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    March 04, 2015 Practice Points

    Notice-Prejudice Rule Inapplicable If Date-Certain Notice Required

    The Supreme Court of Colorado held that the rule does not apply to a date-certain notice requirement in a claims-made insurance policy

    by Paul T. Curley

    On February 17, 2015, the Supreme Court of Colorado held that the notice-prejudice rule does not apply to a date-certain notice requirement in a claims-made insurance policy. InCraft v. Philadelphia Indemnity Insurance Company, 2015 CO 11, 2015 WL 658785, the court reasoned, in this case of first impression, that "[i]n a claims-made policy, the date-certain notice requirement defines the scope of coverage. Thus, to excuse late notice in violation of such a requirement would rewrite a fundamental term of the insurance contract."

    The D&O policy at issue in Craft required the insureds to give notice of a claim "as soon as practicable" but "not later than 60 days" after the expiration of the policy. Near the end of the policy period, a company officer was sued for alleged misrepresentations he made during a merger. Unaware of the insurance policy, the officer defended himself against the suit. When he learned of the policy, approximately 16 months after the policy period had expired, he gave notice to the insurer, which declined coverage for the suit.

    The officer settled the suit and sued the insurer. In response, the insurer removed the case to federal court and moved to dismiss based on untimely notice. The district court granted the motion, rejecting the officer's argument that the notice-prejudice rule applied to the claims-made policy. The officer appealed, and the Tenth Circuit certified two questions to the Colorado Supreme Court, which the Colorado Supreme Court reframed as follows: whether the notice-prejudice rule applies to the date-certain notice requirement of claims-made liability policies.

    The Colorado Supreme Court held that the notice-prejudice rule does not apply to the date-certain notice requirement in claims-made policies. The court explained that doing so "would alter the parties' agreed allocation of risk" and "to excuse late notice in violation of such a requirement would alter a basic term of the insurance contract." In addition, "it would prevent parties from defining coverage with certainty, no matter how definitive or express the notice requirement."

    The Colorado Supreme Court also stated that public policy concerns that militate in favor of extending the notice-prejudice rule to liability policies that require notice "as soon as practicable" do not support applying the rule to date-certain notice requirements.  These public policy concerns include (1) the adhesive nature of insurance contracts, (2) the public's interest in compensating tort victims, and (3) the inequity of an insurer's receiving a windfall from a technicality. The court held that "strict enforcement of a date-certain notice requirement does not result in a windfall for the insurer based on a technicality" because "the date-certain notice requirement of a claims-made policy is a fundamental term of the insurance contract, and notice under such a provision is a material condition precedent to coverage. Thus, to apply the notice-prejudice rule to excuse an insured's noncompliance with a date-certain notice requirement essentially rewrites the insurance contract and effectively creates coverage where none previously existed."

     

    Keywords: Insurance, coverage, litigation, Colorado, claims-made policy, notice-prejudice rule, date-certain notice requirement

    Paul T. Curley is with Kaufman Borgeest & Ryan LLP, Westchester County, NY.

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