Gregory v. Safeco Ins. Co. of Am.

• Citation: 514 P.3d 971,2022 COA 45
• Decision Date: 21 April 2022
• Docket Number: Court of Appeals No. 20CA1694
• Parties: Karyn GREGORY, Plaintiff-Appellant, v. SAFECO INSURANCE COMPANY OF AMERICA, Defendant-Appellee.
• Court: Court of Appeals of Colorado

514 P.3d 971

2022 COA 45

Karyn GREGORY, Plaintiff-Appellant,

v.SAFECO INSURANCE COMPANY OF AMERICA, Defendant-Appellee.

Court of Appeals No. 20CA1694

Colorado Court of Appeals, Division II.

Announced April 21, 2022

Roth Milne, David Roth, Jennifer A. Milne, Denver, Colorado, for Plaintiff-Appellant

Lewis Roca Rothgerber Christie LLP, Brian J. Spano, Holly C. White, Aurora Temple Barnes, Denver, Colorado, for Defendant-Appellee

MoGo LLC, Rodney J. Monheit, Katherine E. Goodrich, Denver, Colorado, for Amicus Curiae Colorado Trial Lawyers Association

Waltz Reeves, Christopher R. Reeves, Denver, Colorado, for Amicus Curiae Colorado Defense Lawyers Association

Opinion by JUDGE KUHN

¶ 1 In this late-notice insurance coverage dispute, Karyn Gregory brought suit against her insurer, Safeco Insurance Company of America, after Safeco denied her first-party insurance claim for property damage as untimely under her homeowners’ insurance policy. Gregory appeals the district court's grant of summary judgment to Safeco rejecting the applicability of Colorado's notice-prejudice rule to policies like hers.

¶ 2 Our appellate courts have not yet considered this issue, and there appears to be uncertainty surrounding it in federal courts applying Colorado law. Gregory asks us to resolve this uncertainty. We conclude that only the supreme court may decide whether to replace the traditional rule with the notice-prejudice rule for first-party claims under homeowners’ insurance policies. We therefore affirm the judgment of dismissal, but we note that this case may present an opportunity for our supreme court to provide clarity on this question.

I. Background

¶ 3 The facts of this case are undisputed. Gregory procured a homeowners’ insurance policy (the Policy) from Safeco that covered specified direct physical damage to her home that "occurs during the policy period." The Policy ran from February 15, 2017, to February 15, 2018, and in May 2017, a hailstorm damaged Gregory's roof—a type of loss covered under the Policy.

¶ 4 But Gregory did not notify Safeco or file a claim for the loss until roughly eighteen months later, shortly after a contractor informed her of the hail damage. Safeco did not initially investigate the damage to Gregory's home, but its initial review determined that the May 2017 hailstorm was the most recent one to occur near Gregory's property.¹ Based on this determination, Safeco summarily denied her claim as untimely, citing the eighteen-month delay and a notice provision in the Policy specific to hail damage:

In case of a loss to which this insurance may apply, you must perform the following duties:

...

give immediate notice to us or our agent. With respect to loss caused by the peril of ... Hail, the notice must be within 365 days after the date of the loss ....

Under the same section, the Policy provides that "[n]o action shall be brought against [Safeco] unless there has been compliance with the policy provisions ...." And at the very beginning of the Policy, it states that Safeco "will pay claims and provide coverage as described in this policy if [Gregory] ... compl[ies] with all the applicable provisions outlined in this policy."

¶ 5 More than two years after Safeco denied her claim, Gregory filed suit, claiming that Safeco's denial was a breach of contract and a bad-faith breach of an insurance policy, and that Safeco unreasonably delayed and denied payment of her claim under sections 10-3-1115 and - 1116, C.R.S. 2021.

¶ 6 Safeco filed a motion for summary judgment under C.R.C.P. 56(b), and Gregory responded with a motion for determination of a question of law under C.R.C.P. 56(h). Both motions addressed the same two issues Gregory appeals here:

(1) whether Colorado's notice-prejudice rule applies, which would require Safeco to demonstrate it was prejudiced by Gregory's late notice before denying her benefits for an untimely claim; and

(2) whether the Policy's 365-day notice provision is invalid under section 10-4-110.8(12)(a), C.R.S. 2021, which limits insurers’ ability to contractually shorten the applicable statute of limitations for insureds to file suits like Gregory's against them.

¶ 7 The district court ruled in favor of Safeco. It concluded that the 365-day notice requirement did not contravene the statute-of-limitations provision, that Gregory's claim was untimely under the plain terms of the Policy, that her delay was unexcused as a matter of law, and that Safeco was therefore relieved of its obligation to provide coverage benefits for her claim.

¶ 8 In so concluding, the court reasoned that the supreme court has not extended Colorado's notice-prejudice rule to first-party claims under homeowners’ insurance policies like Gregory's, and, in this absence, the supreme court's precedent regarding the "traditional approach" required the court to strictly apply Gregory's failure to abide by the Policy's notice provision against her. The court thus determined it did not need to reach the question of whether Safeco was prejudiced by Gregory's late notice.

II. Analysis

¶ 9 We review the court's order granting summary judgment de novo. MarkWest Energy Partners, L.P. v. Zurich Am. Ins. Co. , 2016 COA 110, ¶ 11, 411 P.3d 1080. Summary judgment is proper if there is no genuine issue as to any material fact and Safeco is entitled to judgment as a matter of law. Id.

¶ 10 We agree with the district court on both issues and therefore conclude that the court properly granted summary judgment to Safeco.

A. Notice-Prejudice Rule

¶ 11 Gregory does not contend that the terms of the Policy do anything other than unambiguously bar coverage benefits for a hail-damage claim unless she provides notice to Safeco within 365 days of her loss. Travelers Prop. Cas. Co. v. Stresscon Corp. , 2016 CO 22M, ¶ 12, 370 P.3d 140 ("[A]n insurance policy is a contract, the unambiguous terms of which must be enforced as written ...."). Nor does she contend that her delay in giving notice of her claim was justified. E.g. , Clementi v. Nationwide Mut. Fire Ins. Co. , 16 P.3d 223, 226–27 (Colo. 2001) (recognizing that, in certain circumstances, an insured may be excused for untimely notice if their delay in giving notice was justified).

¶ 12 Instead, Gregory argues the district court erred by not applying Colorado's notice-prejudice rule to the notice-of-loss provision in her homeowners’ insurance policy. This rule "allow[s] insureds to avoid strict enforcement of a notice provision for public policy reasons." Craft v. Phila. Indem. Ins. Co. , 2015 CO 11, ¶ 34, 343 P.3d 951. Under it, "an insured who gives late notice of a claim to his or her insurer does not lose coverage benefits unless the insurer proves by a preponderance of the evidence that the late notice prejudiced its interests." Id. at ¶ 2. If the insurer cannot show prejudice, the insured is "excuse[d] ... from fulfilling a straightforward contractual condition—the notice requirement." Id. at ¶ 39.

¶ 13 The supreme court has applied the notice-prejudice rule to notice provisions in underinsured motorist (UIM) and comprehensive general liability insurance policies. Clementi , 16 P.3d at 224 (UIM policy) ; Friedland v. Travelers Indem. Co. , 105 P.3d 639, 641–42 (Colo. 2005) (liability policy). Gregory acknowledges that no Colorado court has explicitly applied this rule to homeowners’ policies like hers. Nonetheless, she argues that—regardless of the type of insurance policy involved—supreme court precedent allows us to extend this rule to new types of coverage if we are satisfied by the public policy considerations enumerated in Clementi .

¶ 14 We disagree. We note the supreme court's acknowledgement of the "modern trend" to extend the notice-prejudice rule to late-notice cases, Clementi , 16 P.3d at 229–30, but the court has been careful in applying and extending the rule—and indeed in the associated weighing of public policy considerations. In our view, applying the notice-prejudice rule to an entirely new class of insurance policies would still require departure from our supreme court's precedent, an undertaking exclusively reserved to that court. See People v. Novotny , 2014 CO 18, ¶ 26, 320 P.3d 1194. For this reason, we conclude the district court properly applied Colorado's traditional approach to Gregory's late-filed insurance claim.

1. The Backdrop: Colorado's Traditional Approach

¶ 15 Traditionally, Colorado courts did not consider insurer prejudice in late-notice cases, no matter the type of insurance policy involved. See Clementi , 16 P.3d at 226. Rather, Colorado law has held that "an unexcused delay in giving notice relieves the insurer of its obligations under an insurance policy, regardless of whether the insurer was prejudiced by the delay." Id. at 227. This traditional approach is "grounded upon a strict contractual interpretation of insurance policies under which delayed notice was viewed as constituting a breach of contract, making the issue of insurer prejudice immaterial." Id. at 226.

¶ 16 Yet, the traditional approach did not leave an insured without recourse in all circumstances when their insurer denied a late claim as untimely. Rather, Colorado law held that an insured could be excused for a delay in providing notice if the insured demonstrated "justifiable excuse or extenuating circumstances explaining the delay." E.g. , Certified Indem. Co. v. Thun , 165 Colo. 354, 360, 439 P.2d 28, 30 (1968).

¶ 17 Colorado adhered to the traditional approach for nearly a century following the supreme court's landmark 1909 case, Barclay v. London Guarantee & Accident Co. , 46 Colo. 558, 105 P. 865 (1909). Marez v. Dairyland Ins. Co. , 638 P.2d 286, 288–89 (Colo. 1981) (collecting cases and tracing the traditional approach to Barclay ), overruled in part by Friedland , 105 P.3d 639. Indeed, since Barclay , Colorado courts have applied the traditional approach to notice provisions for first-party claims under insurance policies covering property and other personal loss. See Capitol Fixture &...