The Colorado Supreme Court lately adopted the discover prejudice rule1 as famous in Colorado Supreme Court: Late Notice, No Prejudice, No Problem:
The notice-prejudice rule, nevertheless, requires the insurer to reveal that the delay in notification materially prejudiced its place earlier than it will possibly deny protection based mostly on a late discover. Essentially, this rule shifts the main focus from strict adherence to contractual deadlines to a extra equitable consideration of whether or not the insurer was truly harmed by the late discover. The notice-prejudice rule beforehand utilized solely to uninsured/underinsured motorist and third-party legal responsibility insurance policies in Colorado.
Following a LinkedIn remark by insurance coverage protection legal professional Steve Badger criticizing the choice, I wrote a response in The Doom and Gloom Assumes a Costume of Plume—The Insurance Industry Needs to Stop Being So Negative and Watch Out for Its Customers. At the tip of that submit, I famous:
There is one other facet of the case that may result in wrongful gamesmanship, which I’ll describe in an upcoming submit.
It is vital for everyone to know what the insurance coverage business and Steve Badger complain about regarding late discover of claims. Steve Badger contends {that a} late discover of declare ought to end in denial fairly than fee as a result of he believes that the follow of submitting claims lengthy after an occasion, reminiscent of a hurricane or hailstorm, results in gamesmanship within the claims course of, which is usually attributable to roofers and AOB attorneys. The insurance coverage business’s place is {that a} late discover of injury inherently makes it harder for insurers to analyze and precisely assess the injury. Accordingly, the “duty after loss” to carry out the speedy discover of loss is materials and important from the insurer’s view.
The business view is that the delay may be exploited by contractors to inflate the price of repairs, and make claims for losses that aren’t attributable to the occasion claimed, which inherently will increase adjustment and claims bills simply to analyze claims not discovered worthy of fee and drives up premiums to pay for elevated severity and frequency of claims in comparison with historic severity and frequency actuarial outcomes. Since I’ve spent fairly a little bit of time with Steve Badger discussing and debating these points, I consider his place is probably going fashioned by his broader issues concerning the integrity of the insurance coverage claims course of. Unlike my follow, the place I see insurance coverage firm claims abuses, insurance coverage protection attorneys work on claims despatched to them by insurers that they consider are merely undeserving. Badger actually exhibits examples of those in his public feedback.
My view is {that a} policyholder who makes a declare late ought to be capable of acquire if the late discover has not prejudiced the insurance coverage firm. My weblog submit supplied an instance, which I consider occurs on a regular basis as a result of we’ve got represented quite a few policyholders in the same situation. However, the late discover rule within the trendy claims period can result in a possible draw back that promotes gamesmanship.
The gamesmanship is way simpler to perform in states which have a protracted statute of limitations and disallow a shortened statute of limitations. Florida is a superb instance of such a state. The consequence has led to statutory reforms disastrous for policyholders in response to perceived and precise situations of claims gamesmanship methods.
In Florida, the insurance coverage business supplied quite a few examples of contractors offering incentives to policyholders to entice the investigation of a attainable declare to roofs the place the storm occurred years earlier than. Sales groups of roofers have been skilled on methods to method policyholders to make such claims and promising one thing too good to be true—“You have nothing to lose, let us make the claim for you with an AOB, and let’s see if the insurer will pay for the replacement of your roof. We will even find and hire attorneys to help out at no cost to you.”
This situation with AOB attorneys, together with extraordinary gross sales techniques by some within the development restoration business and a five-year statute of limitations, killed the Florida insurance coverage market. Insurance firm claims managers have been besieged with an historic rise within the frequency of late reported property claims. They made new claims processes, which have been way more troublesome for all claimants. Good or unhealthy claims have been caught on this new situation of claims processing. Claims funds have been way more troublesome, and property insurance coverage litigation elevated. I may write a ebook on the Florida instance of gamesmanship.
Unless you reside beneath a rock within the property insurance coverage area, the Florida situation is thought to many. It is what Badger and the insurance coverage business concern. That was a part of why I wrote the submit concerning the business overreacting to a rule of regulation that appears very equitable to many. Indeed, the unfairness rule is frequent in most states and has labored with little gamesmanship ever occurring.
I usually remind many within the insurance coverage business that they’ve this tendency to overreact to 1 case or occasion of fraud. They complain about an occasion of fraud as whether it is regular for everyone to be doing it, and make up statistics that aren’t supported. They appear to be in a jihad towards the individuals buying the insurance coverage product as quickly as they’ve a loss. I said this in Badger Traps and How Contractors Can Avoid Being Accused of Insurance Fraud:
One of the exceptional features of property insurance coverage declare dealing with is how usually some insurance coverage corporations get right into a ‘holy war’ about insurance coverage fraud. Both Steve Patrick and Steve Badger will inform anyone that’s listening that neither promotes fraud by the insurance coverage firm, the policyholder, the contractor or the general public adjuster. Indeed, every says fraud needs to be known as out regardless of who’s doing it. I’ve actually heard them say the identical factor about fraud in numerous speeches, in numerous elements of the nation.
The backside line is that the case permits Colorado policyholders who reported their property loss late a method to nonetheless acquire if the insurer has not been prejudiced. While there may be some elevated probability of some examples of “gamesmanship” that occurred in Florida, Colorado regulation is totally different than Florida. Colorado permits for a shortened statute of limitations and case regulation permitting insurers to particularly forestall AOBs of their property insurance coverage insurance policies.
Thought For The Day
Courage is resistance to concern, mastery of concern, not absence of concern.
—Mark Twain
1 Gregory v. Safeco Ins. Co. of Am., 2024 CO 13, — P.3d —, 2024 WL 1040531 (Colo. Mar. 11. 2024).