Insurers investigating claims in Colorado should be aware of new limits on their ability to assert a failure-to-cooperate defense in litigation. Effective September 15, 2020, C.R.S. § 10-3-1118 imposes a number of hurdles on insurers seeking to argue that coverage is not available because an insured did not cooperate in the investigation of a claim.
Before an insurer can assert a failure-to-cooperate defense in first-party actions, the statute requires compliance with several conditions. First, the insurer must request information from the insured or their representative in writing, via certified mail or electronic means, if the insured or their representative have consented to receive electronic documents from the insurer.
Second, the requested information must not be available to the insurer without the assistance of the insured.
Third, the insured must be given 60 days to respond to the request for information.
Fourth, the information requested must be information that a “reasonable person” would determine the insurer needs to adjust the claim or prevent fraud.
Finally, the insured must be given an opportunity to cure any alleged non-cooperation. This opportunity must include written notice within 60 days to the insured detailing with particularity the alleged failure to cooperate, and 60 days after receipt of the notice for the insured to cure.
Even if an insurer complies with all of these conditions precedent, the new statute limits a failure-to-cooperate defense to the portion of the claim where the insurer’s ability to evaluate or pay was “materially and substantially prejudiced” by the insured’s non-cooperation.
In a small bit of good news for insurers, the statute prevents insureds from bringing common law or statutory bad faith claims because insurers gave them only the statutorily required periods to respond to a request for information or cure a failure to cooperate.
The language and procedures set out in the statute necessarily invite questions that may arise under any number of circumstances, including how to comply with the statute without adversely affecting a potential failure-to-cooperate defense. The experienced team of attorneys at Wood, Smith, Henning & Berman LLP are available to assist insurers with navigating the complexities of these new requirements.