It is common for homeowners or businesses to have their insurance claims denied.[1] When that happens, a policyholder (the “insured”) may have the right to pursue the insurance company for breach of contract, common law bad faith breach of insurance contract, statutory bad faith, and other types of claims. This article provides an overview of the three most common legal claims you or your business may have if your insurance company refuses to pay a claim or acts in violation of an insurance policy.
How Do I Know if My Insurance Claim is Covered Under the Policy?
The language of your insurance policy is central to any dispute with an insurance company. An insurance policy will describe covered claims, the process for notifying your insurance company about those claims, the claim investigation process, and other important information about your rights under the policy. Therefore, it is critical to obtain a copy of your insurance policy and read it. It is also important to follow the process outlined in the policy for submitting claims and to keep records of all communications with the insurance company. You should also document your losses with pictures, receipts, police reports, medical records, and any other information that supports your claim for coverage.
Insurance policies can be confusing, complicated, and nuanced. Involving a lawyer at the earliest stages of a claim for coverage is, therefore, advised.
If an insurance company has acted improperly, you may be able to assert a variety of legal claims to recover what is owed to you under the policy. Three of those claims include: (1) breach of contract; (2) common law bad faith breach of insurance contract; and (3) statutory bad faith. Each of these claims is discussed below.
Breach of Contract Claim
An insurance policy is a contract between the insured and the insurer. Therefore, failure of the insurance company to defend or indemnify you or take other action when required by the policy to do so may give rise to a breach of contract claim against the insurance company and the right to recover your actual monetary damages resulting from the breach.
First-Party Common-Law Bad Faith Breach of Insurance Contract Claim
Because of the special relationship between an insured and its insurance company, the insurance company owes a common–law tort duty of good faith and fair dealing to an insured. [2] A breach of this duty constitutes a bad faith breach of insurance contract if, for example, the insurance company: (1) unreasonably delays payment, denies payment, or fails to communicate promptly and effectively; (2) knows that its delay or denial is unreasonable or recklessly disregards whether its conduct is unreasonable; and (3) its unreasonable conduct causes the insured injuries, damages, or losses. [3] If the claim is proved, the insured may be entitled to recover its actual economic damages as well as non-economic damages such as those for emotional distress, pain and suffering, inconvenience, fear and anxiety, and impairment of the quality of life, as well as punitive damages. [4]
Third-Party Common-Law Bad Faith Breach of Insurance Contract Claim
An insured may also have a third-party common–law bad faith breach of insurance contract claim against an insurer under Colorado law. “Third-party bad faith arises when an insurance company acts unreasonably in investigating, defending, or settling a claim brought by a third person against its insured under a liability policy.” [5] In that instance, the third-party must prove that: (1) it was damaged; (2) the insurance company acted unreasonably by, for example, failing to settle the claim the third-party made against the insured; and (3) the insurance company’s unreasonable conduct caused the insured’s injuries. The same damages recoverable in a first-party common–law bad faith breach of insurance contract case are recoverable in a third-party common-law bad faith breach of insurance contract case. [6]
First-Party Statutory Bad Faith Claim
Under Colorado Revised Statutes §§ 10-3-115 and -1116, an insured (as well as others) whose claim for insurance benefits has been unreasonably delayed or denied has a private statutory right of action against an insurance company in addition to and separate from a common-law claim for first-party common-law bad faith breach of insurance contract. [7] An insurance company violates the statute if it delays or denies payment without a reasonable basis for doing so. [8] An insured is not required to prove that the insurance company knew that its delay or denial was unreasonable or in reckless disregard of whether its conduct was unreasonable. [9] Thus, there are fewer elements of proof in a statutory bad faith claim than there are a common-law bad faith breach of insurance contract claim. If the statutory claim is proved, the insured may be entitled to recover its actual damages, reasonable attorney fees, court costs, and two times the covered benefit. [10]
Statute of Limitations
All claims must be brought within the applicable “statute of limitations” (i.e., the statutory time limit for filing a lawsuit based on the specific type of claim). Failure to file a claim within the applicable statute of limitations may result in dismissal or forfeiture of the claim and render the insured unable to recover its damages. Just like insurance policies, determining the applicable statute of limitations and the date the claim accrued can be confusing, complicated, and nuanced. Again, involving a lawyer at the earliest stages of a claim for coverage is, therefore, advised.
Our Team
BHGR’s Insurance Group represents clients in state and federal courts seeking to enforce insurance coverage or recover policy proceeds. Our attorneys have considerable experience with complex insurance coverage disputes, breach of contract, and bad faith insurance claims of all types.
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[1] On June 11, 2025, Weiss Ratings reported that fourteen large U.S. property insurers closed 40% to 51% of homeowner claims with no payment whatsoever in 2024. https://weissratings.com/en/weiss-news/14-large-u-s-insurers-closed-nearly-half-of-homeowner-claims-with-no-payment-in-2024
[2] See, e.g., Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1267-68 (Colo. 1985); Vaughan v. McMinn, 945 P.2d 404, 406 (Colo. 1997).
[3] See, e.g., Travelers Insurance Co. v. Savio, 706 P.2d at 1275-76; Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1142 (Colo. 1984).
[4] See, e.g., Goodson v. American Standard Insurance Co., 89 P.3d 409, 415 (Colo. 2004).
[5] Id., 89 P.3d at 414.
[6] See, e.g., CJI-Civ. 25:9 (CLE ed. 2025).
[7] See Kisselman v. Am. Family Mut. Ins. Co., 292 P.3d 965, 972 (Colo. App. 2011).
[8] Id. at 973.
[9] See id.
[10] See Colo. Rev. Stat. § 10-3-116.