Insured Must Cooperate with the Insurer’s Investigation

Insured Must Fulfill Conditions Precedent to Recover Underinsured Motorist Claim

Post number 5328

See the video at https://rumble.com/v79491m-breach-of-a-specific-condition-precedent-is-a-complete-defense.html  and at https://youtu.be/_zxk0XLTG4s

In United Services Automobile Association and State Farm Mutual Automobile Insurance Company v. Anthony Wenzell, 2026 CO 25 (Colo. Apr. 27, 2026) Anthony Wenzell was rear-ended in a car accident. He had a significant prior 2014 accident that required back surgery.

Wenzell claimed underinsured-motorist (UIM) benefits under three policies: (1) the tortfeasor’s liability policy, (2) his own primary UIM policy with State Farm, and (3) an excess UIM policy issued by USAA (under his brother’s policy, which contained an “other insurance” clause making USAA’s coverage excess over any collectible insurance).

After receiving the claims, both USAA and State Farm repeatedly requested that Wenzell execute comprehensive medical-release authorizations so they could obtain his full medical records and apportion damages between the 2017 accident and his pre-existing 2014 injuries. Wenzell produced some records and partial releases, but the insurers asserted the releases were deficient or incomplete.

In 2021, with the statute of limitations about to run, Wenzell sued both insurers for breach of contract and bad-faith delay/denial of insurance benefits under § 10-3-1116, C.R.S

PROCEDURAL HISTORY

The trial court granted summary judgment to both insurers on two grounds:

  1. Wenzell’s failure to provide adequate medical releases breached enumerated conditions precedent in the policies; therefore, the insurers had no obligation to pay.
  2. USAA (as excess insurer) had no duty to investigate or pay until Wenzell exhausted (i.e., received a policy-limits payment from) his primary State Farm UIM coverage.

The court of appeals reversed and both insurers petitioned for certiorari; the Colorado Supreme Court granted review on both issues.

KEY LEGAL ISSUES

  1. Scope of § 10-3-1118 –

    1. Whether the statute’s procedural requirements (written notice of non-cooperation within 60 days + 60-day cure period) apply only to the classic common-law “failure-to-cooperate” defense based on a general cooperation clause, or
    2. does it sweep in all defenses based on an insured’s failure to satisfy any contractual duty (including specifically enumerated conditions precedent such as providing medical releases)?

  2. Exhaustion clauses in excess UIM policies

    1. When is an excess UIM insurer required to begin investigating and adjusting a claim? Specifically,
    2. Does an exhaustion clause (or “excess over any collectible insurance” clause) require the primary insurer to actually pay its limits, or
    3. Is it satisfied when the insured demonstrates undisputed damages exceeding all underlying limits?

ANALYSIS & HOLDING 

Section 1118 – Narrow Construction (Reversing the Court of Appeals)

  1. General duty to cooperate (cooperation clause)
    1. failure-to-cooperate defense requires the insurer to prove material and substantial prejudice.
  2. Specific conditions precedent (e.g., duty to provide medical records/releases)
    1. the breach is a complete defense;
    2. no prejudice need be shown.
  3. The statute uses the term “failure-to-cooperate defense” without defining it and is therefore ambiguous.
  4. Legislative history does not clearly express intent to abrogate the common-law distinction.

Holding:

Section 1118’s procedural safeguards do not apply to defenses based on failure to satisfy specifically enumerated conditions precedent (such as the medical-release requirements here).

The insurers properly relied on Wenzell’s breach of the release conditions precedent. No § 1118 notice/cure was required. Trial court’s summary judgment on this issue is reinstated; all of Wenzell’s claims (contract and bad faith) are dismissed.

Exhaustion of Underlying UIM Coverage

Excess UIM policies may contain exhaustion clauses. Two competing approaches nationwide:

  1. Payment-limits approach (USAA’s position)
    1. primary must actually tender its limits
  2. Undisputed-damages approach (adopted by the Court)
    1. exhaustion occurs when the insured shows undisputed damages that necessarily exceed the sum of all underlying policy limits.

Colorado law favors the undisputed-damages approach for several reasons:

    • Public policy and § 10-4-609(1)(c) prohibit insurers from conditioning or diluting statutorily required UIM coverage.
    • It treats primary and excess UIM carriers symmetrically (neither may use setoffs or payments from other insurers to reduce their own liability).
    • It prevents gamesmanship while still requiring the insured to prove undisputed excess damages before an excess carrier must pay.

HOLDING

An excess UIM insurer’s duty to investigate, adjust, and pay undisputed portions of a claim arises once the insured demonstrates that his damages undisputedly exceed the limits of all underlying policies. An exhaustion clause is satisfied by that showing; actual payment by the primary insurer is not required.

Because genuine issues of material fact remain regarding the amount and causation of Wenzell’s damages (precisely because of the disputed medical releases), USAA was not yet obligated to investigate or pay. However, the trial court’s blanket grant of summary judgment to USAA based solely on “failure to exhaust” was incorrect. On remand the trial court must apply the undisputed-damages rule.

OVERALL DISPOSITION

Reversed in part (section 1118 issue): insurers are entitled to summary judgment on the conditions-precedent defense; all claims dismissed.

Affirmed in part (UIM exhaustion issue): excess carriers have an independent duty to evaluate claims, but only after undisputed damages exceed underlying limits.

The case remanded with directions to enter judgment for the insurers. The majority opinion is now the definitive statement of Colorado law on both the scope of the new failure-to-cooperate statute and the proper interpretation of exhaustion clauses in excess UIM coverage.

ZALMA OPINION

For reasons unknown to me people who are injured in an accident and seek to recover from his or her uninsured or underinsured motorist insurance coverage think that only the insurer has an obligation to deal fairly. In fact, since insurance was first challenged in Britain in 1766 the duty to deal fairly and in good faith must be fulfilled by both the insured and the insurer. The new Colorado statute made it clear that the insured had an obligation to deal fairly and fulfill the conditions stated in the policy.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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