Under Colorado law, a policyholder may bring action under the "prompt payment statute" when an insurance company unreasonably delays or denies payment on a valid insurance claim. On certified question from the Colorado Federal District Court, the Colorado Supreme Court was confronted with the issue of whether a suit under the prompt payment statute is subject to a one-year statute of limitations, which applies to "penal" statutes or the two-year statute of limitations applicable to bad faith and breach of contract cases.
UP argued in its brief that Colorado's prompt payment statute is not "penal" within the meaning of the governing statute. In fact, certain portions of the governing statute are, but not specifically the prompt payment statute. In other words, the Insurance Commissioner and/or the Attorney General does have the authority to prosecute violations of the "penal" portions of the statute, while other portions of the statute - the prompt payment statute - are private causes of action. Thus, the prompt payment statute is not penal within the Legislature's intent. Further, imposing a one-year statute of limitations would unfairly eclipse relief for many disaster victims, where the adjustment of their claim - from the time of the first act causing delay or denial, from which the statute runs - often takes more than a year.