June 25, 2019

Colorado Court of Appeals: Notice-Prejudice Rule Properly Applied by Trial Court to Third-Party Settlement

The Colorado Court of Appeals issued its opinion in Stresscon Corp. v. Travelers Property Casualty Company of America on Thursday, September 12, 2013.

Construction—Insurance Policy—Notice–Prejudice Rule—No Voluntary Payment Clause—Settlement—Collateral Source Rule—Damages—Attorney Fees.

Plaintiff Stresscon Corporation (concrete company) and defendant Travelers Property Casualty Company of America (insurance company) appealed the trial court’s judgment. The judgment was affirmed in part and reversed in part, and the case was remanded.

In this complex construction case, the general contractor and the concrete company settled their dispute without litigation. Before entering into the settlement, the concrete company did not inform the insurance company of the settlement or obtain its consent.

The insurance company argued that the notice–prejudice rule adopted in Friedland v. Travelers Indemnity Co., 105 P.3d 639, 643 (Colo. 2005), for example, does not apply to breaches of “no voluntary payment” clauses, and insurers are prejudiced as a matter of law whenever an insured settles with a third-party claimant before that third party has filed a lawsuit. “No voluntary payment” clauses in insurance policies prohibit insureds from voluntarily settling claims and making payment, or from assuming certain expenses, without the insurer’s consent, at the risk of losing insurance benefits. The notice–prejudice rule applies to “no voluntary payment” clauses in insurance policies. The notice–prejudice rule provides that (1) if an insured does not provide the insurer with notice of a claim until after the insured has settled, then (2) the insured will lose benefits after the settlement based on a presumption of prejudice, unless(3) the insured rebuts the presumption that the insurer’s interests were prejudiced by the lack of notice, and(4) the insurer does not then prove that it actually was prejudiced by the lack of notice. Further, an insured’s pre-litigation settlement with a third party does not conclusively establish that an insurer was prejudiced. Here, sufficient evidence was presented at trial to support the jury’s finding that the insurance company was not prejudiced. Therefore, the trial court properly applied the notice–prejudice rule in this case, and the record supports the jury’s verdict that the insurance company unreasonably delayed or denied the claim.

The insurance company argued that the trial court should have granted a judgment notwithstanding the verdict because the court had erroneously allowed the jury to consider conduct that occurred before the effective date of CRS §§ 10-3-1115 and -1116, which was August 5, 2008. The insurance company waived this argument, however, because it did not request a limiting instruction.

On cross-appeal, the concrete company, relying on the collateral source rule, argued that the trial court improperly reduced its damages by the amount that the insurer of one of the members of the crane team paid to satisfy the judgment in the first trial. The unambiguous language of the “other insurance” clauses in the insurance policies, however, states that the concrete company contracted away its right to recover benefits from both the insurance company and the insurer of the member of the crane team. Therefore, the trial court did not err when it reduced the damages by the amount that the insurer for the member of the crane team paid to the concrete company to satisfy the judgment in the first trial.

The concrete company also argued that the trial court incorrectly deducted the fees and costs that it incurred in bringing the fee request—namely, the “fees-on-fees”—from its award under CRS § 10-3-1116(1). A request for fees-on-fees in connection with a § 10-3-1116(1) claim is a request for damages, and the trial court erred in denying this portion of the concrete company’s fees claim. The case was remanded to the trial court for a determination of the reasonable amount of attorney fees and costs that the concrete company incurred in defending the judgment on the statutory claim on appeal.

Summary and full case available here.

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