Colorado Court of Appeals Issues Carriers Guidance

Another tough decision for carriers in Colorado from the Court of Appeals in Wenzell v. USAA, 2024 WL 166533, 2024 COA 40 (2024) finding: 1) the failure to cooperate statute, C.R.S. §10-3-1118, requires strict compliance as opposed to substantial compliance; and 2) exhaustion of primary UIM insurance policy not required before excess insurer has an independent obligation to investigate the insured’s claim.

The insurers argued that the Plaintiff’s non-cooperation constituted a failure to comply with a condition precedent rather than an affirmative defense. The Court said that regardless of how a failure to cooperate is raised, courts must consider the statute  otherwise: “insurers could raise noncooperation while labeling it a condition precedent and avoid the requirements of section §1118 entirely . . . [and that] is contrary to the plain language of [the statute] which explicitly details the applicable requirements for an insurer to allege that an insured did not cooperate or provide requested information.”  Determining that the statute required strict compliance and that the insurers did not meet that standard, the Court reversed summary judgment previously granted in the carrier’s favor.  

The Court also determined that the excess UIM carrier had an independent obligation to investigate the loss because the Plaintiff’s damage demand exceeded the liability carrier’s and primary UIM carrier’s combined limits.  The Court explained that neither the underlying UIM or excess UIM’s policies required exhaustion of the underlying limits, nor was it required pursuant to C.R.S. §10-4-609(1)(c). The Court determined that if the claim exceeded the underlying policies’ limits, the excess carrier had to investigate and pay the amount it owed, up to its limits, regardless of what the underlying carriers had paid.   

Although written in the context of UIM policies, we can expect efforts to apply it to other types of excess coverages. Several important factors to consider when evaluating excess coverage are: 1) whether the overall value of the case exceeds all applicable underlying limits; 2) the applicability of any statute; and 3) the specific language and application of the “other Insurance” provisions of all coverage potentially triggered.

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