2020 has been a bit of a roller coaster, to say the least. Governor Polis and the Colorado legislature have certainly had their hands full dealing with the pandemic, but nonetheless, they found time to protect policyholders in Colorado by preventing Insurance Carriers from engaging in revisionist history and asserting the failure to cooperate provision as a basis to avoid paying benefits owed under an insurance policy.
Nearly all insurance policies issued in the state of Colorado contain provisions creating a duty to cooperate on the part of the policyholder, and non-cooperation constitutes a breach if the failure to cooperate places the insurance company at a material and substantial disadvantage. Whether there has been cooperation on the part of the policyholder is usually a question of fact, but there are cases involving an egregious lack of cooperation where courts have ruled as a matter of law that the duty to cooperate was breached by the policyholder, such as when a policyholder has failed to provide medical authorizations and submit to an independent medical examination as required by the policy. Another example that constituted a failure to cooperate as a matter of law involved a policyholder’s refusal to provide his whereabouts at the time of a fire loss when arson was suspected.
When lack of cooperation is egregious, this provision is typically asserted during the claims handling process before litigation ensues. However, far more often and at an ever-increasing rate, this is a provision asserted in a post-claim handling manner, by the attorney for the insurance company after suit has been filed by a policyholder to recover benefits that the insurance company is refusing to pay. This tactic is akin to denialism; the illegitimate reinterpretation of the historical record, in this case the claims process. This is an important and fundamental distinction. This tactic is an attempt to focus the attention away from the insurance carrier’s conduct and obligation to pay the claim and put it on the policyholder. Insurance carriers, through their defense lawyers, use the duty to cooperate to engage in revisionist history by creating additional obligations on the part of the insured not articulated in the insurance policy. In response to this, Mr. Steve Fenberg and Mr. Alec Garnett sponsored legislation that prohibits insurance carriers and their lawyers from engaging in revisionist history to avoid paying benefits to a policyholder.
CO HB 1290 creates Section 10-3-1118 to the Colorado Revised Statues and requires the following conditions be met before allowing an insurance company to assert the defense of failure to cooperate in an action concerning an insurance policy providing first-party benefits or coverage.
The insurer must submit a written request to the insured or the insured’s representative for the information the insurer seeks via certified mail unless the insured has agreed to receive communications via electronic means;
The information must not be available to the insurer;
The insured must be provided 60 days to respond;
The requested information must be information a reasonable person would determine the insurer needs to adjust the claim or to prevent fraud; and
The insurer must also give the insured an opportunity to cure. This opportunity to cure must be written notice to the insured of the alleged failure to cooperate, describing with particularity the alleged failure, within 60 days after the alleged failure, and allow the insured an additional 60 days after receipt of the written notice to cure the alleged failure to cooperate.
The statute also clarifies that the failure to cooperate defense applies only to that portion of the claim materially and substantially prejudiced to the extent the insurer could not evaluate or pay that portion of the claim. Finally, irrespective of an insured’s failure to cooperate and the availability of this defense to insurers, an insurer is still obligated to investigate claims or comply with C.R.S. 10-3-1104 requiring insurers to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies.
So, what does this mean for policyholders and their representatives? Insurers must promptly and reasonably investigate the claims submitted by its insureds. While insureds remain obligated to cooperate with the insurer’s investigation, this new law mandates that insurance carriers’ requests for cooperation be reasonable, be in writing, and allow the insured 60 days to respond. Even if the insured doesn’t respond within the 60-day timeline, an insurer is required to again provide written notice of the alleged failure to cooperate and allow the insured another 60 days to respond. These requirements strike a clear balance between the insured and insurer as it relates to the duty to cooperate and investigate. The most interesting component of the legislation is the requirement that the insurer send notice within 60 days following the written request for information of the alleged failure to cooperate. The language of the statute suggests that failing to do so will constitute a waiver of an insurer’s ability to assert the failure to cooperate defense in litigation.
At Smith Jadin Johnson we help policyholders in the presentation of insurance claims, including meeting their obligations under the policy such as their duty to cooperate. Our firm handles claims arising under all types of policies and we’re here to help. Call us today.
-Christopher Drake, Partner @ Smith Jadin Johnson, PLLC