The Colorado Court of Appeals delivered a lesson to insurers on February 5, ruling that Esurance must pay $35,600 in penalties for failing to hand over an auto policy within the statutory deadline, even though the policy turned out not to cover the accident in question.
The decision in Bohanan v. Esurance Property & Casualty Insurance Co. marks the first time a Colorado appellate court has interpreted what constitutes a policy that is or may be relevant under the state's insurance disclosure law, and the ruling has left one dissenting judge warning of virtually boundless obligations on insurers.
The case began on August 31, 2022, around 7:20 in the morning, when Yeraldy Ugalde Arteaga ran a red light and hit Reesa Bohanan's car. About 90 minutes later, at 9:03 a.m., a third party bought an Esurance auto policy naming Arteaga as an additional insured.
When Bohanan's lawyer requested the policy on September 7, Esurance opened a claim file and started investigating. The insurer set aside $17,100 as a bodily injury reserve on September 22 and noted on September 30 that coverage appeared to be in order for the accident date.
But on October 11, Esurance determined the policy had been purchased more than 90 minutes after the accident occurred. On October 13, 36 days after receiving the request, the company sent Bohanan's attorney a denial letter explaining that the accident happened before the policy took effect. The letter did not include a copy of the policy.
Under Colorado law, insurers have 30 days to provide policy information after receiving a written request. Miss that deadline, and the penalty is $100 per day until the information is handed over.
Esurance finally sent the policy on September 29, 2023, 356 days past the legal deadline.
The policy language was clear about when coverage began. The declarations page stated coverage was effective at 12:01 a.m. on the date shown or when the policy was purchased, whichever came later. The policy itself specified it applied only to accidents and losses occurring after the effective date shown on the declarations page or the policy purchase time, whichever was later. Since the policy was purchased at 9:03 a.m. and the accident happened at 7:20 a.m., there was no coverage.
A trial court initially found Esurance had violated the disclosure law but limited damages to $600, covering only the six days between the deadline and when Esurance sent its denial letter. The reasoning was that once Bohanan knew the policy was not in effect at the time of the accident, the transparency goals of the statute had been met.
The Colorado Court of Appeals saw things differently. Writing for the majority in the 2-1 decision, Judge Schutz pointed to the statute's language requiring disclosure of policies that are or may be relevant to a claim. The statute applies to insurers that provide or may provide coverage and mandates they must supply policy information within 30 days.
The judge emphasized that Esurance itself initially thought coverage might exist, setting aside reserves and noting coverage appeared in order. It took the insurer five weeks to determine the policy was purchased after the collision.
The court looked to a recent federal case, Fogel v. Shelter Mutual Insurance Co., which defined relevant as having significant and demonstrable bearing on the matter at hand. The question, the appeals court said, was not whether the policy ultimately provided coverage, but whether it might have been relevant when the request came in.
The majority rejected the idea that an insurer could investigate, decide coverage does not exist, and skip the disclosure requirement. Allowing that approach, the court said, would permit insurers to deny requests for policy information whenever they conclude no coverage exists without ever producing the policy to the claimant.
The decision pointed to the legislature's stated goals in passing the disclosure law: promoting transparency in insurance claims, encouraging settlement, and preventing unnecessary litigation. The statute declares that transparency in the insurance claims process serves the best interests of Colorado citizens and that claimants and injured parties need to fully understand the total amount of insurance coverage available to them.
The court also noted that when there is a fundamental question about whether a policy provides coverage for a loss, the facts surrounding the claimed loss and the policy's language have significant bearing on the coverage determination. While Esurance ultimately denied coverage, both the time it took to assess the issue and the initial confusion about whether the loss could be covered made clear that during the statutory response period the policy was or may have been relevant to the claim.
From October 7, 2022, when the 30-day deadline passed, to September 29, 2023, when the policy finally arrived, 356 days elapsed. At $100 per day, that came to $35,600. The case now goes back to the trial court to enter that judgment and consider Bohanan's request for attorney fees.
Judge J. Jones issued a sharp dissent. The problem, he argued, was treating a policy that was not in effect at the time of an accident as potentially relevant to the claim. An insurance policy, he wrote, exists solely to satisfy the liability it covers and has no other function or value.
In his view, there was no likelihood or possibility that a policy purchased after an accident could provide coverage. The dissent emphasized that the word may as used in the statute means somewhat likely or possible, and a policy not in effect has no possibility of providing coverage.
Requiring disclosure of such policies, he warned, imposes virtually boundless obligations on insurance companies to disclose policies with no conceivable possibility of providing coverage. The dissent noted that under the majority's interpretation, all that is necessary to impose liability is an unanswered request and the existence of a policy that at some point may have covered the insured.
Judge Jones suggested the statute needs clarification from the General Assembly to prevent satellite litigation that has no real connection to actual harm suffered by the parties in the underlying dispute.
The split decision leaves Colorado insurers navigating new territory. The ruling indicates that during the 30-day response window, uncertainty about coverage is not a valid reason to withhold a policy. Even if an investigation ultimately shows no coverage exists, the insurer must disclose the policy if it might have been relevant when the request arrived.
The Colorado Court of Appeals decision is now in effect and the case has been remanded to the district court to enter judgment for $35,600 and address attorney fees.
