured in writing. This can be accomplished via certified mail or email. Email is only permitted if previously authorized by the insured as a means for communication.
- The information requested must not otherwise be available to the insurer without the assistance of the insured.
- The written request must allow at least 60 days to respond.
- The request must be for information a “reasonable person” would determine the insurer needs to adjust the claim or to prevent fraud.
- And finally, the insurer must allow the insured an opportunity to cure any defect by informing the insured in writing of the defect within 60 days and allowing the insured 60 days from receipt to cure the defect.
Practically, this legislation creates many new requirements for claims handling. Processes must be employed to identify what information qualifies under requirements (2) and (4) above and then the insurer must take the steps required by (1), (3), and (5) above to preserve the defense of failure to cooperate in the event of future litigation. Insurers should examine current claim investigation practices and procedures to determine which should be enhanced or eliminated. Systems may need to be updated to build in the calendar deadlines necessary for compliance with the statute. Failure to comply with the statute’s response and notice to cure time periods will forfeit the insurer’s ability to avail itself of the failure to cooperate defense should litigation arise from the claim.
This legislation applies to any litigation matters occurring on or after September 14, 2020. The failure to cooperate defense is limited to only the portion of a claim that is materially and substantially prejudiced by the failure to cooperate such that the insurer could not evaluate or pay that portion of the claim.
Insurers are not liable for claims of bad faith breach of contract under common law or for claims pursuant to § 10-3-1115 or § 10-3-1116, solely because they afford the insured the statutorily required amount of time to respond to a request for information or cure an alleged failure to cooperate.
Because these new requirements apply to current and future claims, it is important to implement changes now in order to preserve the opportunity to assert a failure to cooperate defense in first-party litigation. For assistance in incorporating this legislation as part of your claims process, please contact Ariana Busby, Stephanie Montague, or Daniel Furman.