American Family agreed to pay the full $340,000. However, the Dunns brought suit claiming that American Family breached the implied duty of good faith and fair dealing by: 1) failing to screen ICA for expertise; 2) failing to screen ICA for liability insurance coverage; 3) failing to monitor ICA’s work; 4) failing to advise them that flooding can cause further damage, including freezing pipes and mold; and, 5) failing to adequately and promptly communicate with them and remediation subcontractors in the course of investigating and handling their claim.
The trial court found no duty owed by American Family beyond adjustment and timely payment of claims. Because American Family paid timely and in full, they dismissed all of the Dunns’ claims. However, the Court of Appeals reversed in part.
In doing so, the Court expressly held that an insurance company has no duty to screen subcontractors it suggests for quality or insurance, monitor the work performed by subcontractors, or advise an insured of the possibility of likely further damage after an initial claim. Id. at *3. However, as a matter of first impression, the court held that American Family “had a duty to promptly and effectively communicate with anyone it was reasonably aware had or legitimately needed information pertaining to the handling of plaintiffs’ claim” (e.g., subcontractors performing the work). Id. at *5-6. The court then remanded the case to the trial court with instructions to prove that American Family breached the duty to communicate; and, that the breach of that duty caused further damages to the Dunns. Id. at *6.
For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.
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