Wisconsin And Colorado Supreme Courts Separately Hold Notice-Prejudice Rules Not Applicable to Claims-Made Coverage

The Wisconsin Supreme Court, applying Wisconsin law, held that the state’s notice-prejudice statutes do not supersede the reporting requirement for claims-made policies. In making its ruling, the court reasoned that “[r]equiring an insurance company to cover a claim reported after the end of a claims-made-and-reported policy period would mean expanding the policy’s initial grant of coverage.”

The question before the Wisconsin Supreme Court was whether the notice-prejudice statutes supersede the policy requirement that claims be reported during the policy period.  The insurance policy stated: “This policy is limited to liability for only those claims that are first made against the insured and reported to the Company during the policy period.” Wisconsin’s notice-prejudice statutes provide that an insured’s failure to provide timely notice of a claim as required by the terms of a liability policy will not bar coverage unless timely notice was “reasonably possible” and the insurance company was “prejudiced” by the delay. The parties did not dispute that the claim at issue was first made during the policy period, that the insured did not report the claim during the policy period, and that reporting the claim during the policy period was reasonably possible. In ruling that the prejudice-notice statutes did not supersede the policy requirement, the court examined the nature and history of claims-made-and-reported policies and then interpreted the prejudice-notice statutes – specifically, the intent of the legislature. Because it held that the prejudice-notice statutes did not apply, the court was not required to determine whether late notice in the case was prejudicial. However, the court did note that “requiring an insurance company to provide coverage for a claim reported after the end of a claims-made-and-reported policy period is per se prejudicial to the insurance company because it expands the grant of coverage provided by the insurance company.” Anderson v. Aul, No. 2013AP500 (Wis. Feb. 25, 2015).

In a similar case, the Colorado Supreme Court, applying Colorado law, answered a certified question from the Tenth Circuit and held that the notice-prejudice rule does not apply to time-specific notice requirements in claims-made insurance policies. “To apply the notice-prejudice rule to excuse an insured’s noncompliance with a date-certain notice requirement essentially rewrites the insurance contract and effectively creates coverage where none previously existed.”

Like the issue before the Wisconsin Supreme Court, the issue before the Colorado Supreme Court was whether Colorado’s notice-prejudice rule applied to a date-certain notice requirement in a claims-made insurance policy. Under Colorado law, under “the notice-prejudice rule, an insured who gives late notice of a claim to its insurer does not lose coverage benefits unless the insurer proves by a preponderance of the evidence that the late notice prejudiced its interests.” The policy at issue before the court required the insured to give prompt notice of a claim and required the insured to give notice of the claim by a date-certain, specifically, “not later than 60 days” after the expiration of the policy. The Colorado court, like the court in Wisconsin, ruled that that the notice-prejudice rule does not apply to a date-certain notice requirement because that date-certain notice requirement defines the scope of coverage and, thus, to excuse the late notice would rewrite a fundamental term of the insurance contract.  Similar to the analysis in Wisconsin, the Colorado court examined the development and history of Colorado’s notice-prejudice rule and the differences between occurrence and claims-made liability insurance policies. The court found that none of the public policy concerns that led the court to apply the notice-prejudice rule to occurrence based policies supported the application of the rule to date-certain notice requirements of claims-made policies. The court concluded that applying a prejudice requirement in the context of date-certain notice requirements “would defeat the fundamental concept on which coverage is premised.” Craft v. Philadelphia Indem. Ins. Co., No. 14SA43 (Colo. Feb. 17, 2015)