I am not licensed in Colorado, so this is not legal advice, just general comments.
If you have auto insurance, you should contact your agent and tell the agent what happened. Your insurance company will handle all the details, and may even decide that the collision was not your fault. Normally if you rearend someone, it will be your fault, but not always. There are certain circumstances that could relieve you of liability.
To answer your questions, yes, you can make an agreement with the other driver for you to pay the body shop directly. And you can have the other driver sign a Release stating that he will not ever be able to come back and ask you for more money for property damage or for bodily injuries. I recommend that if you do not have auto insurance yourself, you contact a local lawyer to get help with the release form.
Good luck to you.
Assuming you are at fault, you are not really in a position to tell the person where the money is paid. If you would like to settle without the insurance company, the cost is paying the money even though the person may not have $1200 in repairs. You may suggest obtaining two or three estimates and either average the cost or lowest estimate and pay the amount directly to the person. You should have the individual sign a waiver of claims form first, or, if they are unwilling and you still would like to settle, you can write in the memo line on the check for full and final settlement of all claims arising from an automobile accident and include the date. At the very least, if they cash the check, you can argue they accepted the restricted endorsement on the check; consequently, they waived their right to sue you.
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