(Article from Insurance Law Alert, June 2026)
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Holding
The Colorado Supreme Court held that a Colorado statute requiring insurers to provide written notice and an opportunity to cure before asserting a failure-to-cooperate defense does not apply when an insurer relies on an insured’s failure to satisfy enumerated conditions precedent to coverage. The court further held that excess underinsured motorist coverage is triggered when an insured’s undisputed damages exceed the limits of underlying coverage, rejecting a rule requiring payment of the underlying policy limits before excess coverage may apply. United Servs. Auto. Ass’n v. Wenzell, 588 P.3d 711 (Colo. 2026).
Background
In 2017, Anthony Wenzell was injured in an automobile accident and subsequently sought underinsured motorist (“UIM”) benefits under policies issued by State Farm and United Services Automobile Association (“USAA”). The USAA policy, which was issued to Wenzell’s brother and covered family members, contained an excess “other insurance” clause. Both insurers sought medical records and authorizations to determine which of Wenzell’s claimed injuries were attributable to the 2017 accident and which stemmed from an earlier 2014 accident. The policies required Wenzell to provide information and authorizations reasonably necessary to evaluate his claims, and the insurers contended that these requirements were conditions precedents to coverage. According to the insurers, Wenzell failed to provide adequate medical releases and therefore failed to satisfy those conditions precedent.
In 2021, Wenzell sued State Farm and USAA for breach of contract and for bad-faith delay or denial of insurance benefits. The trial court granted summary judgment in favor of the insurers, concluding that there was no genuine dispute that Wenzell failed to comply with policy provisions requiring him to provide the requested medical information. The trial court also granted summary judgment to USAA on Wenzell’s bad faith claim, holding that USAA’s obligations as an excess insurer had not been triggered because Wenzell had not exhausted the underlying State Farm coverage.
The trial court did not address section 10-3-1118, C.R.S. (2025) (“section 1118”), a statute enacted in 2020 that limits an insurer’s ability to assert a failure-to-cooperate defense. Under the statute, before relying on such a defense, an insurer must have sent a written request for information to insured and requested a response within 60 days, if no response has been received within the 60 days, insurer has 60 days from the expired deadline to provide written notice identifying the alleged failure to cooperate and afford the policyholder 60 days to cure the deficiency. On appeal the intermediate appellate court reversed, concluding that “section 1118’s procedural requirements apply to all defenses when an insurer asserts that a policyholder failed to comply with a policy provision, not just those based in the general cooperation clause.” The appellate court also concluded that USAA could not rely on the lack of underlying policy-limits payment to deny or delay coverage and held that any requirement that an insured receive payment of underlying policy limits before accessing excess UIM coverage was void as against public policy.
Decision
The Colorado Supreme Court reversed in part and affirmed in part.
Addressing section 1118, the court considered whether the statute’s notice-and-cure requirements apply only when an insurer invokes a common law failure-to-cooperate defense or whether they also apply when an insurer contends that the insured failed to satisfy an express condition precedent to coverage. The insurers argued that the policies’ requirement that Wenzell provide medical records and authorizations necessary to evaluate his claim constituted such a condition precedent.
The court concluded that section 1118 did not abrogate the longstanding distinction between an insured’s general duty to cooperate and an insured’s contractual obligation to satisfy specific conditions precedent. Noting that the statute does not define the term “cooperate” and finding that term ambiguous, the court found no clear indication in either statutory text or legislative history that the General Assembly intended to eliminate that distinction. Accordingly, the court held that section 1118 applies only to common law failure to cooperate defenses and does not apply when an insurer relies on an insured’s failure to satisfy a specifically enumerated condition precedent to coverage. The court further concluded that the policies’ requirement that Wenzell provide medical records and authorizations constituted such a condition precedent. Because Wenzell failed to provide adequate medical releases, the insurers were entitled to rely on that defense without complying with section 1118’s notice-and-cure procedures.
The court also addressed what it means for underlying insurance to be “exhausted” in the context of excess UIM coverage. Observing that Colorado had not previously adopted a definitive exhaustion standard in that setting, the court rejected a strict payment-limits approach under which excess coverage could not be implicated until the underlying insurer actually paid its policy limits. Instead, the court adopted an “undisputed-damages” approach, under which excess UIM coverage may be triggered when an insured’s undisputed damages exceed the limits of the underlying policy.
Applying that standard, however, the court concluded that Wenzell could not establish exhaustion on the record before it because the extent of his accident-related damages remained disputed because the medical records needed to apportion costs from the 2017 accident had not been provided. Because Wenzell could not establish entitlement to benefits under the undisputed-damages approach, the court held that his claims for bad faith delay or denial of benefits against USAA failed as a matter of law.
Justice Berkenkotter dissented from that portion of the opinion addressing section 1118. She argued that the majority’s interpretation was inconsistent with both the statute’s text and legislative purpose. According to the dissent, distinguishing between general cooperation obligations and specific conditions precedent would allow insurers to avoid the statute’s notice-and-cure requirements simply by drafting increasingly detailed policy conditions.
Comments
The significance of the decision lies in the court’s reaffirmation of the common law distinction between cooperation obligations and conditions precedent. By holding that section 1118 applies only to common law failure to cooperate defenses, the court avoided an interpretation that would have extended the statute’s notice-and-cure requirements to defenses based on the insured’s failure to satisfy express conditions precedent to coverage.