Colorado’s Supreme Court refused to trim a bad faith award against American Family Mutual Insurance Company in an apartment fire coverage dispute by the amount of policy benefits the insurance company delayed, but ultimately paid to its insureds prior to litigation, noting the relevant statute does not require such a reduction.
The Colorado statute at issue, Section 10-3-1116(1), allows an insured whose carrier has unreasonably delayed or denied its claim for policy benefits to sue to recover “reasonable attorney fees and court costs” and “two times the covered benefit.”
The insureds, Guillermo and Evelia Barriga, sued American Family in Colorado state court for breach of contract, common-law bad faith, and unreasonable delay and denial of benefits under Section 10-3-1116(1). The trial judge doubled the bad faith award in accordance with the statute, but then reduced it by the amount of benefits the jury said American Family had unreasonably delayed, but eventually paid to the Barrigas. The judge expressed concerns that failing to reduce the Barrigas’ award in that matter would result in an “absurd and unintended rule” in which an insured who suffers only a delayed benefit payment would be able to recover more than an insured whose claim was denied in its entirety.
The Colorado Supreme Court pointed out that there is no “explicit command” in Section 10-3-1116(1) requiring that an award under the statute be reduced by the amount of policy benefits that were delayed but eventually paid by the insurer.” Chief Justice Rice wrote “section 10-3-1116(1) presents no indication that delayed payments are to be treated differently from denied payments and section 10-3-1116(1), by its plain text, applies equal force in either a case of delayed benefits or a case of denied benefits.”
The Court also casted aside the trial judge’s concern that a decision favoring the Barrigas would lead to a rule conveying an unfair advantage on insureds who suffer only delayed payments. Chief Justice Rice noted “[a]n insured may bring a breach-of-contract claim in addition to a claim under section 10-3-1116(1) and, if successful on that breach-of contract claim, the insured whose benefits were denied could conceivably recover the same amount as the insured whose damages were delayed, meaning the absurd result envisioned by the trial court would not come to pass.”