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“Rules of the Road” Insurance Companies Must Follow

Generally speaking, insurance companies must:

  • Promptly investigate and evaluate your claim
  • Promptly pay your claim or provide you with the factual basis why your claim is denied
  • Communicate regularly with you regarding the status of your claim
  • Promptly pay you any undisputed portion of claim
  • Provide a prompt and reasonable explanation of any other claim denial or offer to pay less than the benefits purchased
  • Not engage in “lowballing” by unreasonably evaluating a claim
  • Not unreasonably delay or deny claims
  • Not unreasonably resist liability by asserting comparative negligence
  • An insurance company should give equal consideration to the interests of its client as it does to its own interests with neither interest being superior. Bailey v. Allstate Insurance Co., 844 P.2d 1336 (Colo. App. 1992), Egan v. Mutual of Omaha Insurance Company, 598 P.2d 452 (Cal. 1979), cited with approval in Farmers Insurance Group, Inc. v. Trimble, 805 P.2d 419 (Colo. 1993).
  • An insurance company should not deny a claim based on surmise, speculation or conjecture. Rawlings v. Apodaca, 726 P.2d 565, 572 (Ariz. 1986).
  • Individuals can recover damages for emotional distress alone for unreasonable delays by their insurance company in providing benefits under a policy even if the insurance company ultimately pays all benefits owed under the policy. Goodson v. American Standard Ins. Co., 89 P.3rd 409 (Colo. 2004), Burgess v. Mid-Century Ins. Co., 841 P.2d 325 (Colo. App. 1992).
  • An insurance company’s decision to deny a claim should be based on information contained in the file at the time of denial. Pfeiffer v. State Farm Mutual Auto Insurance Company, 940 P.2d 967 (Colo. App. 1996, aff’d on other grounds, 955 P.2d 1008 (Colo. 1998).
  • An insurance company should not deny a claim without substantial justification. Giampapa v. American Family Mutual Auto Insurance Company, 64 P.3d 230 (Colo. 2003).
  • It is a willful and wanton breach of an insurance contract when an insurance company refuses to pay benefits when due. This is established when an insurance company acts without justification and in disregard of its client’s rights. Pham v. State Farm Mutual Auto Ins. Co., 70 P.3d 567, 572 (Colo. App. 2003). An insurance company is responsible for non-economic damages caused by its willful and wanton denial of its client’s claim for benefits. Giampapa v. American Family Mutual Auto Insurance Company, supra.
  • An insurance company must keep its client reasonably apprised of the status of the claim for benefits. C.R.S. Section 10-3-1104(1)(h)(II)(V)(VI)(XIV).
  • An insurance company should not investigate, evaluate or deny a claim based on biased, one-sided information. Rawlings v. Apodaca, supra, Mariscal v. Old Republic Life Insurance Co., 50 Cal. Rptr. 224, 227, (Cal. App. 1996).
  • An insurance company must be honest with its client and third-party claimants. Weigel v. Hardesty, 37 Colo. App. 541, 549 P.2d 1335 (1976)
  • An insurance company’s attorney may be liable to the insured if the attorney engages in fraudulent or malicious conduct toward the insured. Weigel v. Hardesty, supra.
  • An insurance company should provide its client with the factual reasons for why the insurance company is denying or delaying payment of a claim for benefits. C.R.S. Section 10-3-1104(1)(h)(XIV).

An insurance company should compensate its client for financial losses, including interest on the benefits, caused by the insurance company’s unreasonable delay in investigating and evaluating a claim. Bowen v. Farmers Insurance Exchange, 929 P.2d 14 (Colo. App. 1996).


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