Colorado Supreme Court: Late Notice, No Prejudice, No Problem

Colorado insurance carriers have been denying otherwise valid property insurance claims based on a late notice technicality for years. Until today, it was unclear whether the traditional notice or notice-prejudice rule applied in Colorado, resulting in numerous cases being dismissed for late notice, even where an insurance company had previously made payment for damage.

Under traditional insurance contract principles, if a policyholder fails to notify their insurer of a claim within the time frame specified in the policy, the insurer could deny the claim outright, regardless of the circumstances. This could occur even if the delay in notification caused no harm or prejudice to the insurer’s ability to investigate or defend against the claim.

The notice-prejudice rule, however, requires the insurer to demonstrate that the delay in notification materially prejudiced its position before it can deny coverage based on a late notice. Essentially, this rule shifts the focus from strict adherence to contractual deadlines to a more equitable consideration of whether the insurer was actually harmed by the late notice. The notice-prejudice rule previously applied only to uninsured/underinsured motorist and third-party liability policies in Colorado.

Through its opinion issued on March 11, 2024, the Colorado Supreme Court extended the notice-prejudice rule to occurrence-based, first-party homeowner property insurance policies.1 This opinion now requires Colorado insurers to show actual prejudice from delayed notice before denying coverage. No longer can Colorado insurance carriers deny coverage for claims based solely on a policyholder’s failure to provide timely notice without demonstrating that the delay prejudiced the insurer’s ability to investigate or defend against the claim.

In delivering the 4-3 opinion of the court, Justice Gabriel discussed the importance of the rule in promoting fairness and preventing insurers from capitalizing on technicalities to deny coverage. The court found that recent cases consistently applied the notice-prejudice rule to occurrence policies, where the purpose of notice is to allow insurers to investigate and defend against claims.

[R]ecent cases have consistently applied the notice-prejudice rule to occurrence policies like those at issue, in which the purpose of notice is to allow an insurer to investigate and defend against the claim and is not a fundamental term defining the temporal boundaries of coverage . . . . [F]or determining whether the notice-prejudice rule applies, namely, the adhesive nature of insurance contracts, the public policy objective of compensating tort victims, and the inequity of granting the insurer a windfall due to a technicality, all support the application of the notice-prejudice rule here.

This decision is a win for Colorado policyholders, affording protection from losing coverage over late-notice technicalities when such delays do not affect the insurer’s ability to process the claim. It also sets a significant milestone in Colorado’s insurance law landscape, aligning with jurisdictions like Montana, New Mexico, Nebraska, Utah, and South Dakota.

1 Gregory v. Safeco Ins. Co. of Am., 2024 CO 13, — P.3d —, 2024 WL 1040531 (Colo. Mar. 11. 2024).