Most property insurance policies require that the insured must provide “prompt” notice of a loss as soon as possible after a covered loss. While many states throughout the country have adopted the Notice-Prejudice Rule which prevents an insurer from denying a claim unless it can demonstrate actual prejudice resulting from the delayed notice of loss, the District Court of Colorado recently issued an opinion rejecting this majority rule in first-party insurance contracts and instead applying the Traditional Notice Rule:
Failure to notify the insurer within a reasonable time constitutes a breach of that contract requiring a justifiable excuse or extenuating circumstances explaining the delay. Unless the delay is so explained, the insurer cannot be held liable under the insurance contract to defend the insured and pay any judgments recovered against him.1
Located in Aurora, Colorado, the Cherry Grove East community suffered property damage caused by hail storms in September 2014 and May 2015. Cherry Grove reported damages resulting from the September 2014 storm in June 2016, twenty-one months after its occurrence. Similarly, damages resulting from the May 2015 storm were reported in July 2016, fourteen months after its occurrence. When Cherry Grove attempted to compel appraisal, the carrier moved to dismiss the case due to Cherry Grove’s failure to promptly notify the carrier of its hail loss.
In analyzing Colorado cases applying both the Notice-Prejudice Rule and the Traditional Notice Rule, the court determined that the Notice-Prejudice Rule cases were third party liability cases in which the Colorado Supreme Court was particularly focused on public policy interest in protecting innocent tort victims. Absent public policy concern, the court determined there was no reason justifying judicial modification of an insured’s contractual obligation to provide prompt notice of a loss to an insurer and that the Tradition Notice Rule would apply in determining whether Cherry Grove provided prompt notice as required under the policy.
While the court acknowledged that ordinarily what constitutes a reasonable time for giving notice as provided in insurance policies would be a question for the jury, the court ultimately held that it was indisputable that Cherry Grove failed to notify the carrier within a reasonable time. While Cherry Grove attempted to justify its delay in reporting the claim by explaining that it was governed by volunteers, many of whom were unsophisticated regarding insurance, claims and legal matters, the court held that Cherry Grove had presented no facts that would establish justifiable excuse of extenuating circumstances for the untimely reporting of the claim.
This recent decision demonstrates the importance of not only quickly identifying and documenting damage after a storm, but also providing notice to the carrier as soon as possible to avoid the consequences of untimely notice.
1 Cherry Grove East II Condo. Assoc. v. Philadelphia Indem. Ins. Co., No.1:16-cv-02687 (Colo. D. Dec. 27, 2017), quoting Certified Indem. Co. v. Thun, 439 P.2d 28, 30 (Colo. 1968).