MONEY & THE LAW: 2013 insurance act boosts consumer protection

Published: December 10, 2013, 8:00 pm

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With the possible exception of nuclear power generation and motor vehicles, insurance is the most regulated industry on the planet. So, before the Colorado General Assembly begins its 2014 mischief, I thought we should visit one of its 2013 creations dealing with insurance: the Home-owner’s Insurance Reform Act.

Before passage of the act, insured homeowners in Colorado already had significant protections. For example, Colorado has a statute prohibiting unfair claim settlement practices. This statute requires insurance companies to, among other things, “adopt and implement reasonable standards for the prompt investigation of claims.”

And an insurance company cannot deny a claim without having first conducted a “reasonable investigation based on all available information.”

In addition, and contrary to rumor, insurance companies are prohibited from refusing to renew an existing home-owner’s policy for property in a federally designated disaster area for any reason related to wildfire. (An insurance company can, however, as a condition to renewing coverage, require a policyholder to take reasonable actions to reduce the risk of fire damage to the insured property.)

But back to the Homeowner’s Insurance Reform Act. Among the requirements:

- Insurance companies must include in all replacement cost policies (the type of policy most homeowners have) coverage for additional living expenses for at least 12 months. They must also give policyholders an opportunity to purchase coverage for additional living expenses lasting up to 24 months.

- At the time of renewal of a homeowner’s insurance policy, insurance companies must provide policyholders with a notice describing changes that will apply during the renewal period.

- Insurers have to offer their policyholders coverage that goes beyond a stated replacement cost contained in a policy – for an increase in premium, of course. This coverage will be useful if the replacement cost for a dwelling increases because labor and material costs have increased or because local governments have come up with new (and more expensive) safety-related requirements.

- If there is a total loss of the contents at an insured property, the insurance company must offer its policyholder a settlement equal to at least 30 percent of the policy’s coverage limit for contents, without requiring a written inventory. The policyholder can accept this offer without giving up the right to submit an inventory in support of a larger settlement.

-Insurance companies can no longer include in their policies a requirement that a lawsuit must be brought by a deadline earlier than the deadline stated in a Colorado statute of limitations.

- Insurers must now provide their policyholders with a summary disclosure form setting forth the most significant terms of the policy at least annually.

And here’s my favorite. Under the act, all insurance policies, endorsements and disclosure forms must be written in a manner that does not exceed a tenth-grade reading level or does not score less than 50 percent on something called the Flesch reading ease formula. Because this task is, like, really daunting, insurance companies have until Jan. 1, 2015, to comply. The other provisions of the act are effective Jan. 1, 2014.


Jim Flynn is a private attorney
with Flynn Wright & Fredman LLC
in Colorado Springs. Email him