The 10th Circuit Court of Appeals recently issued a decision that serves to remind policyholders that the insured’s duty to provide timely notice may be treated differently under a “claims-made” policy. Specifically, the 10th Circuit held that insurance carriers may not be required to show that they have been prejudiced by a policyholder’s failure to give “prompt” notice before denying coverage under a “claims-made” policy.
While many jurisdictions adhere to the notice-prejudice rule, which requires an insurer to demonstrate that it has been prejudiced before it is permitted to deny coverage on the basis of a policyholder’s untimely notice, this rule is most commonly applied in the context of “occurrence” policies. Occurrence policies provide coverage for loss or damage that “occurs” within the policy period, regardless of when a claim is made. Conversely, a “claims-made” policy provides coverage for those claims brought against the policyholder during the policy period and reported to the insurer by a certain date, typically within a brief window following the expiration of the policy period.
In Dean Craft v. Philadelphia Indemnity Insurance Co., 2015 U.S. App. LEXIS 6032 (10th Cir. 2015), the 10th Circuit Court of Appeals certified, to the Colorado Supreme Court, the unsettled question of whether the notice-prejudice rule applies to “claims-made” policies. Dean Craft involved a “claims-made” policy that required the policyholder to provide notice “as soon as practicable” after learning of the claim but “not later than 60 days” after the expiration of the policy. Nevertheless, the policyholder provided notice of the claim far past the policy’s 60-day date-certain notice requirement. While the Colorado Supreme Court was presented with the broad question of whether the notice-prejudice rule applies to “claims-made” policies, the court chose to answer the question more narrowly and restrict its’ analysis to whether the notice-prejudice rule applied to the date-certain notice requirement of a “claims-made” policy. In answering the 10th Circuit’s certified question, the Colorado Supreme Court found that the notice-prejudice rule couldn’t apply to the date-certain notice requirement in the policyholder’s “claims-made” policy.
The court found that, under a claims-made policy, timely notice is the event that triggers coverage and to excuse late notice in violation of such a requirement would alter a basic term of the insurance contract. The court expressed concern that applying the notice-prejudice rule would prevent insurer’s from defining coverage with certainty because they would not be able to “close the books” on previous policy periods and policy premiums would rise to account for the risk that an insured might notify the insurer of a claim after the policy period expired. Ultimately, the court recognized that extending the notice-prejudice rule to date-certain notice requirements would likely decrease the availability of “claims-made” insurance policies.
Here is a link to the Co. Sup. Ct. opinion that is the basis for the 10th Cir. Decision: http://www.cobar.org/opinions/opinion.cfm?opinionid=9669&courtid=2