Clementi v. Nationwide Mut. Fire Ins. Co., No. 99SC500.

• Decision Date: 22 January 2001
• Docket Number: No. 99SC500.
• Parties: James CLEMENTI and Mary Ann Clementi, Petitioners, v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Respondent.
• Court: Colorado Supreme Court

16 P.3d 223

James CLEMENTI and Mary Ann Clementi, Petitioners, v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Respondent.

No. 99SC500.

Supreme Court of Colorado, En Banc.

January 22, 2001.

Nicholas Gradisar, Gradisar, Trechter, Ripperger, Roth & Croshal, Pueblo, CO, Attorney for Petitioners.

Franklin D. Patterson, Patterson, Nuss & Seymour, P.C., Englewood, CO, Attorney for Respondent.

Justice RICE delivered the Opinion of the Court.

We issued a writ of certiorari to review the court of appeals' judgment in Nationwide Mutual Fire Ins. Co. v. Clementi, 989 P.2d 192 (Colo.Ct.App.1999). Respondent, Nationwide Mutual Fire Insurance Company ("Nationwide"), filed a declaratory judgment action against Petitioners, the Clementis, seeking a determination that the Clementis had forfeited coverage under their uninsured motorist ("UIM") policy by failing to provide timely notice of their claim. The trial court concluded as a matter of law that the Clementis' notice was untimely, that the Clementis' delay was unreasonable, and that Nationwide was not required to demonstrate prejudice before forfeiting benefits under the Clementis' UIM policy. The court of appeals affirmed the trial court's ruling, holding that a five-month delay in the Clementis' filing notice was unreasonable. The court of appeals also held, based on this court's decision in Marez v. Dairyland Insurance Co., 638 P.2d 286 (Colo.1981), that Nationwide was not required to make a showing of prejudice prior to forfeiting the Clementis' benefits.

We granted certiorari to determine whether the Clementis' notice was untimely and whether Nationwide was required to demonstrate prejudice before forfeiting benefits under the UIM policy in question. We now reverse the court of appeals and expressly adopt the notice-prejudice rule in UIM cases. We decline to overrule Marez at this time because we find that its holding applies only to liability cases and is thus inapplicable to this case. However, to the extent that Marez has been applied by the court of appeals to UIM cases, we disapprove.

I. FACTS AND PROCEDURAL HISTORY

On March 11, 1994, James Clementi, a Colorado state trooper, was injured in an automobile accident while acting within the course and scope of his employment. In August 1994, Clementi was notified by State Farm that the other driver's policy was limited to $50,000. The following spring, Clementi's physician determined that he had reached maximum medical improvement and had sustained a seventeen percent impairment rating. In March 1995, Clementi was awarded workers' compensation benefits of approximately $43,000. Clementi gave notice to Nationwide of his UIM claim for damages exceeding the State Farm and workers' compensation benefits in August 1995, seventeen months after the accident. In April 1996, Clementi received $50,000 from State Farm, pursuant to a settlement agreement.

Nationwide filed suit, seeking a declaratory judgment voiding the Clementis' UIM coverage because of their alleged failure to give timely notice of their claim as required by their policy. The trial court determined that the latest date upon which Clementi could have ascertained with reasonable diligence that the other driver was underinsured was March 1995, when Clementi learned that he had a seventeen percent disability and knew that his actual damages were already approaching the other driver's policy limits. The court found that the Clementis' unexplained failure to notify Nationwide of their potential UIM claim until five months after this date was unreasonable. The court found that the language in the policy requiring that notice be provided "as soon as practicable" was not ambiguous within the context of Colorado case law. The court also recognized that the policy reason for enforcing notice requirements is to allow insurers to investigate and protect against false claims. Finally, the court rejected the Clementis' argument that Nationwide should be required to show prejudice from their late notice in order to void their UIM benefits. Citing Marez, the court noted that Colorado law appeared to require no such showing. Thus, the trial court granted Nationwide's motion for summary judgment and declared the Clementis' UIM coverage null and void.

On appeal, the court affirmed the trial court's ruling, holding that the policy's language requiring notice "as soon as practicable" was not ambiguous, and that it did not violate public policy. Clementi, 989 P.2d at 194-95. The court also agreed with the trial court's finding that the Clementis' five-month delay was unreasonable as a matter of law. Id. at 195. Finally, the court noted that although other jurisdictions have adopted a rule requiring an insurance company to show prejudice when an insured fails to give timely notice of a UIM claim, Colorado courts have refused to impose that requirement. Id. at 196.

We granted certiorari to determine whether the trial court properly granted summary judgment in favor of Nationwide on the basis that the Clementis' notice was untimely as a matter of law and on the basis that Nationwide was not required to demonstrate prejudice before it could forfeit the Clementis' UIM benefits.¹

II. ANALYSIS

This case presents an opportunity for us to address the status of the so-called notice-prejudice rule² in Colorado. Nearly twenty years ago, this court refused to adopt the notice-prejudice rule in a liability insurance case, holding that in denying benefits, an insurer is not required to demonstrate that it was prejudiced by an insured's failure to comply with a policy's notice requirements. See Marez, 638 P.2d at 291

. The court of appeals has applied our ruling in Marez to both liability and UIM cases. See Haller v. Hawkeye Security Ins. Co., 936 P.2d 601, 604 (Colo.Ct.App.1997); Emcasco Ins. Co. v. Dover, 678 P.2d 1051, 1054 (Colo.Ct.App.1983). However, this court has not previously considered whether the notice-prejudice rule applies in UIM cases. Therefore, as this is a matter of first impression, our analysis encompasses an examination of the treatment of the notice-prejudice rule in other jurisdictions, as well as a discussion of the principles and rationale underlying the rule.

A. Standard of Review

We are reviewing the trial court's grant of Nationwide's motion for summary judgment under C.R.C.P. 56. Under this rule, a motion for summary judgment should be granted only when there are no issues of material fact. C.R.C.P. 56; Bebo Constr. Co. v. Mattox & O'Brien, P.C., 990 P.2d 78, 83 (Colo.1999). Summary judgment is a drastic remedy and should be granted only if it has been clearly established that the moving party is entitled to a judgment as a matter of law. Bebo, 990 P.2d at 83; Dale v. Guar. Natl. Ins. Co., 948 P.2d 545, 553 (Colo.1997). In determining whether summary judgment is proper, the nonmoving party is entitled to any favorable inferences that may reasonably be drawn from the facts, and all doubts must be resolved against the moving party. Bebo, 990 P.2d at 83.

B. Timeliness of Notice

The Clementis' policy requires an insured to "submit written proof of the claim... as soon as practicable." R. at 68. The Clementis did not notify Nationwide of their UIM claim until seventeen months after the accident. The trial court found that at the latest, the Clementis should have provided Nationwide notice of their UIM claim five months before notice was actually given. The court found that the Clementis' unexplained delay was unreasonable as a matter of law. The Clementis argue that the trial court erred in holding that their notice was untimely because it was given seven months before their settlement with State Farm, and thus was in substantial compliance with the terms of the policy. We disagree.

A policy's requirement of notice "as soon as practicable" means that notice must be given within a reasonable length of time under the circumstances. Certified Indem. Co. v. Thun, 165 Colo. 354, 358, 439 P.2d 28, 30 (1968). An insured's failure to notify an insurer within a reasonable time constitutes a breach of contract requiring a justifiable excuse or extenuating circumstances explaining the delay. Id.

The court of appeals has held that a delay is justified when the purposes of the notice provision are met by actual notice to the insurer, whether or not made in strict compliance with the policy. Hansen v. Barmore, 779 P.2d 1360, 1362 (Colo.Ct.App.1989); see Emcasco, 678 P.2d at 1053

(concluding that where an insurer was informed of a suit filed against the insured six weeks after the claim was filed, there was substantial compliance with a policy's notice requirements). In Hansen, the court held that timely notice provided by a third party, rather than by the insured, substantially satisfied the notice requirements under the policy in question. Hansen, 779 P.2d at 1362. In Emcasco, the court held that an insured substantially complied with the notice requirements of his policy by providing prompt notice of the claim, despite not providing notice of a counterclaim by the other driver until six weeks after the counterclaim was filed, but twenty months prior to the trial date. Emcasco, 678 P.2d at 1053. Thus, in both cases where the court of appeals found substantial compliance, the insurer received prompt notice of the claims at issue. Hansen, 779 P.2d at 1364; Emcasco, 678 P.2d at 1053.

In the present case, however, the Clementis did not provide notice to Nationwide until five months after they reasonably could have known about their claim. The duty to give notice under a UIM policy arises when an insured, with reasonable diligence, can ascertain that the alleged tortfeasor is underinsured. Prudential Prop. & Cas. Ins. Co. v. LaRose, 919 P.2d 915, 918 (Colo.Ct. App.1996). Therefore, we hold that the Clementis' delayed notice did not substantially comply with the notice provisions in the UIM policy and that the trial court properly found that the notice was untimely as a...