Colorado law provides that insurers owe a duty of good faith and fair dealing to their insureds. The duty can arise under first-party and third-party insurance contracts. An insurer breaches this duty when it delays or denies payment without having a reasonable basis for doing so. Generally, insureds owe a similar duty to their insurers.

Elements of Bad Faith Claim – Third Party Contracts

In order to recover on a bad faith claim, the plaintiff-insured must prove that:

• He or she was injured or damaged;
  
• The insurer acted unreasonably;
  
• The insurer knew the conduct was unreasonable; and
  
• The insurer’s unreasonable conduct caused his or her injuries or damages.
  

• Misrepresenting pertinent facts or insurance policy provisions relating to coverage;
  
• Failing to acknowledge and promptly respond to communications regarding claims;
  
• Failing to adopt and implement reasonable standards for the prompt investigation of claims;
  
• Refusing to pay claims without conducting a reasonable investigation;
  
• Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;
  
• Failing to attempt in good faith to effectuate prompt, fair, and equitable settlement of claims where liability is reasonably clear;
  
• Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in such actions;
  
• Attempting to settle a claim for less than the amount to which a reasonable person would have believed he was entitled by reference to written or printed advertising material accompanying an application;
  
• Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured;
  
• Sending claim payments to insureds or their beneficiaries without including a statement setting forth the coverage;
  
• Informing insureds or claimants that it is the insurer’s policy to appeal arbitration awards in favor of insureds or claimants to compel them to accept compromises;
  
• Delaying investigation or payment of claims by requiring insureds to submit a preliminary claim report followed by a formal proof of loss, both of which request the same information;
  
• Failing to promptly settle claims under one portion of the policy to influence settlements under other portions of the policy;
  
• Failing to promptly provide a reasonable explanation based on the policy, facts, or law for the insurer’s denial of the claim;
  
• Raising comparative negligence as a defense or reason for partial offset in the adjustment of a third-party claim without conducting a reasonable investigation and developing substantial evidence to support the defense.

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You should consult an attorney for individual advice regarding your own situation.
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