(May 2021) -  In the 2020 legislative session, the Colorado General Assembly passed House Bill 20-1290. The resulting statute, Colorado Revised Statute Section 10-3-1118, went into effect on September 14, 2020. The new statute applies to litigation  occurring on or after September 14, 2020, but arguably applies to the handling of claims  arising before that date.

Section 10-3-1118 establishes specific requirements that an insurer must meet in order to assert a failure to cooperate defense in litigation.

1. Written Request for Information

The insurer must request information from the insured in writing and provide the insured 60 days to respond. The written request must be sent by certified mail or electronically if the insured consented to receive electronic documents from the insurer.

2. Nature of the Information Requested

The insurer's written request must be for information that is not available to the insurer without the assistance of the insured and that a "reasonable person would determine the insurer needs to adjust the claim filed by the insured or to prevent fraud."

3. Written Notice of Failure to Cooperate and Opportunity to Cure

Within 60 days after the insured's failure to cooperate, the insurer must provide written notice to the insured describing "with particularity" the insured's failure to cooperate. The notice must provide the insured 60 days to cure.

Section 10-3-1118 applies to litigation "concerning an insurance policy providing first-party benefits or coverage..." The term "first-party benefits or coverage" is not defined by the statute. However, similar statutory language found in Sections 10-3-1115 and 10-3-1116 has been interpreted to include benefits owed directly to an insured under third-party liability policies (such as a duty to defend under a Commercial General Liability policy).

Section 10-3-1118 limits the scope of a failure to cooperate defense to "the portion of the claim materially and substantially prejudiced to the extent the insurer could not evaluate or pay that portion of the claim." Thus, a failure to cooperate does not necessarily provide a complete defense in litigation.

Recognizing that the 60-day notice period and the 60-day opportunity for the insured to cure may result in delays, Section 10-3-1118 specifically provides that an insurer is not liable for bad faith as a result of delays caused by an insurer's compliance with the statutory notice and cure periods.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.