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.