Three people can have very different interests in the same settlement

Colorado failure-to-settle law makes the most sense when the claimant, insured defendant and liability insurer are kept analytically separate.

Claimant

Offers to resolve the tort claim

The injured person may offer to release specified claims or insureds in exchange for a stated payment. The claimant does not directly control the insurer-insured good-faith duty.

Insured defendant

Faces personal excess exposure

If damages can exceed available liability coverage, the insured may face personal judgment exposure beyond the insurer's contractual limit.

Liability insurer

Controls defense and settlement

The insurer's contractual control creates a duty to exercise settlement judgment reasonably toward its insured.

The duty runs to the insured. Nunn explains that so-called “third-party bad faith” is the liability insurer's breach of duty to its own insured. The injured claimant generally needs an assignment of the insured's rights before pursuing that bad-faith claim directly.

Colorado does not impose automatic settlement liability merely because a demand is within limits

The governing question is reasonableness under the circumstances. The insurer may investigate and make settlement judgments, but it cannot gamble with an insured's personal exposure as though only the carrier's money matters.

Factors relevant to Colorado liability insurer settlement reasonableness.
Factor	Questions	Why it matters
Liability	How strong is the evidence of the insured's fault? Are comparative-fault issues supported?	Settlement exposure changes with the realistic probability of an adverse liability finding.
Damages	What medical, wage, permanency, noneconomic and other evidence was available?	Claim value must be compared with the available policy limits and verdict risk.
Limits	What per-person, per-accident, umbrella/excess or other liability coverage exists?	Excess exposure exists only after the coverage map is known.
Settlement terms	Who will be released, from what claims, and on what conditions?	The insurer must know whether acceptance actually protects the insured.
Timing	Was there enough information and reasonable time to evaluate the opportunity?	A deadline is evidence of the settlement opportunity, not a substitute for reasonableness.
Insured communication	Was the insured informed of the demand, valuation, coverage limits and personal exposure?	Trimble shows the significance of leaving the insured uninformed while rejecting a limits opportunity.
Competing claims	Are several injured people sharing a per-accident limit?	Multiple claimants may make immediate full payment to one claimant unreasonable or impossible; see Guide 11.

Trimble, 691 P.2d 1138: a full $50,000 auto-liability limit was offered in settlement. The insurer had information showing permanent injury and later valued the claim above that limit, yet rejected the demand and did not inform its insured of the offer or material investigation facts. Colorado's Supreme Court held that third-party insurer conduct is judged under reasonableness principles.

No absolute “pay the limits” rule. Kornbluth specifically rejected both the idea that settlement lies entirely within unreviewable insurer discretion and the opposite idea that an insurer must accept every demand simply because it falls within the policy limits.

Create a genuine settlement opportunity, not a puzzle

Colorado does not provide a California-style statutory pre-suit checklist for policy-limits demands. A careful demand should nevertheless make the opportunity clear enough to evaluate and accept.

1 Identify parties

Claimant, insured, driver, owner and claim number.

2 Establish liability

Crash facts, reports, witnesses and fault evidence.

3 Document damages

Medical, wage, permanency and other supported loss.

4 State amount

Exact settlement amount or identifiable policy limits.

5 State release

Who and what will be released upon performance.

6 Prove delivery

Deadline, transmission, receipt, response and extensions.

Identify the date, location and insured event.
Identify claimant, insured driver, owner and every person intended to be released.
State the liability theory and provide the principal evidence supporting it.
State material damages and attach the evidence reasonably needed for evaluation.
Identify the liability limits relied on and whether other coverage remains under investigation.
State the exact amount demanded or clearly defined limits demand.
State what acceptance will settle and what claims or parties are not included.
Identify lien/reimbursement issues that affect settlement mechanics without promising more than can lawfully be delivered.
Provide payment and release mechanics that can actually be performed.
Give a response deadline reasonably related to the information and circumstances.
Identify where and how acceptance must be communicated.
Preserve proof of delivery, receipt, extensions, questions, counteroffers and responses.

Demand drafting principle: the stronger the record, the less the later case depends on rhetoric. The document should show what the carrier knew, what settlement would have accomplished, and why acceptance would have protected the insured.

A deadline creates chronology — it does not manufacture unreasonableness

A serious settlement demand normally needs an expiration date so the parties know when the opportunity remains open. But Colorado failure-to-settle law still asks whether the insurer's conduct was reasonable under the actual circumstances.

Information

Was the file evaluable?

A demand may be premature if critical liability or damages proof has not yet been provided or reasonably obtainable.

Time

Was the response period workable?

Consider claim complexity, existing investigation, prior communications and the amount of new information delivered with the demand.

Clarification

Were questions handled?

Preserve requests for clarification, reasonable extensions and the claimant's response rather than treating every inquiry as automatic delay.

State Farm v. Goddard, 2021 COA 15: the claimant made a $25,000 limits demand with a defined expiration date, but the proof then supplied reflected comparatively modest documented medical expense and additional records arrived after expiration. The later jury rejected the assigned bad-faith claim. The case illustrates why the demand's substance and the insurer's information matter, not merely the existence of a deadline.

Excess exposure is the risk that makes the insurer's settlement control consequential

If a judgment exceeds the available liability coverage, the insured ordinarily bears the excess. Colorado's good-faith duty prevents the carrier from making an unreasonable settlement gamble where only the insured stands to lose the excess.

Colorado excess exposure settlement analysis.
Claim value / exposure	Coverage posture	Settlement issue
Clearly below available limits	Adequate liability coverage appears available	Ordinary valuation and negotiation; no automatic limits tender.
Near available limits	Verdict risk may cross the coverage ceiling	Insurer should evaluate liability, damages and insured exposure carefully and communicate material opportunities.
Clearly above limits	Personal excess exposure is substantial	A reasonable within-limits settlement opportunity becomes especially important.
Coverage reserved	Insurer may defend while contesting indemnity	Insured may face both excess and noncoverage risk; Guides 07–08 become critical.
Several claimants	Per-accident proceeds may be inadequate for everyone	Allocation/interpleader and competing settlement interests require Guide 11 analysis.

Policy limits do not establish damages. A $25,000 or $100,000 liability limit is an insurance ceiling, not a valuation of the injury. Conversely, damages exceeding the limits do not automatically establish that the insurer acted unreasonably in settlement handling.

Bernhard v. Farmers, 885 P.2d 265: a later full-limits tender did not necessarily eliminate the consequences of earlier unreasonable handling. If the claimant's refusal of the later tender is a natural and probable result of the carrier's earlier conduct, causation remains a fact question.

When settlement control fails, Colorado allows the insured room to protect itself

The Bashor–Old Republic–Nunn–Bolt Factory line addresses what can happen after the insured believes the insurer's defense or settlement handling has created unreasonable excess risk.

Northland v. Bashor · 494 P.2d 1292 (Colo. 1972)

Post-judgment protection

Colorado upheld an arrangement under which an insured facing an excess judgment pursued insurer rights while the claimant agreed to limit execution.

Colorado Supreme Court

Old Republic v. Ross · 180 P.3d 427 (Colo. 2008)

No automatic pretrial binding judgment

Where the insurer conceded coverage, defended the insured and had not been found in bad faith, a pretrial stipulated judgment to which it was not a party could not simply be imposed on the insurer.

Colorado Supreme Court

Nunn v. Mid-Century · 244 P.3d 116 (Colo. 2010)

Judgment rule / assignment

An excess judgment can constitute actual damages despite a covenant not to execute. The insurer may later contest bad faith, fraud/collusion and whether the stipulated amount reasonably reflects the claim.

Colorado Supreme Court · auto case

State Farm v. Goddard · 2021 COA 15

Apparent unreasonableness comes first

An insured is not automatically free to enter a Nunn-type arrangement. It must first appear that the insurer unreasonably refused defense or a within-limits settlement; that issue is generally factual.

Published Colorado Court of Appeals · auto case

Auto-Owners v. Bolt Factory · 2021 CO 32

Modern Nunn framework

Reaffirms insurer control of defense and settlement while recognizing insured protective action where unreasonable insurer conduct creates excess risk.

Colorado Supreme Court

Stresscon v. Travelers · 2016 CO 22M

Self-help has limits

An insured ordinarily cannot ignore a no-voluntary-payments/no-settlement condition merely because it prefers to settle. The excess-exposure/bad-faith justification recognized in Nunn is a narrow, fact-dependent protection.

Colorado Supreme Court

Nunn is not a shortcut around the policy. Assignment, covenant-not-to-execute and stipulated-judgment arrangements are specialized litigation devices. Their enforceability depends on the insurer's conduct, the insured's contractual duties, reasonableness of the amount, fraud/collusion concerns and subsequent adversarial review.

Before accepting limits, inspect what the release will actually close

A policy-limits check can be less valuable than it appears if the accompanying release destroys claims against other insureds, other liability policies or the injured person's own UM/UIM coverage.

Coverage map

Is this really every liability layer?

Confirm owner, driver, household, employer, commercial, TNC and umbrella/ excess coverage before treating one policy's limit as the end of recovery.

Release scope

Who is being released?

Identify every named person/entity, unknown claimant/right, affiliate, employer, owner or other party included in the proposed release.

UM/UIM

Preserve first-party rights

Give any required notice and obtain required consent before releasing the tortfeasor. Do not ask the UIM carrier after the release is signed.

Liens

Settlement is gross recovery, not net recovery

Hospital, Medicare/Medicaid, workers' compensation, ERISA and other reimbursement issues may affect distribution and release promises.

Damages maturity

Know enough to settle finally

Early offers may precede medical stabilization, future-care analysis, wage-loss development and permanency assessment.

Finality

Money trades for legal rights

A settlement is not merely receipt of funds. It is a contract defining which claims and rights cease to exist.

Existing VictimsGuide rule: quick settlement does not equal fair settlement. Compare the offer to the complete medical, wage, lien, coverage and release picture before creating irreversible finality.

Colorado's statutory offer of settlement is a separate litigation tool

C.R.S. § 13-17-202 applies after a civil action has been commenced and can shift qualifying post-offer actual costs depending on the final judgment. It should not be confused with a liability insurer's common-law settlement duty.

Difference between a pre-suit policy limits demand and Colorado statutory offer of settlement.
Device	When used	Main legal effect
Policy-limits settlement demand	Often pre-suit or during litigation	Creates a settlement opportunity relevant to insurer reasonableness and protection of its insured.
C.R.S. § 13-17-202 offer	In a civil action; statutory timing applies	Can shift qualifying actual costs based on rejection and the final judgment; acceptance within the statutory period creates an enforceable settlement.

Do not mix the clocks. Section 13-17-202 currently uses its own fourteen-day acceptance and pretrial timing rules. Those statutory rules do not create a universal fourteen-day deadline for a pre-suit insurance limits demand.

Colorado settlement-duty authority map

Aetna v. Kornbluth · 471 P.2d 609 (Colo. App. 1970)

Reasonable settlement judgment

Rejects both unreviewable insurer discretion and any absolute requirement to accept every offer merely because it falls within policy limits.

Colorado Court of Appeals · historical foundation

Farmers Group v. Trimble · 691 P.2d 1138 (Colo. 1984)

Reasonableness toward the insured

Foundational auto-liability authority applying general negligence/ reasonableness principles to the insurer's third-party claim conduct.

Colorado Supreme Court · foundational

Goodson v. American Standard · 89 P.3d 409 (Colo. 2004)

Third-party bad faith defined

Describes third-party bad faith as unreasonable investigating, defending or settling of a claim brought against the insured under a liability policy.

Colorado Supreme Court

Lira v. Shelter · 913 P.2d 514 (Colo. 1996)

Duty follows contractual coverage

The settlement duty does not require the insurer to fund uncovered punitive exposure simply to eliminate all personal risk to the insured.

Colorado Supreme Court

Bernhard v. Farmers · 885 P.2d 265 (Colo. App. 1994)

Late tender may not erase earlier conduct

Earlier unreasonable settlement handling can remain causally important even after the insurer later tenders the full limits.

Colorado Court of Appeals

Nunn v. Mid-Century · 244 P.3d 116 (Colo. 2010)

Excess judgment + assignment

Adopts the judgment rule and explains when an insured may protect itself after apparent unreasonable refusal of a settlement that would avoid excess exposure.

Colorado Supreme Court · auto case

State Farm v. Goddard · 2021 COA 15

Demand record matters

Whether rejection of a policy-limits demand appears unreasonable is generally a factual inquiry based on the proof, timing and circumstances.

Published Colorado Court of Appeals · auto case

Auto-Owners v. Bolt Factory · 2021 CO 32

Modern insured-protection framework

Reaffirms insurer control while recognizing Nunn-type protection against unreasonable refusal to settle or defend.

Colorado Supreme Court

Preferred Professional v. Doctors Co. · 2018 COA 49

Excess insurer stands in insured's shoes

An excess insurer seeking recovery from a primary insurer for refusal to settle must proceed through equitable subrogation and prove the bad-faith/ unreasonable settlement conduct the insured itself would have to prove.

Published Colorado Court of Appeals

Current jury-instruction formulation: Colorado's 2026 Civil Jury Instructions state the third-party bad-faith elements as damages/loss, unreasonable insurer conduct such as failing to settle the claim, and causation. That formulation reinforces the central point: expiration of a demand is evidence in the chronology; unreasonable conduct and resulting injury still must be proved.

Primary authority map

Trimble · 691 P.2d 1138 Third-party settlement reasonableness

Foundational Colorado automobile liability case governing insurer conduct toward its insured.

Colorado Supreme Court opinions →

Nunn · 244 P.3d 116 Failure to settle / excess judgment

Colorado Supreme Court auto-accident authority on assignment, covenant not to execute and judgment damages.

Colorado Supreme Court opinions →

2021 CO 32 Auto-Owners v. Bolt Factory

Current Supreme Court treatment of insurer control, reservation and Nunn-type insured protection.

Colorado Supreme Court opinions →

2021 COA 15 State Farm v. Goddard

Modern automobile case examining whether an insurer's rejection of a limits demand appeared unreasonable.

Colorado Court of Appeals opinions →

C.R.S. § 10-3-1104(1)(h) Unfair claim-settlement benchmarks

Reasonable investigation, fair settlement where liability is reasonably clear and explanation of compromise positions.

Official CRS portal →

C.R.S. § 13-17-202 Litigation offer of settlement

Separate statutory cost-shifting settlement device used in filed civil actions.

Official CRS portal →

Colorado Civil Jury Instructions · Ch. 25 Current third-party bad-faith elements

Official jury-instruction framework for unreasonable failure-to-settle conduct and causation.

Colorado pattern civil instructions →

C.R.S. § 10-3-1117 Find the liability coverage first

Policy and limits disclosure should ordinarily precede a final policy-limits settlement strategy.

Guide 03 →

VictimsGuide resources supporting Guide 10

Quick Settlement Does Not Equal Fair Settlement Existing citizen lesson on medical, wage, lien, coverage and release maturity before final settlement. Global Releases Existing warning about release language extending beyond the payment source being discussed. Guide 03 — Find Every Policy Do not make one liability limit the settlement ceiling until the coverage map is complete. Guide 09 — Good Faith & Bad Faith General Colorado reasonableness standards and claim-handling evidence. Guide 08 — Defense & Indemnity Who controls settlement and what reservation-of-rights status means for the insured. Guide 04 — UM/UIM Preserve first-party coverage before releasing an underinsured tortfeasor.

Existing curriculum preserved: the VictimsGuide crash workflow already identifies quick settlement pressure, incomplete coverage disclosure and broad release language as red flags and instructs citizens to confirm coverage, medical status, bills, liens, wage loss and UM/UIM posture before final settlement.

Frequently asked questions

Must a Colorado liability insurer accept every demand within policy limits?

No. Colorado applies a reasonableness standard. A within-limits demand is important evidence, especially where liability and damages create substantial excess risk, but the insurer is not automatically liable simply because it declined.

Does the insurer owe a bad-faith duty directly to the injured claimant?

Generally no. Colorado third-party bad faith describes the liability insurer's duty to its own insured. An injured claimant ordinarily needs a valid assignment before asserting the insured's failure-to-settle rights against the insurer.

What should a policy-limits demand contain in Colorado?

There is no California-style statutory pre-suit checklist. A sound demand should clearly identify the parties and claim, show liability and damages, state the amount and settlement/release terms, provide the principal proof, give a workable response deadline and preserve proof of delivery.

How long must I leave a pre-suit policy-limits demand open?

Colorado does not impose the fourteen-day rule from § 13-17-202 on ordinary pre-suit insurance demands. The deadline should be reasonable in light of the existing investigation, complexity and information supplied.

If damages obviously exceed the policy, does the insurer automatically owe the limits?

No. Excess damages make settlement protection more important, but liability, coverage, competing claims and the actual settlement opportunity still matter.

What is a Nunn agreement?

It is shorthand for a protective arrangement in which an insured may assign bad-faith rights to the claimant and receive a covenant not to execute while an excess judgment or liability amount is established. It is a specialized device, not an automatic consequence of an expired demand.

Does a covenant not to execute mean the insured suffered no damages?

Nunn says no. An excess judgment can constitute actual damages despite the covenant, but the insurer retains the ability to litigate bad faith, reasonableness, fraud/collusion and related issues.

Should I accept a policy-limits tender immediately?

Not before checking the complete liability-policy map, release scope, medical maturity, liens/reimbursement, responsible parties and UM/UIM preservation. The correct answer can still be yes, but it should be an informed yes.

Is a C.R.S. § 13-17-202 offer the same as a policy-limits demand?

No. Section 13-17-202 is a statutory litigation offer with defined cost-shifting and timing consequences. A policy-limits demand is evaluated within the broader insurer-insured settlement-duty framework.

What if several people were injured and the per-accident limit is too small for everyone?

That changes the settlement analysis substantially. Do not apply a single-claimant limits-demand model mechanically. Continue to Guide 11 for competing claimants, interpleader and allocation of limited policy proceeds.

Policy-limits demand worksheet

Worksheet for building and auditing a Colorado liability policy-limits settlement demand.
Field	Record	Settlement question
Claimant / insured / claim no.	__________	Are the parties and claim unmistakable?
Liability evidence	__________	What makes fault reasonably clear or disputed?
Damages evidence	__________	What value information was actually supplied?
Known policy limits	__________	Has Guide 03 coverage discovery been completed?
Other liability policies	__________	Owner, employer, umbrella, commercial or TNC?
Demand amount	__________	Exact sum or clearly identified limits?
Release parties	__________	Who receives protection if accepted?
Claims released	__________	Exactly what tort/claims are being resolved?
Material conditions	__________	Can the insurer objectively determine how to accept?
Expiration	__________	Is the evaluation period reasonable under the circumstances?
Delivery / receipt	__________	Can receipt and timing later be proved?
Insurer response	__________	Accept, reject, counter, request information or request extension?
UM/UIM consent	__________	Are first-party rights preserved before release?
Liens / reimbursement	__________	What obligations affect settlement distribution?
Final release reviewed	Yes / No	Does the release match the settlement opportunity?

Closing principle: a strong settlement demand creates a real opportunity to protect the insured. Find every policy, prove liability and damages, state the terms clearly, preserve the record, review the release, and judge the carrier's response from what was reasonably knowable when the opportunity existed.

Continue through the Colorado library

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