On December 12, 2022, the Colorado Supreme Court granted a writ of certiorari in Gregory v. Safeco Ins. Co. of Am. to determine whether a late-notice defense to coverage for a first-party claim under a homeowners insurance policy requires that the insurer show that they were prejudiced by the late notice. Gregory v. Safeco Ins. Co. of Am., 2022 Colo. LEXIS 1044 (Dec. 12, 2022). In Gregory, the plaintiff/homeowner allegedly suffered damage to her roof in a hailstorm in May 2017 but did not report the claim to Safeco until approximately 18 months later. The policy at issue stated that, with respect to hail damage, “notice must be [provided to Safeco or its agent] within 365 days after the date of the loss”. Safeco thus denied coverage for the homeowner’s claims due to her failure to comply with the notice requirements under the policy. Two years after the denial, the homeowner filed suit against Safeco asserting breach of contract and bad faith claims.
The parties both filed dispositive motions on the following issues: (1) whether Colorado’s notice prejudice rule applies, and (2) whether the policy’s 365-day notice provision is invalid because it shortens the applicable statute of limitations under Colorado law. The district court ruled in Safeco’s favor on both issues, and the Colorado Court of Appeals affirmed. The Court of Appeals reasoned that only the Colorado Supreme Court could extend the notice-prejudice rule to an entirely new class of insurance policies, and until it does, it must apply the “traditional approach,” apply the unambiguous language of the policy, and not add a prejudice requirement where none exists under the policy. Gregory v. Safeco Ins. Co., 2022 COA 45, ¶ 14; 514 P.3d 971, 974. The court further held that the 365-day notice provision was not invalid because it distinguished the time for providing notice from the time for filing suit. Id. at ¶ 41.
The Colorado Supreme Court has previously applied the notice-prejudice rule to uninsured/underinsured motorist (UIM) policies and comprehensive general liability (CGL) policies. See Clementi v. Nationwide Mut. Fire Ins. Co., 16 P.3d 223, 224 (Colo. 2001) (UIM policies); Friedland v. Travelers Indem. Co., 105 P.3d 639, 641–42 (Colo. 2005) (CGL policies). It has also held that notice-prejudice does not apply to claims-made policies. Craft v. Phila. Indem. Ins. Co., 2015 CO 11. However, Colorado federal courts had split on whether to extend the notice-prejudice rule to homeowners’ policies. See Cherry Grove E. II Condo. Ass’n v. Phila. Indem. Ins. Co., Civil Action No. 16-cv-02687-CMA-KHR, 2017 U.S. Dist. LEXIS 216183 (D. Colo. Dec. 20, 2017) (holding prejudice is not required to deny coverage for a first-party claim under a homeowners’ insurance policy); Hiland Hills Townhouse Owners Ass’n v. Owners Ins. Co., Civil Action No. 17-cv-1773-MSK-MEH, 2018 U.S. Dist. LEXIS 160024 (D. Colo. Sep. 18, 2018) (holding that prejudice is required).
The Colorado Supreme Court’s ruling in Gregory will have a significant effect on insurers issuing homeowners’ policies in Colorado and resolve the current split in federal court opinions on the issue. Hailstorms are common in Colorado, but many homeowners’ claims are not reported to insurers until many months after the storm. Further, with a statutory penalty of two-times the covered benefit for an unreasonable delay or denial of a claim, insurers face significant risks when denying claims.
Additionally, if the Colorado Supreme Court affirms the Court of Appeals’ decision in Gregory, it can be expected that any homeowners’ insurance policies issued in Colorado that do not already include a date-certain by which hail claims must be reported will start including them going forward.
