Chapter 3 - § 3.13 • INSURED'S DUTIES — COMPLIANCE WITH POLICY NOTICE REQUIREMENTS

• Jurisdiction: Colorado

§ 3.13 • INSURED'S DUTIES — COMPLIANCE WITH POLICY NOTICE REQUIREMENTS

The traditional rule in Colorado, as discussed in § 3.13.1, was that an insured's unexcused failure to comply with policy notice provisions would relieve the insurer of its obligation to provide liability coverage. However, in Clementi v. Nationwide Mutual Fire Insurance Co., 16 P.3d 223 (Colo. 2001), which is discussed in § 2.13.2b, the supreme court rejected the traditional rule and adopted a "notice-prejudice" rule in the context of UM/UIM cases. The court's ruling in Clementi called into question the continued viability of Marez v. Dairyland Ins. Co., 638 P.2d 286 (Colo. 1982). In Friedland v. Travelers Indemnity Co., 105 P.3d 639 (Colo. 2005), which is examined in § 3.13.2, the court abandoned the traditional rule and adopted the notice-prejudice rule in the context of liability insurance contracts. Although Friedland was not a dispute over motor vehicle insurance, its holding clearly applies to motor vehicle liability insurance, as well as other forms of liability insurance.

§ 3.13.1—Traditional Rule — Insurer Did Not Have to Show Prejudice to Deny Coverage Based upon Insured's Unexcused Failure to Provide Notice

a—Insured's unexcused delay in giving notice of accident or in forwarding suit papers relieves liability insurer of its duties under policy, regardless of whether insurer suffers prejudice

Where insureds failed to notify insurer of accident and failed to forward suit papers to insurer, and insurer only became aware of accident and filing of suit more than two and a half years after the accident, and insurer's policy required insured to provide written notice of suit "as soon as practicable" after an accident, insureds' unexcused failure to comply with policy notice provisions relieved insurer of its obligation to provide liability coverage under the policy, and insurer was not required to show prejudice to deny claim. Marez v. Dairyland Insurance Co., 638 P.2d 286 (Colo. 1982), overruled by Friedland v. Travelers Indemnity Co., 105 P.3d 639, 645 (Colo. 2005).

Marez v. Dairyland Insurance Co., 638 P.2d 286 (Colo. 1982), overruled by Friedland v. Travelers Indemnity Co., 105 P.3d 639, 645 (Colo. 2005), was an insurance coverage dispute that arose out of an automobile accident that occurred on September 18, 1973. James Marez was seriously injured when his bicycle was struck by a car driven by Bernadette Valdez, and owned by her mother, Julia Valdez Montoya. The car was insured by Dairyland Insurance Company under a policy that required an insured to provide the company with written notice of an accident "'as soon as practicable.'" Id. at 287. The policy also required an insured to deliver any suit papers to Dairyland immediately upon service. Id. In addition, the policy stated that no action would lie against the company unless, as a condition precedent, there had been full compliance with all the terms and conditions of the policy. Id. at 287-88. Valdez and Montoya failed to provide Dairyland with any notice of the accident and also failed to forward Dairyland the suit papers, which were served upon them on April 30, 1976. Dairyland only learned of the accident and of the filing of suit by chance on June 29, 1976, when these events came to the attention of an adjuster who was working on an unrelated matter. Dairyland then forwarded a reservation of rights letter to the insureds and initiated a declaratory judgment action, seeking a determination that no coverage existed under the policy. The trial court held that the insureds' failure to comply with the policy notice requirements relieved Dairyland of any duty to defend or indemnify them under the policy. In Dairyland Insurance Co. v. Marez, 601 P.2d 353 (Colo. App. 1979), the court of appeals affirmed the trial court's judgment. The supreme court, in turn, affirmed the decision of the court of appeals.

In its opinion, the supreme court first noted that it was adhering "to the fundamental concept enunciated in the landmark case of Barclay v. London Co., 46 Colo. 558, 105 P.2d 865 (1909), that the rights and duties flowing from an accident insurance policy are contractual in nature and are measured by the terms and conditions of the insurance contract to which the parties thereto have agreed." 638 P.2d at 288-89. The court pointed out that in Barclay it had characterized notice provisions in an insurance contract "as conditions precedent, compliance with which was mandatory, absent a legal excuse for failure to comply." Id. at 289. Colorado courts have followed the principles of Barclay "throughout the years without fundamental change." Id.

The court emphasized "that in the present case Valdez and Montoya, without justifiable excuse or extenuating circumstances, totally failed to give notice of any kind whatsoever to Dairyland, and that it was only by chance that Dairyland learned of the accident and lawsuit two and one-half years after the accident." Id. Adhering to the rule of Barclay and other cases, the court held that "the failure of Valdez and Montoya to comply with the notice of accident and suit conditions, as a matter of law, constituted a material breach of the contract of insurance, relieving Dairyland of its duty to defend the insureds and to indemnify them with respect to any judgment holding them liable for the injuries to Marez." Id.

In the trial court, Valdez and Montoya had tried to present evidence that Dairyland had not been prejudiced by their...