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Terence M. Ridley, Wheeler Trigg O’Donnell LLP, Denver, CO secured a defense verdict in a bad faith breach of insurance contract case against Allstate Insurance Company in the U.S. District Court for Colorado. The jury found that Allstate had not engaged in either unreasonable denial of the claim, or unreasonable delay in the subsequent payment of the claim.

Not only was this a great win for Allstate, but it signaled a significant achievement under Colorado’s bad faith penalty statute, CRS §§ 10-3-1115 and 1116, which, since its enactment in 2008, has been the most litigated insurance statute in Colorado. The statute has been a boon to the Colorado plaintiff’s bad faith bar, as it provides for attorneys’ fees and “twice the covered benefit” when an insurer is found simply to have either unreasonably delayed or denied payment of “covered benefits”.

The case involved a policyholder whose vacant rental property in Grand Junction, Colorado, was destroyed by fire on the morning of March 30, 2010. Because a garage on the same property had burned just nine months earlier — and Allstate covered the loss, which was never repaired — the insurer had reasonable questions about the cause and origin of the second fire. Detailed investigations into the blaze by the fire department and an independent investigator showed opportunity, motive, and scientific evidence of an intentionally set fire, thereby raising well-founded concerns about whether the claim was excluded as an intentional act under the Allstate policy. Accordingly, Allstate denied the claim.

Over a year after the denial of the claim, the plaintiff produced an initial report, from his own cause and origin expert retained in the litigation, which called into question the methodology used and conclusions made by the prior C & O investigators. Allstate completed its investigation in response to the claimant’s expert reports and gave the policyholder the benefit of still substantial doubt, paying the claim in full. The property owner, however, persisted in the litigation, motivated by the substantial penalty and attorneys’ fees provisions of the statute.

Based on interpretations of the penalty statute by many trial court judges, Allstate would have been held responsible for not only the benefits paid, but also for an additional two times the amount of the benefits paid plus attorneys’ fees. Moreover, under a new Colorado opinion, a successful plaintiff is not only entitled to attorneys’ fees under the statute, but also to “fees on fees” incurred in applying for and litigating the reasonableness of the fees.

Do you have a triumph to share? Send a brief summary and a recent photograph to David Fuqua at dfuqua@fc-lawyers.com


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