Many states have enacted statutes that encourage insurance companies to pay policyholders, or those who stand in their shoes, promptly benefits owing under an insurance policy. In Colorado, insurers who fail to promptly pay benefits owed or improperly deny coverage are liable not only for the policy benefits themselves, but must pay pre-judgment interest on the money wrongfully withheld. The issue in the instant case is whether a prevailing garnishor, entitled to policy benefits as a third party, is entitled to prejudgment interest where an insurer improperly denies coverage and forces the garnishor into years of litigation. UP reminded the Court that the promise of insurance protection, whether owed in a first party property damage case or a third party personal injury matter, must be honored. Where an insurer wrongfully denies coverage, then has a judgment entered against them, they must pay more than just the money that should have been paid in the first place. They are liable for the time-value of money or pre-judgment interest for the time there were wrongfully deprived of insurance proceeds that were rightfully theirs. If pre-judgment interest is not owed, insurers are incentivized to hold on to the money while they litigate [here, ultimately unsuccessful] coverage defenses.
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