The What and How of Colorado Insurance Bad Faith Claims

What are bad-faith insurance claims?

The state of Colorado requires all drivers to maintain auto liability insurance. This requirement is non-negotiable. Under Colorado law, drivers must carry coverage of at least $25,000 per person and $50,000 per occurrence for bodily injuries, and $15,000 for property damage.

Colorado residents are required to maintain a contract with an insurance company in order to make sure if they cause a wreck, the other people injured are covered. But what happens when an insurance company refuses to pay for a valid accident claim? If the insurance company refuses to abide by the contract with the policy holder, the insurance carrier may be acting in “bad faith.”

What is an Insurance Contract?

When you purchase insurance, you and the insurance company enter into a policy contract. That contract specifies that you agree to pay your premiums, and that if certain types of accidents occur, then the insurance company will step up and pay for the injuries and damages. The insurance company has a number of obligations under the contract, such as:

  • Perform a diligent and reasonable investigation
  • Pay all valid claims up to the amount of coverage purchased
  • Defend the insured and those covered by the insurance policy
  • Pay any verdicts and judgments
  • Act in good faith to resolve the claim in a timely manner.

What Are Bad Faith Insurance Claims?

In some instances, an insurance company may breach its contract with its policyholder. In general, the insurance company acts in bad faith when it fails to take reasonable actions to handle a claim within the statutory guidelines and regulations of the state in which the policy is underwritten. There also are other ways bad faith can occur.

Bad faith can affect both the injury victims and the at-fault driver whose insurance company refuses to pay.

Under Colorado law, if you are hurt by an uninsured or underinsured driver, your uninsured motorist coverage is designed to compensate you up to the limits of your UM/UIM policy. Many times, an insurance company will attempt to undervalue your claim, pay only a fraction of your losses, or misrepresent how your coverage works to get you to settle for less than you should. You may have to sue your own insurance company to force them to pay for your losses.

Bad faith claims are complicated, but in general, here are a few of the ways insurance companies can commit bad faith in handling your claim:

Examples of Bad Faith

Each state determines what it will consider bad faith. There are two broad categories of bad faith claims. Here are a few of the most common examples of bad faith that Denver drivers experience.

  1. Delays
    After a collision, an insurance company has a duty to perform an investigation to determine who is at fault, the facts of the case, the injuries involved, and to pay for any claims it is responsible for paying under its contract. If the insurance company acts unreasonably in delaying the investigation, disregarding communications, and forcing its own policyholder to experience financial hardship, a court may determine that the insurance company acted in bad faith and award the policyholder compensation.
  2. Lack Of Diligence / Failure To Investigate
    Much like a delay in handling the claim, insurance companies often issue outright denials without performing a basic investigation. A common scenario is failing to call or interview witnesses or failing to obtain crash report information before making a decision to deny a claim.
  3. Unfair And Deceptive Practices
    Colorado requires that certain types of willful and intentional conduct be regarded as bad faith. The theory is that the insurance company has made a contractual promise to do certain things in exchange for a monthly premium payment. By ignoring its obligations, it is deceiving its policyholder and committing a form of deceptive trade practice.
  4. Fraud & Misrepresentation
    Similar to unfair and deceptive practices, fraud and misrepresentation occur when an insurance company lies about your coverage and their responsibilities under the insurance contract. There are many ways insurance companies misrepresent rules and regulations to avoid paying claims.
  5. Undervaluing Claims
    The most common type of bad faith is undervaluing claims. This should be distinguished from settling a claim for less money than a person wants. This is generally only bad faith when the insurance company knows (or should know) that the total amount of injuries and damages are far greater than what is being offered. Consider a person who incurs $50,000 in medical bills after a wreck, and her insurance company offers to pay $20,000 of the bills, arguing the person should have her health insurance cover the remainder of the bills instead.
  6. Refusal To Pay A Valid Claim
    An insurance company is contractually obligated to pay the reasonable value of valid claims. If liability is clear, and the injuries are well-supported by medical bills and records, an insurance company that refuses to pay the claim may be acting in bad faith.

What is a Bad Faith Letter?

Once an insurance company has shown that it is unwilling to honor its insurance policy contract, your attorney can write a formal “bad faith letter” to the insurance company. Here are a few of the things a bad faith letter should do:

  • Inform the insurance company that you are represented by an attorney
  • Explain that continuing to deny the claim constitutes bad faith
  • Puts the insurer on notice that you are making a formal demand for payment under your contract
  • Advises that failure to pay will result in a lawsuit
  • Presents a proposed amount desired to settle the claim
  • Gives a strict time limit for the insurance company to respond.

Should I Write My Own Bad Faith Letter?

It is not a good idea to attempt your own bad faith letter to the insurer. If you suspect that your insurance company is acting in bad faith, you should speak with a Denver bad faith insurance attorney who handles bad faith claims. The lawyer can give you an informed perspective on whether your situation reflects bad faith on the part of the insurer.

Suing for Bad Faith in Colorado

If your attorney sends a bad faith letter and attempts to negotiate, but the insurance continues to refuse to pay a valid claim, your attorney may advise you to file a suit. If you believe your insurance company is acting in bad faith or you are dealing with another driver’s insurance company, call (720) 709-2802 to speak with an attorney at The Sawaya Law Firm today. Our attorneys are experienced at dealing with insurance companies and protecting clients’ legal rights. The consultation is free.


Michael established The Sawaya Law Firm in 1977 and built it into one of the largest personal injury law firms in Colorado, with more than 20 lawyers and 80 staff members serving clients from five offices located in Denver, Greeley and Colorado Springs. Throughout its history, the firm has stayed true to its 12 Core Values, which emphasize excellence in advocacy and a commitment to providing outstanding client service. Michael studied sociology and economics as an undergraduate student at The Colorado College, and he earned his law degree from the Texas Tech University School of Law. In addition to being involved in several legal and community organizations, Michael enjoys playing music and cooking, and he has written a book on spiritual matters.