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Colorado Legislature Passes Bill to Curb Insurance Abuse of Failure to Cooperate Defense

Aug 6th, 2020

On June 10, 2020, Colorado’s General Assembly voted in favor of HB20-1290. It is expected that Governor Polis will sign HB20-1290 into law. This bill was not one of the most high profile bills passed this term, and it is a little technical. But it is a bill that enacts important consumer protections into law.

What is the failure to cooperate defense?

Every contract of insurance has a provision that requires the insured to cooperate with the insurer to provide the insurance company with the information it needs to evaluate the claim. If an insured fails to cooperate with his or her insurance company, the insurer can refuse to pay the entire claim. That sounds reasonable, right? The problem comes when the insurance company abuses this power.

Who does this bill impact?

This bill will benefit Coloradans who are making direct claims for insurance benefits from their insurance companies. For years, Coloradans who have made claims for benefits from their own insurance companies have faced incredibly overbroad requests for information—requests that go beyond what is fair.

Wait. What do you mean by that?

Here’s an example. Suppose you get into a car crash. You sue the person who hurt you. In litigation, there are limits on what that driver can request from you. Generally speaking, the negligent driver can get your medical records related to the body parts that were injured in the crash for a reasonable time prior to the crash. And that’s fair. If you’re claiming a back injury, the other driver should be allowed to find out whether you have prior back problems. But that other driver cannot demand to see your mental health records, or your gynecological records. If you’re claiming you’ve lost income, the other driver can see your W-2s and 1099s. But the other driver cannot demand your full tax returns. The other driver can take your deposition (require you to answer questions under oath), once. The other driver can require you to be examined by a doctor of his or her choosing, once (but you get a copy of that doctor’s report). That’s how the process works when you’re trying to recover from someone who hurt you.

Now, let’s look at how things go when you’re dealing with your own insurance company. Imagine what happens if you’re hit by an uninsured driver. If you have uninsured motorist coverage, you’re in good hands, right? You’ve paid your insurance premiums for years. No doubt your carrier will treat you in a neighborly fashion.

Until HB20-1290, your insurance company could send a blank medical release for you to sign. If you didn’t send it back, you were failing to cooperate. If you did, your insurance carrier could request your medical records from any doctor you’ve ever seen. And then, it could use those records to minimize your claim by sending those records to a doctor of its choosing, who would attribute your pain and suffering to the fact that you struggled with depression in college, rather than the fact that your back hurts every day. Not only that, your insurance company can require you to be examined by as many doctors as they want. Insurance companies could also demand your income tax returns—in their entirety—exposing a roadmap of your financial life. Your insurance company can also ask you to sit for an Examination Under Oath, as often as it reasonably wants. If you refused to provide ANY of the information it asked for—when it asked for it—because you wanted to protect your privacy about any of these things, your insurance company could then deny you ANY of the benefits you paid for.

What does the bill do?

On the one hand, you could say “not much.” The bill imposes a reasonableness requirement, and changes the defense so that it no longer functions as a forfeiture of all benefits. On the other hand, the bill gives consumers significantly more control of what information they have to hand over to their insurance companies. The first major change that HB20-1290 makes is to limit the scope of insurance carriers’ requests for information to “information a reasonable person would determine the insurer needs to adjust the claim filed by the insured or to prevent fraud.” That change alone takes away a ton of the insurance industry’s power. No more unlimited EUOs and medical examinations. No more blank medical releases and tax returns. The second major impact of the bill is to change the failure to cooperate defense from a complete defense to a partial defense. This means that you can choose to withhold your mental health records (for example), or wage loss records, without losing all your rights under the policy. You might lose that portion of your claim related to PTSD issues, or lost wages, but doing so would not interfere with your ability to claim ambulance or hospital bills (for example).