Every once in a while, Colorado federal district court judges decide to provide more clarity on legal defenses asserted by insurers. One such recent case is a great case study regarding the evolving standard relative to an insurer’s ability to assert a failure to cooperate defense in litigation. In Excel Construction Group v. GuideOne Mutual Insurance Company,1 the trial court recently evaluated the failure to cooperate defense for defenses asserted before the enactment of C.R.S. § 10-3-1118. Excel was filed by a contractor by assignment of an insurance claim. Excel filed a lawsuit against a church facility’s insurer for breach of contract damages and a violation of Colorado’s insurance bad faith statute, C.R.S. § 10-3-1115 and 1116, in the federal district court of Colorado on December 31, 2020.
As is typical in these cases, the insurer filed summary judgment on, among other things, Excel’s breach of contract claim asserting that there was no genuine dispute of material fact that Excel violated the policy’s failure to cooperate clause. The settled law on the subject under Colorado law is insureds may forfeit the right to recover under an insurance policy if they fail to cooperate in violation of a policy provision. Walker v. State Farm Fire & Cas. Co., No. 16-CV-00118, 2017 WL 1386341, at *3 (D. Colo. Feb. 23, 2017), report and recommendation adopted, No. 16-CV-00118, 2017 WL 1386346 (D. Colo. Mar. 17, 2017). The failure to cooperate is a breach of an insurance contract only if the insurer suffers a material and substantial disadvantage. Hall v. Allstate Fire & Cas. Ins. Co., No. 1:19-CV-02604, 2021 WL 119344, at *3 (D. Colo. Jan. 12, 2021), aff’d, 20 F.4th 1319 (10th Cir. 2021) (citing Ahmadi v. Allstate Ins. Co., 22 P.3d 576, 579 (Colo. App. 2001)). “Generally, the question of whether the insured has violated his insurance policy by failing to cooperate with the insurer is a question of fact.” 6 W. Apartments, LLC v. Ohio Cas. Ins. Co., No. 1:20-CV-02243, 2021 WL 4949154, at *9 (D. Colo. Oct. 25, 2021) (quoting Farmers Automobile Inter-Insurance Exchange v. Konugres, 202 P.2d 959 (Colo. 1949)). The insurer bears the burden of proving failure to cooperate. Soicher v. State Farm Mut. Auto. Ins. Co., 351 P.3d 559, 564 (Colo. App. 2015).
However, in Excel, the court added an additional element to the failure to cooperate defense which other jurisdictions have adopted. In Excel, the court noted that summary judgment was precluded because there remained a genuine dispute of material fact regarding:
(1) How much information Defendant had to evaluate the claim
(2) What was reasonable for Defendant to request of Plaintiff under the policy
(3) The extent to which Plaintiff made any requested information available to Defendant.2
The importance of this decision is the added consideration of whether the insurer’s request for information was reasonable. This is, to the best of my knowledge, the first time a Colorado district court judge has even considered whether the insurer reasonably requested information in determining if there was a failure to cooperate. Previously, the standard was articulated as:
[Whether] the insurer has been able to complete a reasonable investigation with regard to whether the insured’s claim is valid. If the insured’s refusal to cooperate prevents the insurer from completing such a reasonable investigation, prejudice should be found to exist. Specifically, it has been held that the insurer can deny coverage, following an insured’s refusal to provide documents reasonably requested by the insurer, on the basis that the insurer has been prejudiced because the insured’s refusal prejudices the insurer by putting the insurer in the untenable position of either denying coverage or paying the claim without the means to investigate its validity.3
As indicated in the Walker ruling above, the standard of the reasonableness of document requests continues to be refined, and the burden seems to be shifting toward a higher burden on insurers to establish that they actually needed a document to evaluate a claim. Ultimately in Excel, the court denied the insurer’s summary judgment motion, allowing the case to proceed to trial. Insurance litigators in Colorado should take due care to argue the reasonableness of document requests in the future and whether a document is actually necessary to adjust a claim. Often deposition testimony establishes that insurers request documents merely to delay payment on a claim and that the document requested has absolutely no bearing on paying undisputed insurance benefits owed.
Finally, as indicated above, Excel proceeded on a breach of contract claim that predated the C.R.S. § 10-3-1118 that became effective September 14, 2020. C.R.S. § 10-3-1118 is a new statute intended to articulate the requirements for insurers to assert failure to cooperate defenses for claims that are litigated after September 14, 2020. Under this statute, the prejudice requirement is the same, but the document reasonableness standard has changed and is stated as follows: “The written request is for information a reasonable person would determine the insurer needs to adjust the claim filed by the insured or to prevent fraud.”4 The statute has other requirements to assert the defense and gives an insured the right to cure a failure to cooperate prior to filing litigation, however the reasonableness standard is different for newer claims.
2 Id. at *2 (D. Colo. Mar. 20, 2023) (emphasis added).
3 Walker v. State Farm Fire & Cas. Co., No. 16-cv-00118, 2017 WL 1386341, at *4 (D. Colo. Feb. 23, 2017) report and recommendation adopted, No. 16-cv-00118, 2017 WL 1386346 (D. Colo. Mar. 17, 2017) (quoting Allan D. Windt, Insurance Claims & Disputes § 3.2 (6th ed. 2016)).
4 C.R.S. § 10-3-1118(1)(d).
