{"id":196,"date":"2016-04-28T18:52:33","date_gmt":"2016-04-28T22:52:33","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/insurancelaw\/?p=196"},"modified":"2016-04-28T18:52:33","modified_gmt":"2016-04-28T22:52:33","slug":"colorado-supreme-court-holds-that-insurer-need-not-prove-prejudice-to-enforce-no-voluntary-payments-clause","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/insurancelaw\/2016\/04\/28\/colorado-supreme-court-holds-that-insurer-need-not-prove-prejudice-to-enforce-no-voluntary-payments-clause\/","title":{"rendered":"Colorado Supreme Court Holds That Insurer Need Not Prove Prejudice to Enforce \u201cNo-Voluntary-Payments\u201d Clause"},"content":{"rendered":"

In a 4-3 decision in Travelers Property Casualty Co. of America v. Stresscon Corp.<\/em>, 2016 CO 22 (Case Number 2013SC815), issued April 25, 2016, the Colorado Supreme Court held that an insurer seeking to deny coverage to its insured for a breach of the no-voluntary-payments provision does not need to prove prejudice, as it would under the rule applicable to the notice provision of an occurrence-based insurance policy.\u00a0 The Colorado Supreme Court reversed the intermediate appellate court, which had held that the high court\u2019s decision in Friedland v. Travelers Indemnity Co.<\/em>, 105 P.3d 639 (Colo. 2005) compelled the result that prejudice was a requirement to deny coverage for a voluntary payment made without insurer consent.<\/p>\n

To understand the Court\u2019s decision in Stresscon<\/em> and how the intermediate court came to the wrong conclusion, it is helpful to understand Friedland<\/em>.\u00a0 In that case, Friedland (the insured) defended a CERCLA case against him and settled after four years of litigation for $20 million.\u00a0 Friedland<\/em>, 105 P.3d at 641-642.\u00a0 Friedland provided first notice to the insurer (Travelers) six months after the case concluded, seeking defense costs and indemnity.\u00a0 Id.<\/em> at 642.\u00a0 Travelers filed a motion for summary judgment on several bases, including late notice and the \u201cno voluntary payment\u201d provision.\u00a0 Id.<\/em>\u00a0 The trial court granted Travelers summary judgment based on late notice and did not address the other issues.\u00a0 Id.<\/em> at 643.\u00a0 In a direct appeal to that court, the Colorado Supreme Court reversed the trial court\u2019s decision.\u00a0 The Court first adopted the notice-prejudice rule for liability policies that had been previously adopted in the uninsured motorist context in Clementi v. Nationwide Mutual Fire Ins. Co.<\/em>, 16 P.3d 223 (Colo. 2001).\u00a0 Id.<\/em> at 645.\u00a0 The Court stated that the insurer must demonstrate that its \u201csignificant interests\u201d had been prejudiced in order to deny coverage based on late notice.\u00a0 Id. <\/em>at 643-644.<\/p>\n

The Friedland<\/em> court then held that in the situation where notice to the insurer is provided after<\/em> the insured has defended and settled the case, \u201cthe delay is unreasonable as a matter of law and the insurer is presumed to have been prejudiced by the delay.\u00a0 However, the insured must have an opportunity to rebut the presumption of prejudice.\u201d\u00a0 Id.<\/em> at 641.\u00a0 Specifically, \u201cthe insured, despite having made a unilateral settlement without notice to the insurer, must have an opportunity to rebut this presumption of prejudice based on the specific facts of the case, before a trial court may bar the insured from receiving coverage benefits.\u201d\u00a0 Id.<\/em> at 648.\u00a0 \u201cIf Friedland successfully rebuts the presumption of prejudice, Travelers must show by a preponderance of the evidence that it suffered actual prejudice from the delayed notices of claim and suit in order to be excused from paying policy benefits.\u201d\u00a0 Id.<\/em> at 649.\u00a0 The Court concluded by stating: \u201cWhat form the proceedings on remand shall take regarding in the issues of prejudice, Friedland’s unilateral settlement, and the policy coverage, we leave to the trial court’s further determination\u201d and noted that it was not addressing the other issues raised by Travelers in its summary judgment motion because the trial court had not addressed them.\u00a0 Id.<\/em> at 649.<\/p>\n

In Stresscon<\/em>, the insured sought indemnification from Travelers for a July 2007 construction accident.\u00a0 Stresscon<\/em>, 2016 CO 22, at \u00b6 3.\u00a0 Travelers was apparently notified and involved in the claim, but on December 31, 2008, \u201cdespite Mortenson\u2019s [the claimant\u2019s] failure to bring a lawsuit or seek arbitration against Stresscon, Mortenson and Stresscon entered into a settlement agreement without consulting Travelers.\u201d\u00a0 Id.<\/em> at \u00b6 4.\u00a0 In March 2009, Stresscon filed suit against Travelers and others.\u00a0 Id.<\/em>\u00a0 Travelers moved for summary judgment based on Stresscon\u2019s settlement without Travelers\u2019 consent, under the no-voluntary-payments provision of the policy, which stated: \u201cNo insured will, except at that insured\u2019s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.\u201d\u00a0 Id.<\/em> at \u00b6 5.\u00a0 The trial court denied Travelers\u2019 motion, finding that Friedland<\/em> required the insurer to show prejudice, which involved disputed issues of fact.\u00a0 Id.<\/em>\u00a0 Stresscon ultimately obtained a verdict against Travelers for bad faith breach of the insurance contract and an award of the statutory amount, costs, and attorneys\u2019 fees, and the trial court denied Travelers\u2019 request for a directed verdict.\u00a0 Id.<\/em> at \u00b6\u00b6 1, 4.\u00a0 The Court of Appeals affirmed, relying on Friedland<\/em>.\u00a0 Id.<\/em> at \u00b6 6.<\/p>\n

The Colorado Supreme Court reversed the Court of Appeals\u2019 decision.\u00a0 It held that an insurer can enforce the no-voluntary-payments provision of its policy without a showing of prejudice.\u00a0 Id.<\/em> at \u00b6 2.\u00a0 The Court specifically stated that Friedland<\/em> \u201cdid not . . . also implicitly extend our newly minted notice-prejudice rule to no-voluntary-payments or consent-to-settle provisions, as the court of appeals believed.\u201d\u00a0 Id.<\/em> at \u00b6 9.\u00a0 The Court noted that, in Friedland<\/em>, it had declined to decide issues that had not been addressed in the trial court, including the no-voluntary-payments issue.\u00a0 Id.<\/em>\u00a0 It clarified that Friedland<\/em> was limited to \u201cextending the notice-prejudice rule announced in Clementi<\/em> to liability policies . . . and tailoring the prejudice determination to the situation in which notice of a claim was given only after settlement.\u201d\u00a0 Id.<\/em><\/p>\n

In Craft v. Philadelphia Indem. Ins. Co.<\/em>, 343 P.3d 951 (Colo. 2015), decided by the Colorado Supreme Court last year, the court distinguished Clementi<\/em> and Friedland<\/em> in holding that the notice-prejudice rule does not apply to the requirement in a claims-made policy that the claim be reported during the policy period (or within a designated time period after).\u00a0 In Stresscon<\/em>, the Court stated that: \u201cMuch of that discussion also explains why we similarly decline to judicially impose a prejudice requirement upon the enforcement of the no-voluntary payments clause of the policy in this case.\u201d\u00a0 Id.<\/em> at \u00b6 11.\u00a0 The Court in Stresscon<\/em> noted that, like the reporting requirement in a claims-made policy, the no-voluntary-payments provision \u201cfar from amounting to a mere technicality imposed upon an insured in an adhesion contract, was a fundamental term defining the limits or extent of coverage.\u201d\u00a0 Id.<\/em> at \u00b6 13.\u00a0 The Court further stated that the no-voluntary-payments provision \u201cactually goes to the scope of the policy\u2019s coverage\u201d and \u201cmakes clear that coverage under the policy does not extend to indemnification for such payments or expenses in the first place.\u201d\u00a0 Id.<\/em> at \u00b6 14.\u00a0 The Court distinguished enforcement of this provision from enforcement of the notice provision, which it has said would be \u201creap[ing] a windfall by invoking a technicality to deny coverage.\u201d\u00a0 Id.<\/em> at \u00b6 15 (citing Friedland<\/em> and Clementi<\/em>).<\/p>\n

The Colorado Supreme Court remanded the case with directions that the jury verdict be vacated and that a verdict be entered in Travelers\u2019 favor.\u00a0 Id.<\/em> at \u00b6 23.<\/p>\n

By holding that an insurer need not demonstrate prejudice to enforce a no-voluntary-payments provision, Colorado joins the majority of jurisdictions that have so found.<\/p>\n","protected":false},"excerpt":{"rendered":"

In a 4-3 decision in Travelers Property Casualty Co. of America v. Stresscon Corp., 2016 CO 22 (Case Number 2013SC815), issued April 25, 2016, the Colorado Supreme Court held that an insurer seeking to deny coverage to its insured for a breach of the no-voluntary-payments provision does not need to prove prejudice, as it would … <\/p>\n

Continue reading “Colorado Supreme Court Holds That Insurer Need Not Prove Prejudice to Enforce \u201cNo-Voluntary-Payments\u201d Clause”<\/span><\/a><\/p>\n","protected":false},"author":193,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[320,315,321,319,178,317,176,316,318],"ppma_author":[423],"class_list":["post-196","post","type-post","status-publish","format-standard","hentry","category-general","tag-clementi","tag-colorado","tag-craft","tag-friedland","tag-jessica-la-londe","tag-no-voluntary-payments","tag-notice-prejudice","tag-prejudice","tag-stresscon"],"authors":[{"term_id":423,"user_id":193,"is_guest":0,"slug":"jelalonde","display_name":"Jessica E. La Londe","avatar_url":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-content\/uploads\/sites\/12\/2024\/12\/lalondejessica-1-100x100.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/196","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/users\/193"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/comments?post=196"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/196\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/media?parent=196"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/categories?post=196"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/tags?post=196"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/ppma_author?post=196"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}