Colorado law on first-party property insurance is one of the strongest in the nation. However, even valid claims can get dismissed if they aren’t properly presented in the lawsuit filing. That is why having an experienced attorney on your side, who is well-versed in the particularities of Colorado requirements, is essential if a policyholder finds that a lawsuit needs to be filed.
The Case
The recently decided Alejandro Garcia-Terrazas v State Farm Fire and Casualty Company 1 case out of the Federal District Court of Colorado should serve as a warning to all policyholders. In that case, a policyholder experienced water loss damage to his home, a covered peril under his State Farm policy. Mr. Garcia-Terrazas retained a water mitigation company to provide pictures, a report and an invoice to document the damage sustained in the loss. When State Farm refused to pay full value for the water loss, Mr. Garcia-Terrazas retained the services of a public adjuster. Despite the public adjuster’s best efforts to collect benefits owed under the policy for the loss, State Farm refused to pay additional benefits on the claim. As such, Mr. Garcia-Terrazas filed a lawsuit, which, among other claims, included allegations against State Farm for bad faith breach of an insurance contract.
State Farm then asked to throw out the case, stating the lawsuit failed to state a claim upon which relief could be granted. 2 To survive this type of motion, a policyholder-plaintiff must present enough facts that, if true, relief would plausibly flow from the alleged facts. 3 Meaning that facts cannot only be conceivable, but they must be believable to survive a motion to dismiss. Factual allegations must be just that: allegations that go beyond mere conclusory statements, generalizations, legal conclusions, or inferences of misconduct by the insurer. 4
Why the Case was Dismissed and How Policyholders Can Avoid the Same Mistake
The policyholder-plaintiff’s error in the Garcia-Terrazas case was his failure to provide specific facts supporting his bad faith allegations against the insurer. In Colorado, to support a claim for bad faith, a policyholder must prove that benefits are owed under the insurance policy and that the insurer unreasonably delayed or denied payment of the claim. 5 No such bad faith exists, however, if the insurer can show it had a reasonable basis for its denial. 6 In his lawsuit, Mr. Garcia-Terrazas simply alleged that State Farm’s “bad faith conduct…includes…its inadequate, unreasonable, and improper investigation,…[and] its denial of Plaintiff’s insurance Claim….” 7
The Court determined Mr. Garcia-Terrazas’ allegation was only conclusory and failed to state any specific facts that showed State Farm’s conduct as unreasonable and its investigation improper. 8 Likewise, Mr. Garcia-Terrazas further alleged that despite giving State Farm evidence from the mitigation company substantiating his loss, State Farm still denied his claim. However, Mr. Garcia-Terrazas erred by failing to provide specifics on why State Farm’s denial was unreasonable or its investigation inadequate, thereby denying the court a basis to assess the reasonableness of State Farm’s conduct. 9 The court further reasoned, it was not enough to say State Farm’s denial was unreasonable simply because it denied the claim. 10
Because Mr. Garcia-Terrazas was unable to provide enough factual allegations within his lawsuit that plausibly showed State Farm’s handling of his claim was unreasonable, the court granted State Farm’s motion to dismiss the policyholder’s claim.
Key Takeaways
As the policyholders’ advocate, what are some of the key takeaways we can learn from this case? We can note that allegations of bad faith require more than mere conclusory statements of misconduct. Persevering through the claims handling process already takes a feat of sheer will and determination for most policyholders. But to then have your case dismissed in the litigation phase on a technicality is not only disappointing but is also financially and emotionally taxing.
Filing a lawsuit is usually a policyholder’s one and only opportunity to present their claim in court. Policyholders should ensure they are setting themselves up for success from the very beginning.
Action Steps for Policyholders to Take:
- Document everything. Save emails, letters, reports, and notes about conversations with your insurer.
- Be specific in your claim. General accusations of “bad faith” likely won’t hold up in court—take note of specific unreasonable conduct by the insurer and what makes it unreasonable given the circumstances.
- Get expert help early. A public adjuster or attorney can help strengthen your case before it ever reaches a judge, and in the best-case scenario, help a policyholder avoid the court altogether.
If it’s necessary to file a lawsuit, policyholders should make sure they have counsel who can adequately and articulately argue the facts of their case, so it doesn’t get thrown out of court on an avoidable technicality. If you believe your insurance company has wrongfully denied or delayed your claim, don’t wait. Talk to an experienced policyholder attorney who can help you protect your rights and present your case in the strongest way possible.
1 Garcia-Terrazas v State Farm Fire & Cas. Co., No. 24-CV-03171, 2025 WL 2576505 (D. Colo. Sept. 5, 2025).
2 FRCP 12(b)(6).
3 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007); Khalik v. United Air Lines, 671 F.3d 1188, 1190 (10th Cir. 2012); RE/MAX, LLC v. Quicken Loans Inc., 295 F. Supp.3d 1163, 1168 (D. Colo. 2018).
4 Garcia-Terrazas v State Farm Fire & Cas. Co., No. 24-CV-03171, 2025 WL 2576505, at *1 (D. Colo. Sept. 5, 2025); Hackford v. Babbitt, 14 F.3d 1457, 1465 (10th Cir. 1994); Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
5 Colo. Rev. Stat. § 10-3-1115.
6 Etherton v. Owners Ins. Co., 829 F.3d 1209, 1226 (10th Cir. 2016); Garcia-Terrazas v State Farm Fire & Cas. Co., No. 24-CV-03171, 2025 WL 2576505, at *5 (D. Colo. Sept. 5, 2025).
7 Garcia-Terrazas v State Farm Fire & Cas. Co., No. 24-CV-03171, 2025 WL 2576505, at *6 (D. Colo. Sept. 5, 2025) (citing Docket No. 9 at 3, ¶ 15).
8 Garcia-Terrazas v State Farm Fire & Cas. Co., No. 24-CV-03171, 2025 WL 2576505, at *6 (D. Colo. Sept. 5, 2025).
9 Id. at *6.
10 Id. at *6.