Colorado Supreme Court Expands Notice-Prejudice Rule to First-Party Homeowners Insurance

In a significant ruling, the Colorado Supreme Court decided to extend the notice-prejudice rule to first-party homeowners’ property insurance policies. This decision, deriving from the cases of Gregory v. Safeco Insurance Company of America and Runkel v. Owners Insurance Company, marked the rule’s first application outside liability policies in the state. Historically, Colorado courts required policyholders to notify insurers of claims within a specific period, a condition that, if not met, relieved insurers from covering claims.

The court overturned lower courts’ summary judgments favoring insurers, who had denied coverage citing failures to comply with notice periods. The Supreme Court’s decision emphasized that the timeliness of notifying an insurer of a claim should not be a fundamental condition that precludes coverage. Instead, insurers must now demonstrate actual prejudice from a delay in notification to deny coverage.

This ruling was driven by three public policy considerations: the adhesive nature of insurance contracts, a commitment to compensating victims, and the prevention of insurers receiving undue benefits from technicalities. The dissenting opinion expressed concerns about market stability and the extension of public policy beyond its traditional bounds, hinting at potential repercussions for the pricing and assessment of insurance in Colorado.