Insurers frequently raise the timing of notice as a defense to a policyholder’s claim for coverage. This is an “all or nothing defense,” as “late notice” can create a forfeiture of coverage. As a result, it gets litigated frequently—as shown by recent state high court cases in Colorado and Wyoming. In recent decades, there has been a dramatic judicial shift on the notice issue, with many jurisdictions liberalizing the rules applicable to notice to insurers and following the traditional rules limiting contract forfeitures.
Recent decisions in Colorado and Wyoming illustrate the tension in the law on notice. The Colorado Supreme Court has twice cut back on its previous ten-year streak of expanding coverage for insureds by refusing to allow insurers to enforce technicalities in notice clauses to prevent coverage. Colorado’s neighbor to the north, Wyoming, headed in the other direction in 2016. Most states now employ the modern rule, which requires insurers to prove prejudice before they can void coverage. In May 2016, the American Law Institute adopted the modern rule for its Restatement of the Law, Liability Insurance, a position that could be influential in the courts.
Wyoming: Modern Rule
In deciding to follow the modern rule, the Supreme Court of Wyoming noted just weeks ago that “[p]ublic policy is not harmed by requiring insurers to be prejudiced before denying coverage for late notice.” In the recent Wyoming decision Century v. Hipner, 2016 WY 81, the court found that Hipner failed to notify Century of a claim for a defense from a suit by a paralyzed car accident victim for nine months, even though notice had been given to the broker two months earlier. The court found that Century suffered no prejudice from the late notice, which was admittedly not within “as soon as practicable” required notice period. This decision changed Wyoming law, which previously had followed the outdated “per se rule,” which allowed an insurer to void the policyholder’s insurance contract with no showing of prejudice to the insurer.
Colorado: Retrenchment on the Modern Rule
Policyholders with insurance policies in Colorado should be aware of recent decisions affecting the law on notice. In 2005, the Colorado Supreme Court enforced a gold mine’s CGL coverage for a settlement of an EPA enforcement action even though the underlying case was filed six years before the notice, and the mine had negotiated a settlement with the EPA over six months before notice...
