In its recent decision in Craft v. Philadelphia Indem. Ins. Co., 2014 U.S. App. LEXIS 2680 (Feb. 11, 2014), the United States Court of Appeals for the Tenth Circuit, applying Colorado law, had occasion to consider whether Colorado’s notice-prejudice rule applies to claims made and reported policies, or is limited to occurrence-based policies.
Philadelphia insured Campbell’s C-Ment Contracting under a directors and officers policy for the period November 2009 to November 2010. While the policy was in effect, one of the insured’s officers, Craft, was sued for alleged misrepresentations he made in connection with a corporate merger. Craft, apparently, was unaware of the policy at the time and thus undertook his own defense. He did not learn of the policy’s existence until March 2012, at which time he tendered his defense. Craft later settled the underlying suit before Philadelphia issued a formal coverage position.
Craft later sued Philadelphia, seeking reimbursement of defense costs and the settlement amount. Philadelphia moved to dismiss on the grounds that Craft had failed to comply with the policy’s notice provision, which required notice of claim as soon as practicable, and that he also failed to comply with the policy’s reporting provision, which required that the claim be reported to Philadelphia within sixty days of the policy’s expiration. Relying on the Colorado Supreme Court decision in Friedland v. Travelers Indem. Co., 105 P.3d 639 (Colo. 2005), Craft argued that Philadelphia could only sustain its late notice disclaimer if it could demonstrate prejudice as a result of his non-compliance with the notice and reporting provisions.
In considering the issue, the 10th Circuit noted a clear distinction in Colorado law between claims made and occurrence-based policies. Whether the Friedland decision applied in both contexts, however, was an issue for which the court could find no guidance. The court nevertheless observed that if it determined that the notice-prejudice rule applied to claims-made policies, such a decision “would render Colorado law an outlier on this issue,” since the majority of jurisdictions agree that prejudice is not a consideration for claims-made policies. The court also recognized that applying a prejudice rule to claims-made policies could greatly impact the insurance market in Colorado, since insurers typically can offer claims-made policies at a lower premium precisely because of the limited notice period. Finally, the court acknowledged that imposing a prejudice requirement on a claims-made policy would, in essence, effect a rewrite of the policy language, something Colorado courts are loathe to do.
Given these significant concerns, the court certified to the Colorado Supreme Court the question of whether the notice-prejudice rule applies to claims made and reported policies. The court also certified the related question of whether a prejudice requirement applies to the provision requiring notice of claim as soon as practicable; in other words, claims for which notice is given within the policy period, but still late under the circumstances.