Bad Faith Damages in Castle Rock: Every Remedy the Law Provides

Colorado law does not limit your recovery to what the insurer originally owed. Statutory penalties, emotional distress, punitive damages, attorney fees, and prejudgment interest can multiply the total well beyond the policy amount.

What Damages Can You Recover in a Colorado Bad Faith Insurance Case?

A prevailing policyholder in a Colorado bad faith case can recover damages from multiple legal sources that stack on top of each other. Under the statutory claim (C.R.S. §§ 10-3-1115 and 10-3-1116), you recover two times the covered benefit plus reasonable attorney fees and court costs. Under the common law bad faith claim (Goodson v. Am. Standard Ins. Co., 89 P.3d 409 (Colo. 2004)), you recover compensatory damages for economic loss, emotional distress without requiring proof of physical injury, and punitive damages where the insurer’s conduct was willful and wanton. The breach of contract claim recovers the unpaid policy benefits plus consequential damages. These three claims create separate, additive layers of recovery. In Guar. Trust Life Ins. Co. v. Estate of Casper, 418 P.3d 1163 (Colo. 2018), a Colorado jury returned a verdict of $50,000 for breach of contract, $50,000 for unreasonable denial of benefits, $150,000 in economic damages, $550,000 in noneconomic damages, and $4,000,000 in punitive damages. For the statutory framework, see Colorado Bad Faith Insurance Statutes Explained.

Layer 1: Breach of Contract Damages

The insurance contract has been breached when the insurer fails to provide payment for a covered loss. Since the insured’s rights under this contract have been violated, the insured will receive all that he or she should have received under the terms of the policy; namely, the total amount due in connection with the uninsured portion of the loss. That is the minimum amount due.

As previously mentioned, if there are other losses arising out of the failure to perform (consequential damages) such as, but not limited to, medical expenses that were sent to collection agencies because they could not be paid by the insurer; lost wages resulting from the insurer’s delay in paying the claim; or damage to one’s credit rating resulting from the unpaid claim being listed as a liability, those damages can also be recovered. In Nunn v. Mid-Century Ins. Co., supra, it was determined that an insured may recover compensation for any damage to their credit score resulting from the unreasonable refusal of the insurer to settle the matter. Compounded pre-judgment interest on the breach of contract damages can be calculated at 9% per annum pursuant to C.R.S. § 5-12-102. For example, if an insurer withheld $100,000.00 for two years, the pre-judgment interest would be approximately $18,810.

Layer 2: Statutory Bad Faith Penalties

Two Times the Covered Benefit

Under C.R.S. § 10-3-1116(1) an insurance company’s failure to reasonably and timely settle a first-party claim results in the claimant recovering twice the amount of the underpaid covered benefit (the amount that would have been payable had the settlement occurred in a reasonable time) plus their reasonable attorneys’ fees and costs associated with bringing the lawsuit. The two-time penalty is based solely upon the amount of the underpaid covered benefit, not the entire damages amount. For example, if there was an underpaid covered benefit of $100,000.00 then the claimant will recover $200,000.00 (twice the $100,000.00). When combined with the previously recovered $100,000.00 under the terms of the contract the total recovery for the claimant prior to any additional damages being awarded is $300,000.00.

The multiplier applies even if the insurer eventually paid the benefit. Nibert v. GEICO Casualty Co., 2017 COA 23. A late payment does not erase the violation. The legislature designed this penalty to punish the delay itself, not just the nonpayment. How delay works as a tactic: Insurance Company Delay Tactics.

Attorney Fees and Court Costs

The Statutory Remedy Includes Mandatory Attorney Fee-Shifting. If you succeed with your statutory claims, the insurance company will pay for the reasonable attorney fees and court costs associated with your success. This is not optional – it is required by law. As such, the Colorado Supreme Court found in Guarantee Trust Life Insurance Co. v. Estate of Casper, 2018 CO 43, 418 P.3d 1163 (Colo. 2018), that attorneys’ fees and expenses incurred as part of a successful statutory claim under § 10-3-1116(1), constitute a component of actual damages and thus should be included as part of the total damage award to help determine any applicable punitive damages.

The statute also supports fees-on-fees in the appellate context. In Stresscon** Corp. v. Travelers Prop. Cas. Co., 2013 COA 131, 373 P.3d 615, the court recognized that without fees-on-fees protection, a successful insured’s statutory award would be substantially depleted by the cost of litigating the fee amount itself. The statute prevents that result.

Additionally, the statute provides support for “fees-on-fees” (the ability to recover attorney’s fees expended in recovering additional fees) through appeal. In Stresscon** Corp. v. Travelers Prop. Cas. Co., 2013 COA 131; 373 P.3d 615, the appeals court ruled that without “fees-on-fees,” any money awarded to an insured who prevails on their statutory claims would likely be greatly reduced because the cost of litigation for determining what constitutes “reasonable attorney fees” could easily consume all or most of the money recovered.

What the Statutory Claim Does Not Include

The statutory claim does not support punitive damages. In Residences at Olde Town Square Ass’n v. Travelers Cas. Ins. Co. of Am., 430 F. Supp. 3d 743 (D. Colo. 2019), the court held that a claim for two times the covered benefit under § 10-3-1116 is not a claim for a wrong done to the person or to personal or real property under C.R.S. § 13-21-102(1)(a). Punitive damages require the common law claim.

Layer 3: Common Law Bad Faith Damages

Economic Damages

The common law bad faith claim recovers all economic losses caused by the insurer’s conduct. Under Lira v. Shelter Ins. Co., 913 P.2d 514, 517 (Colo. 1996), recoverable economic damages include lost income from inability to work during the claim dispute, loss of future earnings and diminished earning capacity, out-of-pocket expenses for medical care the insurer refused to cover, damage to the insured’s credit rating (Nunn, 244 P.3d 116), and other calculable financial harm traceable to the insurer’s bad faith. See also Colorado Civil Jury Instructions, Chapter 25:9 (listing recoverable economic damages).

Emotional Distress Damages

Colorado does not require proof of physical injury to recover emotional distress damages in a bad faith case. The Colorado Supreme Court in Goodson, 89 P.3d at 415, held that an insured suing for bad faith breach of an insurance contract is entitled to recover damages based on traditional tort principles of compensation, including emotional distress. This is a critical distinction. In a traumatic brain injury case where the insurer denied coverage for rehabilitation, the emotional harm of watching cognitive function decline while the insurer delays is real, documented, and compensable. In a wrongful death case where the insurer lowballed the surviving family, the anguish of financial collapse layered on top of grief is evidence the jury will see.

Recoverable noneconomic damages include pain and suffering, inconvenience, fear and anxiety, and impairment of the quality of life. Herod v. Colo. Farm Bureau Mut. Ins. Co., 928 P.2d 834, 837 (Colo. App. 1996). In Estate of Casper, the jury awarded $550,000 in noneconomic damages for bad faith breach of the insurance contract. The insurer’s refusal to pay a life insurance claim while the policyholder was in hospice care produced that number.

Punitive Damages

Punitive damages are available when the insurer’s conduct was willful and wanton, or in reckless disregard of the insured’s rights. Tait v. Hartford Underwriters Ins. Co., 49 P.3d 337, 341 (Colo. App. 2001). The standard under C.R.S. § 13-21-102 requires proof beyond a reasonable doubt of fraud, malice, or willful and wanton conduct. This is the highest evidentiary standard in civil law. Meeting it requires evidence that the insurer made a deliberate decision to prioritize cost-savings over its obligations to the policyholder.

Colorado caps punitive damages at an amount equal to the actual damages, though the court may increase the cap to three times actual damages upon clear and convincing evidence. C.R.S. § 13-21-102(1)(a) and (3). In Estate of Casper, the jury awarded $4,000,000 in punitive damages. The Colorado Supreme Court confirmed that attorney fees and costs under § 10-3-1116 are actual damages for purposes of calculating the punitive damages cap, which means the punitive damages pool is larger than many insurers initially calculate. Punitive damages awards take into account both the insured’s losses and the insurer’s financial status.

An insurer’s failure to conduct a reasonable investigation may alone be sufficient to support a punitive damages claim. Am. Family Mut. Ins. Co. v. Allen, 102 P.3d 333, 344 (Colo. 2004). In Tait, the trial court increased the punitive damages award based on the insurer’s litigation conduct, confirming that how an insurer defends the bad faith case can itself become evidence of punitive liability.

How the Damages Stack: A Worked Example

Consider a policyholder with $100,000 in UM/UIM coverage whose claim for the full policy limit was unreasonably denied after a car accident caused a spinal cord injury. Here is how the damages can accumulate:

Breach of contract: $100,000 (unpaid policy benefit)

Statutory bad faith penalty: $200,000 (two times the covered benefit under § 10-3-1116)

Attorney fees and costs: $150,000 (reasonable fees through trial; insurer-paid under § 10-3-1116)

Economic damages (common law): $75,000 (lost wages, credit damage, out-of-pocket medical costs during delay)

Emotional distress (common law): $250,000 (anxiety, fear, loss of quality of life during 18-month delay)

Prejudgment interest: $27,000 (9% compounded on $100,000 contract amount over two years, plus interest on other compensable amounts)

Punitive damages: Up to $802,000 (actual damages including fees and costs, per Estate of Casper; potentially tripled to $2,406,000 with clear and convincing evidence)

Potential total range: $804,000 to $3,208,000, on a $100,000 policy. The insurer’s original obligation was $100,000. Its exposure for unreasonably refusing to pay is eight to thirty-two times that amount.

Illustrative example only. Not a case result. Every case is unique and outcome depends on the specific facts, evidence, applicable law, and the strategic decisions of the parties. Past results do not guarantee, warrant, or predict future outcomes.

Why Both Claims Matter

The statutory and common law claims are independent and additive. Under C.R.S. § 10-3-1116(4), the statutory remedy applies in addition to other actions available by statute or common law. The statutory claim has a lower burden (no need to prove the insurer knew its conduct was unreasonable) but does not include emotional distress or punitive damages. The common law claim has a higher burden (knowledge or reckless disregard of unreasonableness, per Goodson) but opens the full range of tort damages. Filing both claims ensures that even if you cannot meet the common law standard, you still recover the statutory penalties. And if the evidence supports both, the damages compound. Full legal definitions: What Is Bad Faith Insurance in Colorado?.

Bad Faith Damages in Catastrophic Injury Cases

The financial devastation of bad faith is amplified in catastrophic injury cases. When an insurer delays or denies a claim after a truck accident that caused a spinal cord injury requiring lifetime care, or a motorcycle accident that produced a traumatic brain injury with permanent cognitive deficits, the consequential damages are not hypothetical. They are documented in the medical bills that went to collections, the mortgage payments that were missed, the rehabilitation that was postponed, and the family relationships that fractured under financial pressure. Each of those consequences is a line item in the damages calculation.

The emotional distress evidence in catastrophic cases is particularly powerful. A jury that sees a family already devastated by a life-altering injury and then learns that the insurer compounded that devastation by withholding the money that could have paid for treatment responds with verdicts that reflect both harms. That is why Rampart Injury Lawyers prepares every bad faith case for trial from the first day of the engagement. The insurer’s exposure calculation changes when it faces an attorney who has already built the damages model the jury will see. Process guide: How to Sue Your Insurance Company for Bad Faith. Return to Colorado Insurance Bad Faith Lawyers (Pillar Page).

Frequently Asked Questions: Bad Faith Damages in Colorado

What does “two times the covered benefit” mean?

Under C.R.S. § 10-3-1116(1), the penalty is two times the covered benefit that the insurer unreasonably delayed or denied. This is two times the applicable benefit amount, not two times the total damages. Combined with the original benefit (recovered on the breach of contract claim), the policyholder effectively receives three times the covered benefit. Under Nibert v. GEICO, 2017 COA 23, this penalty applies even if the insurer eventually paid.

Can I recover emotional distress damages without physical injury?

Yes. The Colorado Supreme Court in Goodson v. Am. Standard Ins. Co., 89 P.3d 409, 415 (Colo. 2004), held that proof of physical injury is not required to recover emotional distress damages in a common law bad faith case. The insurer’s unreasonable conduct and its impact on your mental health, anxiety, and quality of life are sufficient.

Are punitive damages capped in Colorado?

Yes. Under C.R.S. § 13-21-102(1)(a), punitive damages are generally capped at an amount equal to the actual damages. The court may increase the cap to three times actual damages upon clear and convincing evidence. However, actual damages in a bad faith case include the statutory attorney fees and costs (per Estate of Casper, 418 P.3d at 1175), which can increase the base from which the cap is calculated.

Can I recover damages for damage to my credit?

Yes. In Nunn v. Mid-Century Ins. Co., 244 P.3d 116 (Colo. 2010), the Colorado Supreme Court held that an insured may recover compensatory damages for credit damage caused by the insurer’s unreasonable refusal to pay or settle. Unpaid medical bills, recorded judgments, and collection actions resulting from the insurer’s delay are all compensable.

Do bad faith damages survive the policyholder’s death?

Yes. The Colorado Supreme Court in Estate of Casper held that the survival statute does not limit the jury’s verdict in a bad faith case. A statutory bad faith claim under §§ 10-3-1115 and 10-3-1116 is not a tort action based on personal injury, so the pain and suffering limitation in the survival statute does not apply. The claim, and the damages, survive to the policyholder’s estate.

What is the prejudgment interest rate in Colorado bad faith cases?

Prejudgment interest in Colorado accrues at nine percent compounded annually on compensatory damages, under C.R.S. § 5-12-102. This interest begins accruing from the date the damages were incurred or the claim became due. In cases involving years of unreasonable delay, prejudgment interest can add a substantial amount to the total recovery. Signs of delay to watch for: Signs Your Claim Is Being Denied in Bad Faith.

Explore More About Colorado Insurance Bad Faith

Pillar: Colorado Insurance Bad Faith Lawyers – Complete overview of bad faith law and how we fight these cases.

Spoke 1: What Is Bad Faith Insurance in Colorado? – Legal definition, both frameworks, and the quasi-fiduciary duty.

Spoke 2: Signs Your Claim Is Being Denied in Bad Faith – Red flags that expose an insurer crossing the line.

Spoke 3: Colorado Bad Faith Insurance Statutes Explained – Section-by-section analysis of C.R.S. §§ 10-3-1115 and 10-3-1116.

Spoke 4: How to Sue Your Insurance Company for Bad Faith – The process, timeline, and what to expect at each stage.

Spoke 5: Insurance Company Delay Tactics – The playbook they run and how to defeat it.

Sources and Legal Citations

Colorado Statutes

C.R.S. § 10-3-1115 – Improper Denial of Claims: https://law.justia.com/codes/colorado/2021/title-10/article-3/part-11/section-10-3-1115/

C.R.S. § 10-3-1116 – Remedies for Unreasonable Delay or Denial: https://law.justia.com/codes/colorado/2021/title-10/article-3/part-11/section-10-3-1116/

C.R.S. § 13-21-102 – Exemplary (Punitive) Damages: https://law.justia.com/codes/colorado/title-13/article-21/section-13-21-102/

C.R.S. § 5-12-102 – Prejudgment Interest: https://law.justia.com/codes/colorado/title-5/debtor-and-creditor/article-12/section-5-12-102/

Key Case Law

Goodson v. Am. Standard Ins. Co., 89 P.3d 409 (Colo. 2004): https://caselaw.findlaw.com/court/co-supreme-court/1058662.html

Guar. Trust Life Ins. Co. v. Estate of Casper, 418 P.3d 1163 (Colo. 2018): https://law.justia.com/cases/colorado/supreme-court/2018/17sc2.html

Nibert v. GEICO Casualty Co., 2017 COA 23 (multiplier applies after payment)

Nunn v. Mid-Century Ins. Co., 244 P.3d 116 (Colo. 2010) (credit damage recoverable)

Am. Family Mut. Ins. Co. v. Allen, 102 P.3d 333 (Colo. 2004) (investigation failure supports punitive damages)

Tait v. Hartford Underwriters Ins. Co., 49 P.3d 337 (Colo. App. 2001) (punitive damages; litigation conduct as evidence)

Lira v. Shelter Ins. Co., 913 P.2d 514 (Colo. 1996) (economic damages taxonomy)

Herod v. Colo. Farm Bureau Mut. Ins. Co., 928 P.2d 834 (Colo. App. 1996) (noneconomic damages)

Ballow v. PHICO Ins. Co., 878 P.2d 672 (Colo. 1994) (compensatory damages framework)

Stresscon Corp. v. Travelers Prop. Cas. Co., 2013 COA 131, 373 P.3d 615 (fees-on-fees)

Residences at Olde Town Square Ass’n v. Travelers, 430 F. Supp. 3d 743 (D. Colo. 2019) (no punitive damages under statutory claim)

Soicher v. State Farm, 2015 COA 46, 351 P.3d 559 (delay vs. denial as distinct claims)

Vaccaro v. Am. Family Ins. Grp., 2012 COA 9M, 275 P.3d 750 (statutory reasonableness)

Practice Resources

Colorado Civil Jury Instructions, Ch. 25 (Bad Faith): https://www.courts.state.co.us/userfiles/file/Court_Probation/Supreme_Court/Committees/Civil_Jury_Instructions_Committee/Chapter%2025.pdf

Tyson & Mendes – First-Party Insurance Bad Faith in Colorado: https://www.tysonmendes.com/overview-of-first-party-insurance-bad-faith-in-colorado/

ALFA International – Colorado Bad Faith Compendium: https://www.alfainternational.com/compendium/insurance-law/colorado/

United Policyholders – Insurance Consumer Rights in Colorado: https://uphelp.org/claim-guidance-publications/insurance-consumer-legal-rights-in-colorado/

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