Two Decisions Apply Colorado Supreme Court’s “Late Notice” Ruling

June 30, 2015

Several months ago, the Colorado Supreme Court, in response to questions certified by the U.S. Court of Appeals for the Tenth Circuit, ruled that the “notice-prejudice rule” did not apply to a date-certain notice requirement in a claims-made insurance policy. See, Notice-Prejudice Rule Did Not Apply to Date-Certain Notice Requirement in Claims-Made Insurance Policy, Colorado Supreme Court Rules. Now, the U.S. District Court for the District of Colorado has applied that opinion in two decisions issued about one week apart.

Background

The Colorado Supreme Court case, Craft v. Philadelphia Indem. Ins. Co., involved a policy that provided directors and officers liability coverage. The policy required the insured to give prompt notice of a claim; specifically, notice “as soon as practicable” after learning of the claim. The policy also required the insured to give notice of the claim by a date certain; specifically, “not later than 60 days” after the expiration of the policy.

The notice-prejudice rule provides that an insured who gave late notice of a claim to his or her insurer did not lose coverage benefits unless the insurer proved by a preponderance of the evidence that the late notice prejudiced its interests. The Colorado Supreme Court held that the notice-prejudice rule did not apply to a date-certain notice requirement in a claims-made insurance policy.

The court explained that, in a claims-made policy, the date-certain notice requirement defined the scope of coverage. Thus, the court continued, to excuse late notice in violation of such a requirement “would rewrite a fundamental term of the insurance contract.”

The Fidelity Bond Case

The first district court case applying the Colorado Supreme Court’s decision in Craft involved a fidelity bond issued by National Union Fire Insurance Company of Pittsburgh, PA, to Centrix Financial, LLC, to insure Centrix against fraudulent actions by Centrix’s officers and employees.

After Centrix entered bankruptcy, Centrix Financial Liquidating Trust sued National Union, alleging that losses it allegedly had suffered were covered by the bond.

In response, National Union asserted that Centrix had failed to provide notice to National Union within 60 days of discovering its alleged losses, as required by the bond.

Relying in large measure on Craft, the district court agreed with the insurer.

The district court ruled that, similar to the claims-made policy construed in Craft, the 60-day notice requirement in the fidelity bond defined the “temporal boundaries of the [bond’s] basic coverage terms,” and was a condition precedent to coverage. Accordingly, it concluded, the notice-prejudice rule did “not apply to the fidelity bond.”

The case is In re Centrix Financial, LLC v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 09-cv-01542-PAB-CBS (D. Colo. June 2, 2015).

The Homeowner’s Insurance Policy Case

The second case involved a homeowners’ insurance policy.

Homeowners alleged that their home was damaged by a hail storm on June 6, 2012. Their insurer, Country Mutual Insurance Company, confirmed coverage and, on June 26, 2012, issued a check to them for $14,404.57. Additional claims and payments were made up to May 27, 2013, when the insurer sent the homeowners a letter saying, “Your claim referenced above has been brought to a conclusion.”

The homeowners submitted a new claim on November 25, 2013, attaching estimates of additional repair costs totaling $179,361.22. Country Mutual refused payment, relying on an express condition in the insurance policy that all claims under the policy had to be brought within one year of the date of the occurrence.

The homeowners sued, arguing that denial of payment based on the untimely submission of their claim was contrary to public policy unless Country Mutual could show prejudice.

The insurer moved for summary judgment.

Relying on Craft, the district court held that the notice-prejudice rule did not apply to the homeowners’ policy. Because Country Mutual was not required to show prejudice to enforce the time limit in its policy, the district court granted its motion for summary judgment.

The case is Clark v. Country Financial d/b/a Country Mutual Ins. Co., No. 14-cv-00168-RPM (D. Colo. June 10, 2015).

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  • Robert Tugander





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