Post date :
Jan 14, 2025
Founder, Western Slope Law
Dealing with an insurance company that refuses to settle fairly or honor a valid claim can be frustrating and stressful. Many people assume that insurers will automatically act in good faith, but the reality is that some companies deny, delay, or underpay claims. If you’ve reached a point where negotiation isn’t working, you may consider suing an insurance company to pursue the compensation you deserve.
Understanding Your Rights as an Insurance Policyholder
Insurance policies are legally binding contracts. When you pay premiums, the insurance company is obligated to uphold its end of the bargain—paying for covered losses, settling claims promptly, and acting in good faith. If they fail to fulfill these obligations, you may have grounds to file a lawsuit. Common causes include:
Bad faith: The insurer unreasonably delays or denies your claim or neglects proper investigation or fair evaluation of your claim for benefits.
Breach of contract: The insurer fails to meet the promises outlined in your policy.
Unjust delays: The insurer intentionally drags out the claim process without a reasonable basis.
What Is Bad Faith Insurance?
Bad faith occurs when an insurance company fails to act in good faith toward its policyholders. Under Colorado law (CRS 10-3-1115 and 10-3-1116), insurers are required to process claims fairly and promptly. Examples of bad faith include denying a claim without a valid reason, failing to fully investigate a claim based on all available information, ignoring information favorable to the insured, lowballing the amount of the insured’s claim, or offering significantly less than the claim is worth.
If you suspect bad faith, you may file a lawsuit to recover damages, including the original claim amount, two times the wrongfully delayed or denied amount, interest, attorney’s fees, and potentially additional damages for emotional distress caused by the insurer's actions.
Steps to Take Before Filing an Insurance Lawsuit
Review Your Policy: Start by carefully rereading your insurance policy. Understand the coverage details, limits, exclusions, and your rights as a policyholder. Make sure the claim you’re pursuing is actually covered by the policy terms.
Document Everything: Gather all evidence related to your claim. This includes accident reports, medical records, photographs, witness statements, and correspondence with the insurance company. Detailed documentation strengthens your case.
Attempt Negotiation: Before filing a lawsuit, try to resolve the issue through negotiation. Send a formal demand letter explaining your position, the amount you’re seeking, and the supporting evidence. Sometimes insurers may settle rather than risk litigation.
Consult with an Attorney: Speak with a skilled lawyer experienced in insurance disputes. Firms like Western Slope Law can help you evaluate the strength of your claim, advise on legal strategy, and represent you if you proceed.
Consider Mediation or Arbitration: Some insurance policies require alternative dispute resolution methods before litigation. It’s often less expensive and time-consuming. Your attorney can guide you on whether these options make sense.
Filing a Lawsuit Against Your Insurance Company
If negotiations fail, your attorney can help you file a formal lawsuit. This typically involves:
Complaint and Summons: Your attorney drafts a complaint—a legal document stating your allegations and desired compensation—and files it with the appropriate court. The insurance company will be served with the complaint and summons.
Discovery Phase: Both sides exchange information and evidence. This can include depositions, interrogatories (written questions), and requests for documents. Discovery is crucial for building a strong case.
Pre-Trial Motions: Attorneys may file motions to clarify legal issues or even request the judge to decide the case based on the evidence presented. Some cases settle at this stage.
Settlement Negotiations: Even after a lawsuit is filed, settlement discussions often continue. In many cases, insurers prefer to settle to avoid the uncertainty and expense of a trial.
Trial: If no settlement is reached, the case proceeds to trial. Both sides present their arguments, evidence, and witnesses before a judge or jury. After deliberation, a verdict is issued.
Calculating Damages
Damages in insurance disputes generally fall into two main categories: compensatory damages and punitive damages.
Compensatory Damages:
These are designed to make you “whole” again by covering the financial and emotional losses you experienced due to the insurer’s failure to pay a valid claim. They often include:
Medical Expenses: If your claim involves personal injuries, damages may include current and future medical costs, therapy, and rehabilitation.
Property Damage: In cases involving auto or homeowners insurance, damages cover repair or replacement costs for your vehicle or property.
Lost Wages and Earning Capacity: If an injury caused you to miss work or reduced your ability to earn a living, you may seek compensation for lost income and diminished future earnings.
Pain and Suffering: Depending on your jurisdiction, you may seek damages for emotional distress, anxiety, or reduced quality of life caused by the insurer’s refusal to pay.
Punitive Damages
If you can show that the insurer acted willfully and wantonly, such as delaying or denying your claim in a deliberate or reckless manner, you might be entitled to punitive damages. These are meant to punish the insurer and deter similar behavior in the future. The amount is determined by the severity of the insurer’s misconduct and often requires meeting a high legal standard.
Is it expensive to sue an insurance company?
Lawsuits can be costly due to filing fees, expert witnesses, and attorney’s fees. However, many personal injury lawyers work on a contingency fee basis, meaning they only get paid if you win or settle. This arrangement helps reduce upfront costs. Contingency fees typically range from 35% to 40% of the recovery obtained on your behalf.. Some attorneys also offer free initial consultations to assess the strength of your case.
In addition to contingency fees, there may be costs associated with filing a lawsuit, such as court fees, deposition costs, and expert witness fees. Make sure to discuss these potential expenses with your attorney during the consultation to understand the full scope of costs.
Helpful Resources and References
Below are several trusted resources and legal references that can offer additional information on handling insurance disputes and lawsuits:
More On Insurance Lawsuits
1. Can I sue an insurance company if they deny my claim?
Yes, you can sue an insurance company if your claim is denied without a valid reason or if the denial violates the terms of your policy. An attorney can review your case to determine whether the insurer acted in bad faith and help you pursue legal action.
2. How long do I have to file a lawsuit against an insurance company in Colorado?
The statute of limitations for filing a lawsuit against an insurance company in Colorado is generally two years from the date of the bad faith action. Acting promptly ensures you don’t miss this deadline and allows your attorney to gather evidence while it is still fresh.
3. How long does it take to settle or win a lawsuit against an insurer?
The timeline varies widely. Some cases resolve in a few months through negotiations, while others may take a year or more, especially if they go to trial. The complexity of your case and the insurer’s willingness to negotiate are key factors.
4. Can I sue if my claim was partially paid but not fully?
Yes. If the insurer undervalued your claim or paid less than you believe is owed under the policy, you can still bring a lawsuit to recover the remaining amount. Your documentation and legal counsel will help demonstrate why a higher payout is warranted.
5. Will suing affect my insurance coverage?
Filing a lawsuit against your insurer generally doesn’t cancel your existing coverage. However, if the relationship deteriorates, you might consider switching providers after resolving the dispute.
