STATE LAW – COLORADO LIBRARY – GUIDE 12
Settlement Demands, Policy Limits & Excess Exposure
A policy-limits demand is not a magic bad-faith trigger. It is an opportunity
to settle. Colorado asks whether the liability insurer used its control over the
claim reasonably and protected its insured from avoidable excess exposure.
Rule at a Glance
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.
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.
Faces personal excess exposure
If damages can exceed available liability coverage, the insured may face
personal judgment exposure beyond the insurer’s contractual limit.
Controls defense and settlement
The insurer’s contractual control creates a duty to exercise settlement
judgment reasonably toward its 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 Law
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.
| 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 12A. |
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.
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.
Colorado Law
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.
Identify parties
Claimant, insured, driver, owner and claim number.
Establish liability
Crash facts, reports, witnesses and fault evidence.
Document damages
Medical, wage, permanency and other supported loss.
State amount
Exact settlement amount or identifiable policy limits.
State release
Who and what will be released upon performance.
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.
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.
Litigation, Deadlines & Preservation
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.
Was the file evaluable?
A demand may be premature if critical liability or damages proof has not yet
been provided or reasonably obtainable.
Was the response period workable?
Consider claim complexity, existing investigation, prior communications and
the amount of new information delivered with the demand.
Were questions handled?
Preserve requests for clarification, reasonable extensions and the claimant’s
response rather than treating every inquiry as automatic delay.
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.
Colorado Law
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.
| 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 12A analysis. |
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.
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.
Colorado Law
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.
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
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
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
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
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
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
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.
Colorado Law
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.
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.
Who is being released?
Identify every named person/entity, unknown claimant/right, affiliate,
employer, owner or other party included in the proposed release.
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.
Settlement is gross recovery, not net recovery
Hospital, Medicare/Medicaid, workers’ compensation, ERISA and other
reimbursement issues may affect distribution and release promises.
Know enough to settle finally
Early offers may precede medical stabilization, future-care analysis,
wage-loss development and permanency assessment.
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.
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 Law
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.
| 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. |
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.
Important Legal Rules & Cases
Colorado settlement-duty authority map
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
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
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
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
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
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
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
Modern insured-protection framework
Reaffirms insurer control while recognizing Nunn-type protection against
unreasonable refusal to settle or defend.
Colorado Supreme Court
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
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.
Related Guides & Resources
VictimsGuide resources supporting Guide 12
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.
Colorado Law
Policy-limits demand worksheet
| 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? |
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.
Frequently Asked Questions
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 12A for competing claimants,
interpleader and allocation of limited policy proceeds.
Primary Authorities
Primary authority map
Policy Limits vs. Available Coverage
A declarations-page limit is not always the complete amount available
Settlement analysis should distinguish the stated limit of one policy from the complete coverage map.
Primary limit
Record the liability limit and whether the carrier has actually accepted coverage for the crash.
Coverage defenses
Identify any reservation of rights, asserted exclusion, priority dispute, or contention that only a statutory minimum applies.
Additional policies
Investigate owner, employer, commercial, rideshare, rental, umbrella, and excess layers before treating one limits offer as the total insurance available.
Exhaustion
Do not confuse exhaustion of one policy with exhaustion of all insurance potentially applicable to the occurrence.