Colorado Supreme Court Determines That The Notice-Prejudice Rule Applies to Occurrence-Based, First-Party Homeowners Insurance Policies

Before the court were a set of consolidated cases (Gregory v. Safeco Ins. Co. of Am., Nos. 22SC399 and Runkel v. Owners Ins. Co., 22SC563) that involved damage to the plaintiffs’ homes caused by a hailstorm. In both cases, the plaintiffs noticed and reported the damage caused by the hailstorm after the period specified in their respective insurance policies. Both plaintiffs had occurrence-based, first-party homeowners insurance policies when the damage occurred.

Until 2001, Colorado followed the “traditional approach,” which considered untimely notice a breach of contract. Hence, any unexcused delay in notice would release the insurer from its obligations, irrespective of any harm caused to it. Under the traditional approach, both plaintiffs would be denied coverage. However, in Clementi v. Nationwide Mutual Fire Insurance Company, 16 P.3d 223 (Colo. 2001), the Colorado Supreme Court moved toward the modern trend of the notice-prejudice rule, a two-step approach. Under the notice-prejudice rule, the court must first determine whether the claimant’s notice to their insurer was timely; if the notice is considered untimely, then the court moves to step two, which requires determining whether the untimely notice prejudiced the insurer. If the untimely notice did not prejudice the insured, then coverage exists for the claimant.

In Gregory, the Colorado Supreme Court has now decided that the notice-prejudice rule will apply to occurrence-based, first-party homeowners insurance policies. Such policies cover occurrences during the policy period, regardless of when a claim is made. This differs from a claim-made policy, which covers only claims made during the policy period and reported by a specific date.

The Court provided two reasons for extending the notice-prejudice rule. First, it found that in occurrence-based policies, timely notice was important only for investigating the claim as opposed to claims-based policies in which timely notice is essential for investigating a claim and defining the temporal grounds of coverage. Second, the Court observed that the one-sided nature of insurance contracts supported preventing insurers from obtaining a windfall due to a technicality.

The case is Gregory v. Safeco Ins. Co. of Am., 2024 CO 13.