(Article from Insurance Law Alert, April 2024)
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Holding
Addressing a matter of first impression under Colorado law, the Colorado Supreme Court ruled that the notice-prejudice rule applies in the context of first-party property insurance policies. Gregory v. Safeco Ins. Co. of Am., 2024 Colo. LEXIS 202 (Colo. Mar. 11, 2024); Runkel v. Owners Ins. Co., 2024 Colo. LEXIS 212 (Colo. Mar. 11, 2024).
Background
In two cases, first-party property insurers denied homeowners’ claims for property damage based on untimely notice. While the language in each policy differed somewhat, both polices covered losses that occurred during the policy period, and both contained time-specific notice provisions that required notice to be provided within one year after the date of loss.
Following the insurers’ denials of coverage based on untimely notice, each homeowner filed suit. The trial courts in both cases ruled in favor of the insurer, finding that the notice provisions required the homeowners to provide notice within one year of damage, which they did not do, and that coverage was therefore unavailable, regardless of prejudice to the insurers. Both decisions were affirmed by intermediate appellate courts. Reviewing both cases de novo, the Colorado Supreme Court reversed.
Decision
The Colorado Supreme Court held that, under Colorado law, an insurer must establish prejudice in order to defeat coverage on the basis of untimely notice under a third-party liability policy or an uninsured/underinsured motorist policy. Finding that the justifications for a prejudice requirement in those contexts applied with equal force to first-party property policies, the Colorado Supreme Court held that the lower courts erred in failing to conduct a prejudice analysis. More specifically, the court ruled that, for first-party, occurrence-based policies, such as those at issue here, public policy considerations relating to the adhesive nature of certain insurance contracts, the goal of compensating tort victims, and the inequity of coverage defenses based on “technicalities” mitigate in favor of the notice-prejudice rule.
Comments
The decision does not disturb the well-established principle that a showing of prejudice is not required in the context of claims-made policies. As the court noted, the notice requirement in claims-made policies is a “material term that is to be strictly enforced.” In this case, the court noted that the operative distinction in evaluating whether prejudice is required is whether a policy is occurrence-based or claims-made—not whether the policy contains a “date-certain” for providing notice.