Friedland v. Travelers Indem. Co., 03SC681.

• Decision Date: 31 January 2005
• Docket Number: No. 03SC681.,03SC681.
• Citation: 105 P.3d 639
• Parties: Petitioner: Robert M. FRIEDLAND, v. Respondent: The TRAVELERS INDEMNITY COMPANY, a Connecticut corporation.
• Court: Colorado Supreme Court

105 P.3d 639

Petitioner: Robert M. FRIEDLAND, v. Respondent: The TRAVELERS INDEMNITY COMPANY, a Connecticut corporation.

No. 03SC681.

Supreme Court of Colorado, En Banc.

January 31, 2005.

Fognani Guibord & Homsy, LLP, John D. Fognani, R. Kirk Mueller, Suzanna K. Moran, Denver, for Petitioner.

Ballard Spahr Andrews & Ingersoll, LLP, Kevin Michael Shea, Leslie A. Eaton, Jon Bernhardt, Denver, for Respondent.

Roberts Levin & Patterson, P.C., Bradley A. Levin, Laura E. Schwartz, Denver, for Amicus Curiae The Colorado Trial Lawyers Association.

White & Steele, P.C., Sandra L. Spencer, Denver, for Amicus Curiae Complex Insurance Claims, Litigation Association.

Robert W. Smith, Denver, for Amici Curiae London Market Insurers.

HOBBS, J.

We issued a writ of certiorari pursuant to C.A.R. 50 to review the trial court's grant of summary judgment for defendant, the Travelers Indemnity Company (Travelers), and to determine whether the notice-prejudice rule announced in Clementi v. Nationwide Mutual Fire Ins. Co., 16 P.3d 223 (Colo.2001) applies to liability policies.¹ Although we adopt the notice-prejudice rule for liability policies, in the case before us the insured gave notice of claim and suit to the insurer after the insured had defended and settled the case. In such a circumstance, the delay is unreasonable as a matter of law and the insurer is presumed to have been prejudiced by the delay. However, the insured must have an opportunity to rebut the presumption of prejudice; thus, we reverse the trial court's grant of summary judgment in favor of the insurer here and remand the case for further proceedings consistent with this opinion.

I.

In the trial court, Plaintiff Robert M. Friedland, sought compensation from defendant, Travelers, for the defense and indemnification costs he incurred in connection with an environmental lawsuit brought against him by the United States and the State of Colorado under the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. sections 9604 and 9606 (CERCLA). That suit arose out of pollution caused by a mining operation in Conejos County, Colorado.

Summitville Consolidated Mining Company, Inc. (SCMCI) operated a gold mine and cyanide heap leach facility in the San Juan Mountains south of Del Norte. In April of 1984, Friedland became an officer and director of SCMCI. He resigned this position in January of 1987.

In December, 1992, SCMCI declared bankruptcy. That same month, the Environmental Protection Agency took over management of the site, seized the corporate documents and records located there, and began response actions pursuant to CERCLA, to protect against further environmental degradation.

In May, 1996, the United States and the State of Colorado filed suit against Friedland and other parties seeking recovery under CERCLA of response, investigation, remediation and other costs incurred at the site. See United States v. Friedland, 173 F.Supp.2d 1077 (D.Colo.2001)

. Friedland defended the lawsuit. After approximately four years of litigation, he settled the claims against him by paying twenty million dollars to the United States and the State of Colorado.

During its viability, SCMCI had obtained comprehensive general liability insurance policies from Travelers. These policies were marked on their face "Comprehensive General Liability Form." They provided coverage for bodily injury, property damage, and medical payments to third parties resulting from accidents or occurrences for which the insured was legally obligated. These were not policies specifically negotiated and designed by the parties to address particular circumstances such as CERCLA liability.

Friedland contends that these policies provide him coverage as an additional insured for defense costs and liability payments in connection with the CERCLA case. He also asserts that he had no specific knowledge of this coverage until after he had defended and settled the CERCLA action against him. The trial court did not actually decide whether the policies provided coverage for the environmental contamination costs and damages caused by the Summitville operation. Instead, in dismissing Friedland's claims against Travelers, the trial court found that Friedland did not provide notice of the CERCLA lawsuit to Travelers until more than six years after that action had been filed and approximately six months after he had incurred attorneys' fees in defense of those claims and settled the CERCLA action against him.

Friedland brought suit against Travelers for the defense costs and liability payments allegedly owed under the policy as reimbursement of his expenses incurred in defending and settling the CERCLA suit. He asserted claims for declaratory judgment, anticipatory breach of contract, and breach of contract, based on two insurance policies Travelers issued to SCMCI in 1984 and 1985 that included him as an additional insured person.

Travelers filed a motion for summary judgment, alleging under the terms of the policies, that (1) Friedland's failure to provide notice of claim and notice of suit until after the settlement precluded his recovery under the policies, (2) recovery of amounts Friedland paid in settlement were barred by the "no voluntary payment" provisions of the policies, and (3) under the applicable law, Friedland could not recover for pre-notice defense costs.

The applicable provisions of the liability policies state as follows:

INSURED'S DUTIES IN THE EVENT OF OCCURRENCE, CLAIM OR SUIT

1. In the event of an occurrence, written notice containing particulars sufficient to identify the Insured and also reasonably obtainable information with respect to the time, place and circumstances of the occurrence, and the names and addresses of the injured and of available witnesses, shall be given by or for the Insured to the Company or any of its authorized agents as soon as practicable.

2. If claim is made or suit is brought against the Insured, the Insured shall immediately forward to the Company every demand, notice, summons or other process received by the Insured or the Insured's representative.

3. The Insured shall cooperate with the Company and, upon the Company's request, assist in making settlements, in the conduct of suits and in enforcing any right of contribution or indemnity against any person or organization who may be liable to the Insured because of injury or damage with respect to which insurance is afforded under this Section; and the Insured shall attend hearings and trials and assist in securing and giving evidence and obtain the attendance of witnesses. The Insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for first aid to others at the time of the accident.

(emphasis in original).

Applying our decision in Marez v. Dairyland Ins. Co., 638 P.2d 286 (Colo.1981), the trial court granted summary judgment in favor of Travelers. It determined that Friedland's claims against Travelers were not recoverable because of the insured's material breach of the policies' notice provisions. The trial court did not consider whether Travelers had been prejudiced by Friedland's failure to give timely notice.

Having disposed of the case on summary judgment because of unreasonably late notice, the trial court did not address the other issues Travelers raised in its summary judgment motion.

II.

In this case, we apply the notice-prejudice rule to liability policies. In doing so, we overrule Marez to the extent it applies to late-notice liability cases. However, in the case before us, Friedland gave notice of claim and suit only after he defended and settled the case. In such a circumstance, we conclude that the delay is unreasonable as a matter of law and the insurer is presumed to have been prejudiced by the delay. However, the insured must have an opportunity to rebut the presumption of prejudice; thus, we reverse the trial court's grant of summary judgment in favor of the insurer here.

A. Standard of Review

We review de novo the trial court's grant of summary judgment under C.R.C.P. 56. BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 71 (Colo.2004). A motion for summary judgment should be granted only when there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. C.R.C.P. 56; Clementi, 16 P.3d at 225. 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 Constr. Co. v. Mattox & O'Brien, P.C., 990 P.2d 78, 83 (Colo.1999).

B. Notice-Prejudice Rule

Most insurance policies require the insured to provide the insurer with prompt notice of a claim at or about the time that the claim arises or becomes known to the insured, or within a reasonable period of time thereafter. Further, most policies require the insured to notify the insurer promptly when the insured is served process in a legal proceeding. Most policies also contain a requirement for the insured to cooperate reasonably with the insurer in the investigation and defense of the claim. See David P. Hersh, The Requirement for a Showing of Prejudice in Cases of Late Notice of Claim, 30 Colo. Law. 83, 83 (May 2001).

When late notice occurred, our jurisprudence under Marez and similar cases traditionally enforced the standard notice of claim or suit provision by discharging the insurer's obligation to defend against the suit and pay any judgments covered under the policy. By the time of our Clementi decision, an ever-growing majority of jurisdictions had adopted the notice-prejudice rule, whereby late notice does not result in loss of coverage benefits unless the insurer proves prejudice to its interests by a preponderance of the evidence. See 13 Lee R. Russ & Thomas F. Segalla, Couch on Insurance, §...