Leverage: Insurance Statutes That Benefit the Policyholder

As a business owner, executive, or risk manager, you know it is a prudent business decision to purchase commercial insurance coverage for your business – whether its commercial general liability, commercial property, builder’s risk, directors and officers liability, employment practices liability, or any of the variety of commercial insurance products available to businesses. It’s a good way to hedge against the many risks your company faces. But what do you do when your insurance carrier denies your claim?

Let’s say you have made the responsible decision to purchase insurance coverage for your business and your business suffers what you think is a covered loss. You file a claim with your insurance carrier, reasonably expecting the carrier to step up and cover the claim. Instead, the carrier tells you it needs to investigate whether your insurance policy covers the claim, or whether coverage is excluded by one of the many exclusions buried in the policy. The carrier drags its feet investigating the claim, sends numerous requests for information, ignores your calls and emails, and bounces you back and forth between various claim adjusters before denying the claim. Or maybe the carrier ignores evidence of coverage and denies the claim after a barebones investigation.

At this point, many businesses give up and let the carrier off the hook. However, Colorado business owners should be aware of two statutory provisions unique to Colorado that provide a powerful tool for policyholders to fight for insurance coverage.

In 2008, the Colorado General Assembly enacted two statutes, C.R.S. § 10-3-1115 and § 10-3-1116, that address this exact situation. The statutes create new legal claims a policyholder can bring against its insurance carrier. Specifically, an insurance carrier may not “unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any” insurance policyholder. This applies to any type of insurance coverage with a few exceptions (life insurance, title insurance, and workers’ compensation insurance). However, the most important aspect of the statutes are the remedies they provide.

The statutes state that an insurance carrier that unreasonably delays or denies an insurance claim is liable to its policyholder for two times the covered benefit in addition to the policyholder’s attorney’s fees incurred in litigation. Importantly, this remedy is in addition to the amount of the insurance claim.

For example, your business may have a commercial general liability policy with $1 million in coverage limits. Your business suffers a loss that is $1 million or more and makes a claim on the policy. The insurance carrier delays its investigation of the claim or denies the claim without a reasonable basis. Your business can now bring a lawsuit against the carrier for two times the $1 million policy limits, plus the $1 million loss, plus attorney’s fees – turning your business’s $1 million loss into a legal claim for $3 million plus attorney’s fees.

Although businesses don’t typically seek out litigation, these statutes give policyholders the leverage they need to demand coverage from their insurance carriers after the carrier wrongfully delays its investigation or denies a claim for coverage. Filing a lawsuit against your carrier for violations of these statues is the best way to convince the carrier to reevaluate its denial and cover your loss. Colorado business owners would do well to keep the statutes in mind next time their insurance carriers deny a claim.

This article was originally published by Colorado Real Estate Journal.