Fight a Homeowner’s Insurance Claim Denial

Jon Topolewski
By: Jon Topolewski
PublishedNov 11, 2021
14 minute read

It’s a common scenario: a Colorado homeowner faithfully pays her homeowner’s insurance premiums on time, but when she needs her insurance company to step up, it delays, underpays, or denies her claim. An insurance claim denial or and delay is incredibly frustrating.

Unfortunately, many homeowners accept lowball offers or give up on their claims altogether due to the unscrupulous tactics insurance companies use to delay or deny policyholders’ claims.

This legal guide provides an overview of how insurance companies try to put off your claims and what your legal options are to fight unreasonable delays or denials.

homeowner's insurance claim denial

Table of Contents

Common Claims in Colorado
Insurance Companies Count on Policy Exclusions to Deny Coverage
How Insurance Companies Sabotage Your Efforts to Challenge Them
Practices Insurance Companies Use to Delay Your Claim
How to Fight Insurance Delays and Denials
What Your Insurance Company Cannot Do
How to Help Your Insurance Denial Case

Common Claims in Colorado

Two of the most common homeowner’s insurance claims in Colorado are hail damage and tenant damage. Colorado is second to only Texas for the state with the most hail damage claims, according to the Rocky Mountain Insurance Information Association. If you lived in the Denver metropolitan area on May 8, 2017, then you’re well aware of the type of severe damage hail can generate. That hailstorm is estimated to have resulted in $2.3 billion — yes, that’s billion with a b — of damage.

Hail Damage Claim Denials

Hail can cause tens of thousands of dollars in damage to your home’s roof, siding, and windows. When this happens, homeowners expect their insurance company to cover the repairs. If only it were that simple.

Generally, after a hail event occurs, you’ll have a contractor come out to your home to determine the extent of the damage and find out how much it will cost to fix it. Then your insurance company gets involved. It sends out its own adjuster to review the damage. Cue the problems.

A Hail Damage Claim Scenario

Your contractor claims your entire roof needs to be replaced. He says the materials he needs to repair the portion of your damaged roof are no longer manufactured. Using current standard materials in conjunction with the outdated roof could lead to leaks, which is the reason for complete replacement.

Your insurance company, though, will only agree to pay for the area that is damaged. Nothing more.

The difference: $20,000.

If you find yourself in a situation like this, it’s time to talk with an attorney about whether you can file a bad faith claim.

Tenant Damage Claim Denials

If you’re a landlord, you know it’s important to screen for good tenants, but you also know that’s not failproof. There’s no way for you to predict what will happen down the line.

A Tenant Damage Claim Scenario

You rent a house to someone who is a great tenant for a number of years. They pay their rent on time, and you never have any complaints about them. Then, something happens in their life that causes them to become a different person. One day you discover they have severely damaged your rental property.

You file a claim with your insurance company, but your claim is denied because of the policy’s wear and tear exclusion. It’s very obvious, to you at least, that this is not “wear and tear,” but what can you do?

This is another scenario where an insurance denial attorney can help. Depending on the circumstances and your policy, you may be able to file a vandalism claim and get a lot of the repairs and replacements covered by insurance.

A skilled litigation attorney who specializes in the insurance industry will help you look for ways to get your damage repaired through insurance. And if your insurance company has acted unreasonably and in bad faith, an attorney can help you recover damages.

Insurance Companies Count on Policy Exclusions to Deny Coverage

How to Beat Common Insurance Policy Exclusions

If you have never fully reviewed your homeowner’s insurance policy, we strongly encourage you to do so. You will probably be surprised by how many exclusions it contains. Robinson & Henry litigation attorneys say

policy exclusions are one of the most common ways insurance companies get out of paying claims.

Let’s take a look at some of the common exclusions and ways you and your lawyer may be able to find a way around them.

Third-Party Negligence Exclusions

A third-party negligence exclusion means your insurance company will not cover damage to your home if it is caused by someone else’s negligence. A common third party would be a person or company you hire to do work in or on your home, like a contractor, handyman, or even a housekeeping service.

Let’s say you hire a contractor to remodel your kitchen. During the remodel, the contractor causes some kind of damage to your home. Well, if your homeowner’s insurance policy has a third-party negligence exclusion provision, you can expect the insurance adjuster to try to use this exclusion to deny your claim. When that happens, you may have to take a unique approach to get your claim approved.

For instance, did your contractor start the demolition without your consent? If so, you may be able to file a claim for vandalism.

Additionally, you’ll want to consider everything that was damaged. Did a lot of your personal property get damaged in the unauthorized demolition? If so, you may be able to file a claim for it if personal property coverage is not looped into the third-party negligence exclusion.

Surface Water Exclusions

Homeowner’s insurance often covers accidental water damage, like a burst pipe. However, policies frequently contain a surface water exclusion. This exclusion may state that surface water damage caused by external sources, like a water main failure, a backed-up sewer, or runoff water from a paved walkway, is not covered.

What is Surface Water?
The Colorado Supreme Court defined surface water back in 1990 when it heard Heller v. Fire Ins. Exch. In this case, the insurance policy did not define surface water, so the state’s highest court said it unambiguously means:

“water from melted snow, falling rain, or rising springs, lying or flowing naturally on the earth’s surface, not gathering into or forming any more definite body of water than a mere bog, swamp, slough, or marsh, and lost by percolation, evaporation, or natural drainage. Surface water is distinguished from the water of a natural stream, lake, or pond, is not of a substantial or permanent existence, has no banks, and follows no defined course.” Heller, 800 P.2d at 1008

However, in Heller the court said surface water can lose that characterization when it is diverted by something that prevents the surface water’s natural processes. In this case, it was a man-made trench.

Is the Water from a Roof Leak Considered Surface Water?

Well, that’s exactly what one insurance company contended when a policyholder filed a claim after their home’s interior was damaged due to a rainstorm. The insurance company notified the homeowners that the rain had triggered their policy’s surface water exclusion, and the damage would not be covered. The couple sued, and the case went to trial.

In Morley v. United Servs. Auto. Ass’n, the Colorado Court of Appeals, in 2019, concluded the rain that fell through the roof was not surface water. The court looked to Heller to guide its decision:

“when precipitation falls or leaks into the insured’s dwelling through holes in a roof damaged by hail (or some other covered peril) — rather than running off the roof and behaving as one would expect water intercepted by a roof to behave — it does not fall within the plain meaning of the term “surface water” because it was never water “lying or flowing naturally on the earth’s surface” (even if the roof is considered an extension of the “earth’s surface”).”

You may be able to fight your insurance company’s surface water exclusion if it denies your claim. The best way to know if you have a case is to talk to a litigation attorney who specializes in insurance claim denials.

Soil Expansion Exclusions

Expansive soils are common in Colorado. When water gets into it, it expands. When it dries out, it shrinks. Over time, this drastic swelling and retraction can cause extensive damage to a home, including its foundation which is to costly repair. Most homeowner insurance policies do not cover damage caused by soil expansion.

How You May Be Able to Fight a Soil Expansion Exclusion 

There have been some cases in which the efficient proximate cause doctrine or the efficient moving cause rule were successfully used to get a homeowner covered despite a soil expansion exclusion. An efficient moving cause is the initial action that ultimately resulted in the damage.

A Successful Soil Expansion Exclusion Lawsuit

Let’s take a look at the California case Encompass Ins. Co. v. Berger. Here, the homeowners successfully used the efficient proximate cause doctrine to get their insurance company to pay up. In this case, the homeowners experienced cracks in their walls and floors following restoration to a part of their property due to a wildfire. The insurance company denied their claim, citing its expansive soil exclusion for the reason.

After an extensive investigation into the source of the home’s damage, the United States District Court for the Central District of California ruled that a utility trench constructed as part of the wildfire repairs caused the damage to the home — not long-term swelling and shrinking of expansive soil as the insurance company asserted. In fact, the home did not exhibit any signs of expansive soil damage prior to the wildfire.

The court ruled that the efficient proximate cause of the property’s damage was the wildfire.

Fire damage was not excluded under the property owner’s insurance policy. Therefore, the insurance company had to cover the claim since the wildfire was the efficient proximate cause of the damage.

We should note that the court found that the insurance company acted reasonably and in good faith. So, no damages were issued as a result of bad faith.

Insurance Companies are Always Adjusting Policies to Thwart Your Efforts to Challenge Them

Just as your attorney looks for ways around exclusion policies, insurance companies adapt their policies to prevent you from circumventing their exclusion clauses.

One way some insurance companies do this is to include an anti-concurrent cause provision, or an ACC, in their policies. An anti-concurrent cause provision is used to dodge common law rules like the efficient moving cause rule that we mentioned in the previous section.

In 1974, in Koncilja v. Trinity Universal Ins. Co., a Colorado Court of Appeals adopted a general insurance principle specified in the Couch Cyclopedia of Insurance Law that stated:

“In determining whether a loss is within an exception in a policy, where there is a concurrency of different causes, the efficient cause — the one that sets others in motion — is the cause to which the loss is to be attributed, though the other causes may follow it, and operate more immediately in producing the disaster.”

Since Koncilja, other Colorado courts have held that the efficient moving cause rule cannot be applied when an insurance policy has an anti-concurrent cause provision. Why? To enforce the efficient moving cause rule in an insurance policy that contains an ACC would mean the court would have to rewrite the insurance contract. And that goes against the principles of law. Kane v. Royal Ins. Co., 768 P.2d 678, 685 (Colo. 1989)

Where to Look for an ACC in Your Policy

If your homeowner’s insurance policy has an ACC provision, look for it in the introductory language that precedes policy exclusions. That’s where it’s often included, but not always. You may have to review your entire policy to find it.

Our Takeaway on Policy Exclusions

It’s important to evaluate everything related to your damaged property, including the cause of the damage, what was damaged, and how the insurance company might try to manipulate the facts to apply some kind of exclusion to deny your claim. Set up some time to talk to our Insurance Claim Denials Team.

Practices Insurance Companies Use to Delay Your Claim

Insurance adjusters have a number of tricks up their sleeves to drag out your case as long as possible. Let’s look at some of the most common ways insurance companies do this:
  • Don’t Pay You What Claim is Worth – You receive a small payment because the insurance company disagrees with your claim’s value, thus delaying the full payment.
  • Conduct Lengthy Investigations – An insurance adjuster may conduct a longer-than-necessary look into your claim to put off paying you.
  • Make Unnecessary Document Demands – The adjuster may ask for records she really does not need. In the time it takes you to gather these documents, your claim can be significantly extended.
  • Engage in Gradual Document Requests – Instead of the adjuster requesting all of the documents at once, he may ask for them incrementally which prolongs your claim from being fulfilled.

Insurance Companies Cannot Withhold Payments of Covered Benefits

Your insurance company cannot withhold payment of your covered benefits because it is assessing other elements of your claim that are in dispute. Doing so is considered an unreasonable delay under Colorado law.

A good example of this type of delay is State Farm Mut. Auto. Ins. Co. v. Fisher, 2018 CO 39. In this case, which made it all the way to the Colorado Supreme Court, State Farm argued it was not obligated to pay its policyholder for undisputed portions of a claim while other components of the claim remained in dispute. The Colorado Supreme Court rejected State Farm’s argument.

In fact, the state supreme court stated in its opinion that “insurers have a duty not to unreasonably delay or deny payment of covered benefits, even though other components of an insured’s claim may still be reasonably in dispute.”

These are just some of the ways insurance companies will try to delay fulfilling your rightful claim.

An insurance company’s greatest motivator is its bottom line, and insurance companies do not make money by paying out claims. That’s why its adjusters will find any reason they can to delay coverage. However, the company crosses a legal line when it makes unreasonable or intentional delays.

How to Fight an Insurance Claim Denial or Delay

Statutory Bad Faith Claim

When you file a statutory bad faith claim, your argument is derived from the state’s law – or its statutes. Colorado Revised Statutes 10-3-1115 and 10-3-11116 cover the rules and legal remedies for this type of bad faith claim. In a statutory bad faith claim, the only element you have to prove is that your insurer denied your benefits without a reasonable basis.

What ‘Without a Reasonable Basis’ Means

State law describes unreasonable as an insurance company that delays or denies “authorizing payment of a covered benefit without a reasonable basis for that action.” CRS 10-3-1115(2)

That means your insurance company is required to tell you why it approached your claim the way it did, and it has to give you a good reason for its decision.

For example, let’s say you went 14 months without payment on a claim and the insurance company has given you no reason why it has not paid you. You should consider bringing a bad faith claim for unreasonable delay.

Examples of Bad Faith:
  • Your insurance company does not communicate with you about your claim.
  • There are delays in your claim’s investigation.
  • When your claim is investigated, it is not fully completed.
  • You are not paid the full amount your insurance company owes you under your policy.
  • You do not promptly receive a fair and equitable settlement.
What You are Entitled to Under a Statutory Bad Faith Claim
Twice Your Covered Benefits

If you win your case, you are entitled to two times your covered benefit plus reasonable attorney fees and court costs. The double award should deter insurance companies from dragging out or denying claims, but it happens all the time.

Trial by Judge or Jury

If part or all of your claim was denied and you have gone through all of the administrative options available to you, then state law entitles your case to be reviewed de novo in any court that has jurisdiction over it and by a jury.

De novo means you are entitled to have an appellate court hear your case without giving any weight to the lower court’s decision. In other words, it’s like your case is being tried for the first time. CRS 10-3-1116(3)(a) and (3)(b)

Breach of Contract Claim

Another type of action you can take is to file a breach of contract claim. In this claim, you can recover the money you were owed all along by the insurance company.

You’ll have to show that you fulfilled your duties, like paying your premiums on time. And you’ll have to prove your insurance company failed to meet its obligations to you by not fully paying your claim, for instance.

Under a breach of contract claim, you won’t get double damages like you would for a statutory claim.

Common-Law Bad Faith Claim

When you bring this type of claim, you must prove your insurance company failed to act in good faith and fair dealing. There are different elements you have to prove in a common-law bad faith claim. Unlike a statutory claim, you’ll have to show that your insurer knew and recklessly disregarded the fact that it acted unreasonably when it delayed or denied your claim.

Common-Law Tort Action

The Colorado Supreme Court recently ruled that a common-law bad faith claim gives rise to a tort claim. That means you can also seek non-economic damages for your common-law bad faith claim. Schultz v. GEICO Cas. Co., 2018 CO 87

These damages are awarded for a policyholder’s frustration and emotional distress that his or her insurance company caused when it unreasonably delayed or denied the claim. Like common-law bad faith claims, you must prove the insurance company acted “unreasonably and with knowledge of or reckless disregard” that it had no reasonable basis to deny your claim.

Understanding the Fairly Debatable Defense

Many insurance companies try to use the “fairly debatable” defense when they’re sued for bad faith. They’ll argue that if the validity of a claim is fairly debatable, then their decision to deny the claim is reasonable.

In Schultz v. GEICO Cas. Co., 2018 Colo., the Colorado Supreme Court acknowledged that fair debatability is indeed a factor that can be used to decide if an insurance company acted reasonably when it delayed or denied a claim. But the state’s high court suggested that insurance companies do not get a pass just because a claim is “fairly debatable.”

Quoting from another case, the Colorado Supreme Court stated that fair debatability “is not a threshold inquiry that is outcome determinative as a matter of law, nor is it both the beginning and the end of the analysis in a bad faith case.”

This means that insurance companies cannot rely on the fair debatability argument to get around being held liable for an unreasonable delay or denial.

What Your Insurance Company Cannot Do

Gather New Evidence for a Previous Decision it Made

In Schultz, the Colorado Supreme Court also ruled that an insurance company defending a bad faith claim can only present information it used at the time it considered its decision to deny or delay the claim.

Why This is Important

Your insurance company must have a valid reason at the time it decides to deny your claim. That means the adjuster cannot deny your claim and then try to find a good reason for the denial after the fact.

Invalid Policy Provisions

It is against the law for your insurance company to have a provision in its policy, contract, or plan that states the terms of the plan, policy, contract, or benefits are up to the insurance company’s discretion. CRS 10-3-1116(2)

Also, an insurance company cannot use a policy provision that states it must make an offer on a claim in order to be held liable for unreasonable delay or denial. The Tenth Circuit Court of Appeals held that state law does not require an insurer to make an offer on your claim before an unreasonable delay or denial occurs. Etherton v. Owners Ins. Co., 829 F.3d 1209

These types of policy provisions are invalid in Colorado.

How to Help Your Insurance Claim Denial Case

Write, Don’t Call

Picking up the phone to call your insurance company may be your first instinct, rather than to sit down and type an email or a letter. While some phone calls will be necessary, our litigation attorneys recommend keeping as much of your communication with your insurance company to emails, letters, and text messages. Why? Your insurance company is required to respond to your correspondence in a timely manner.

Think of it this way:

Let’s say your insurance company is dragging its feet on paying out a claim for hail damage on your home. In fact, it’s gotten so bad that you think it’s time to hire an attorney.

Your attorney asks for documentation of your efforts. You say, “well, I called them 20 times.” Better evidence would be 20 emails that were not responded to or not answered in a timely fashion.

So, remember, write it out. And save it.

Get a Certified Copy of Your Insurance Policy

Insurance companies are great about taking excerpts from your insurance policy and putting them in their denial letters. The problem with that is a small portion of your policy does not provide the full scope of your coverage or their reason for denial.

So, tell your insurance company that you want them to send you a certified copy of your insurance policy.

Before You Agree to be Recorded…

If your insurance company asks you for a recorded statement pump the proverbial brakes. This is generally a sign you should talk to an attorney. That’s what we recommend. In fact, you can talk to our litigation attorneys for a half-hour case assessment meeting.

At the very least, you need to tell the insurance company you need time to review your full policy before you agree to a recorded conversation with an adjuster.

Put on Your Detective Cap

You’re going to want to drill down to what caused the damage to your property. If you have roof damage from a hailstorm, well, that’s pretty obvious. But what if you have a cracked foundation? The culprit may be less discernible. A reputable structural engineer or contractor can help you determine the cause, which, in turn, will decide whether your policy will cover the claim.

Know Your Obligations to Your Insurance Company

Just as your insurance company has a responsibility to look into and settle your claim in good faith, you, too, have a duty to cooperate with your insurance company.

For instance, it’s important that you respond to your insurance company’s correspondence in a timely manner. If you don’t, your insurance company may be able to say you are being noncooperative.

In fact, noncooperation is an affirmative defense insurance companies can use to fight a client’s lawsuit that’s been filed against them. If your insurance company has a cooperation policy clause, Colorado law states you can forfeit your right to recover from your insurance policy if your actions – or lack thereof – put your insurance company at a disadvantage to manage your claim.

Let’s take a look at a Colorado case in which a policyholder was found to have been uncooperative.

In Soicher v. State Farm Mut. Auto. Ins. Co., 2015 COA 46, the Colorado Court of Appeals upheld a lower court’s judgment that a State Farm policyholder’s noncooperation put the insurance company at a disadvantage. As a result, State Farm did not have to provide liability coverage due to the policyholder’s noncooperation.

“The purpose of a cooperation clause is to protect the insurer in its defense of claims by obligating the insured not to take any action intentionally and deliberately that would have a substantial, adverse effect on the insurer’s defense, settlement, or other handling of the claim.”

How the policyholder was deemed to be uncooperative:

In Soicher, the policyholder was the driver of a vehicle involved in a crash. A passenger in his car was hurt in the accident and later sued him for damages.

State Farm hired an attorney to represent the policyholder in the lawsuit, but the policyholder fired the attorney. State Farm twice requested that the policyholder provide his new attorney’s name and reminded the policyholder of his duty to cooperate. The policyholder never replied to the insurance company.

Additionally, without State Farm’s knowledge, the policyholder admitted to the suing party’s attorney that the accident was his fault. He also said he was liable for $100,000 of the passenger’s injuries despite having no credentials to make that kind of determination. The policyholder’s statements resulted in a $100,0000 judgment against State Farm at trial.

State Farm appealed.

The court concluded the policyholder’s uncooperative actions “resulted in a material and substantial disadvantage to State Farm,” and, therefore, the insurance company did not have to provide its policyholder liability coverage.

Insurance Claim Denial Case Assessment

As you can see, insurance law is a complex arena with legal rights and obligations for all parties involved. It’s important to know what yours are. If your insurance company hasn’t given you a good reason why it denied your claim or it is coming up with excuse after excuse to put off paying you, it’s time to talk to one of our insurance claim denial attorneys.

Colorado law protects insurance policyholders from insurance companies who are unreasonable and act in bad faith. Call 303-688-0944 or click here to set up an insurance claim denial assessment. Let’s talk about your legal options.

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