Colorado Court Ruling on Auto Insurance Disclosure Obligations
On February 5, the Colorado Court of Appeals issued a landmark ruling impacting auto insurance disclosure obligations. The court ordered Esurance to pay $35,600 in penalties for failing to provide an insurance policy within the statutory deadline, despite the policy not covering the accident in question. This decision in Bohanan v. Esurance Property & Casualty Insurance Co. sets a precedent for understanding Colorado's regulatory compliance requirements regarding what constitutes a "relevant" insurance policy to a claim.
Incident and Initial Policy Assessment
The case began with an accident on August 31, 2022, when Yeraldy Ugalde Arteaga collided with Reesa Bohanan’s vehicle after running a red light. Notably, an Esurance policy covering Arteaga as an additional insured was purchased after the accident occurred. On September 7, Bohanan’s attorney requested the insurance policy. While Esurance opened a claim and investigated, it initially allocated $17,100 as a reserve for potential bodily injuries and believed the coverage was applicable to the accident date.
However, Esurance later determined that the policy was acquired 90 minutes post-accident, invalidating its applicability at the accident time. Despite this, they failed to meet the 30-day statutory deadline to provide the policy information, resulting in accumulating penalties until September 29, 2023.
Regulatory and Compliance Challenges
Under Colorado law, insurers must disclose policy information within 30 days of a request, with non-compliance resulting in a $100 daily penalty. Esurance’s 356-day delay accumulated a substantial penalty of $35,600. The policy explicitly stated coverage would start at 12:01 a.m. on the purchase date or after purchase, confirming no coverage was in force during the accident.
The trial court initially limited the penalty to $600, recognizing only the period before Bohanan was informed of the policy’s ineffectiveness. However, the Colorado Court of Appeals interpreted the statute more broadly, emphasizing the need for transparency. Policies deemed potentially relevant to a claim should be disclosed, aligning with legislative goals such as reducing unnecessary litigation and promoting settlements.
Judicial Perspectives and Industry Implications
Judge Schutz, leading the Appeals Court in a 2-1 decision, argued that Esurance’s initial assessment indicated relevance when the policy information was requested. The court drew on Fogel v. Shelter Mutual Insurance Co., suggesting a document is relevant if it has significant bearing on the claim. Conversely, Judge J. Jones dissented, expressing concern over this expansive interpretation, asserting that it could impose undue obligations on insurers without achieving the statute's objectives.
The case now returns to the trial court to impose the $35,600 penalty and review Bohanan’s request for attorney fees. The ruling has significant implications for the insurance industry in Colorado, underscoring the need for proactive risk management and adherence to regulatory compliance in disclosure practices. Insurers must ensure that policies initially perceived as possibly relevant are promptly disclosed within statutory timelines, even if subsequent underwriting determinations indicate non-coverage.