A U.S. Magistrate Judge in Colorado was not impressed enough with an alleged breach of good-faith duties to allow discovery into the supervision and incentives for the adjusters involved in investigating the claim.
In American Ins. Co. v. Pine Terrace Homeowners Ass'n, No. 20-cv-00654-DDD-KMT, 2021 WL 2188707 (D. Colo. 2021) (Tafoya, USMJ) the Court first held that every insurance contract in Colorado has an implied duty of good faith. Pine Terrace, 2021 WL 2188707, at *2 . This may be dicta, however.
The defendant homeowner's association alleged two counterclaims: Breach of Contract and Statutory Bad Faith. The homeowner's association in this case did not allege common law bad faith.
The standard for statutory bad faith in Colorado precluded the discovery requested. The Court ruled that where the standard for measuring extracontractual liability for statutory bad faith, as in Colorado, is whether the carrier's conduct is "reasonable" and not "why" did they breach their good-faith duty, discovery was not allowed into the supervision and incentives given to the adjusters who handled the claim at bar. See Pine Terrace, 2021 WL 2188707, at *3-*4 .
The implied duty of good faith and fair dealing is recognized in virtually every court that has considered the question, including but not limited in most cases to insurance contracts. See 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 1.01 (West Publishing Co. 3d ed. & 2021 Supplements).
The question of discovery into alleged bad-faith claims handling is the subject of two Chapters in 1 id., Ch. 8, titled "Discovery From Insurers Concerning Their Handling of Third-Party Claims" addressing discovery from, by, and between insurance carriers in third-party bad faith cases, & 2 id., Ch. 12, titled "Discovery From and By Insurers," discussing the same issues addressed by the courts in first-party insurance bad faith cases.
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