Travelers Property Casualty Co. of America v. Stresscon Corp.

JUSTICE MARQUEZ,

DISSENTING.

124 The majority holds that an insured who settles a claim without the insurer's consent, thereby breaching a term of the insurance policy, can never recover benefits as reimbursement for the settlement, regardless of whether the settlement prejudiced the insurer. In so doing, the majority disregards our own precedent recognizing that, where a provision of an insurance contract does not fundamentally define the scope of coverage, but instead protects the insurer's opportunity to investigate and defend or settle claims, the insured's violation of that provision should not present an absolute bar to recovery. See Friedland v. Travelers Indem. Co., 105 P.3d 639, 648-49 (Colo.2005); Clementi v. Nationwide Mut. Fire Ins. Co., 16 P.3d 223, 229-30 (Colo.2001); see also Craft v. Phila. Indem. Ins. Co., 2015 CO 11, ¶¶ 32, 45, 343 P.3d 951, 958, 961. Instead, where, as here, the insured's breach of a provision deprives the insurer of adequate opportunity to defend or settle a claim, the insured should be afforded an opportunity to rebut a presumption 'that the insurer suffered actual prejudice. Friedland, 105 P.3d4 at 648-49. Because I believe that Friedland governs this case, and because the majority's attempt to equate the no-voluntary- -payments clause in this case 'with the date-certain fo-tice provision in Croft is unpersuaswe I respectfully dissent.

125 In Friedland, we held that the so-called "notice-prejudice rule" applies to pronipt notice provisions in occurrence-based policies Id. at 647-48. The purpose of thesé prompt notice provisions played a significant role in our reasoning. See id.; see also Craft, 182, 348 P.8d at 961 (observing that "Friedland 's prejudice rationale hinged on the nature of prompt notice requirements"). Specifically, we discussed the "significant interests" served by a prompt notice requirement, including the insurer's opportunity to "investigate or defend the insured's claim": and to receive the insured's cooperation in "negotiating settlements." Friedland, 105 P.8d at 648 (citing Clementi, 16 P.3d at 232); see also Craft, ¶¶ 15, 31, 343 P.3d at 954, 958.

T26 In addition, our decision in Friedland emphasized the fact that the insured failed to notify the insurer of the suit against him until after the litigation settled. Friedland, 105 P.8d at 641, 642, 647, 648. We concluded that, where notice is not given until after settlement, the insurer is deprived of the opportunity to defend or settle the claim, and thus, prejudice to the insurer must be presumed under such ciremumstances, Id. at 647-48. Nonetheless, we recognized that, in some instances, an insurer may not be prejudiced by, an insured's failure to provide prompt notice. Id. at 648. We therefore concluded in Friedland that an insured's breach of a prompt notice provision should not present an absolute bar to recovery, but rather, where notice is not given until after settlement, the insured must be afforded an opportunity to rebut a presumption that the insurer was prejudiced, and the insurer must then show, by a preponderance of the evidence, that it suffered actual prejudice from the breach. See id. at 648-49.

- 127.In Craft we addressed a fundamentally different provision in an altogether different type of policy: a date-certain provision in a claims-made policy. «Croft, 11 2-8, 348 P.8d at 952-58. We emphasized in that case the conceptual differences between occurrence and claims-made liability policies, and observed that the date-certain notice requirement-unique to elaims-made policies-was integrally related to the nature of such policies.- Id. at 128, 848 P.B3d at 957. This aspect was a critical fact that guided our resolution of that case. Id. at 180, 843 P.3d at 958.

128 We observed that, unlike an occurrence policy; which provides coverage for events that happen during a policy period, even if the claim is brought years later, a elaims-made policy provides potential coverage for claims brought against the insured during the policy period and reported to the insurer by a certain date, even if the underly*148ing event giving rise to liability occurred years earlier. Id. at ¶¶2, 28, 343 P.3d at 953, 957. Thus, under a claims-made policy, timely notice of the claim to the insurer is a prerequisite to coverage, and the risk to the insurer passes when the policy period expires. Id. at ¶¶28-29, 343 P.3d at 957-58. A date-certain notice requirement in a claims-made policy therefore "serves only to effectuate the agreed-upon temporal limits of coverage," id. at ¶5, 343 P.3d at 954, and fulfills a very different function than a prompt notice requirement, which "serves to allow the insurer to investigate the claim and negotiate with the third party asserting the claim," id. at ¶32, 348 P.3d at 961. Accordingly, we declined to apply the notice-prejudice rule to date-certain provisions in claims-made policies because doing so would essentially rewrite the insurance contract and effectively create coverage where none previously existed. Id. at 145, 343 P.3d at 961.

29 Contrary to the majority's assertions, the no-voluntary-payments provision at issue here serves the same interests as the prompt notice provision we addressed in Friedland. Indeed, the majority acknowledges that a no-voluntary-payments clause is intended to prevent an insured from unilaterally settling a claim and thereby "depriving an insurer of its choice to defend or settle in the first instance." Maj, op. 115. This is precisely the interest of the insurer that we recognized is served by the prompt notice provision at issue in Friedland. 105 P.3d at 643-44, 648-49.

30 In my view, the majority's attempt to equate the no-voluntary-payments provision at issue with the date-certain notice requirement of the claims-made policy in Croft is unpersuasive. Unlike the date-certain notice requirement in the claims-made policy in Craft, a standard no-voluntary-payments provision is not a "fundamental term of the insurance contract" because it does not define the policy's temporal boundaries nor does it define the seope of the policy's coverage, Cf. Craft, ¶¶ 32, 45, 343 P.3d at 958, 961.

131 The majority suggests that a no-voluntary-payments provision is a fundamental term defining the limits or extent of coverage because it purportedly "exclude[s] from coverage" any payments made or obligations assumed by the insured without the insurer's consent. Maj. op. °18. However, the no-voluntary-payments clause in this case (a standard provision in many types of insurance contracts) states simply that "No Insured will, except at that Insured's own cost, voluntarily make a payment, assume any obligation or incur any expense, other than for first aid, without our consent." This provision does not define the seope of coverage or describe a policy exclusion or limitation. It is thus wholly unlike the date-certain notice provision in a claims-made policy that we described in Croft.

1 32 The majority's attempt to distinguish the 'no-yoliuntary-payments provision from the prompt notice provisions in Clementi and Friedland is likewise unconvincing. The majority reasons that, unlike the prompt notice provisions in those cases, a no-voluntary-payments provision "does not purport to impose a duty on the insured to do anything ... [njor does it impose a duty on the insured to refrain from doing something...." Maj. op. T14, I disagree, The no-voluntary-payments provision does impose a duty on the insured-a duty to obtain the insurer's consent before voluntarily making a payment, or assuming an obligation, or incurring an expense. (Phrased in the negative, it imposes a duty to refrain from taking such actions without the insurer's consent.) Indeed, just like the prompt notice provision in Fried-land-which appeared in the policy under "Insured's Duties in the Event of Oceur-rence, Claim or Suit," Friedland, 105 P.3d at 642-the no-voluntary-payments clause at issue here appears in the Travelers' policy under "Duties in the Event of Occurrence, Offense, Claim or Suit." In short, the majority's attempt to distinguish Friedland on this basis is both inaccurate and unpersuasive.

۩33 In my view, the no-voluntary-payments provision serves virtually the same interests of the insured that we discussed in Friedland. .It protects the insurer's opportunity to investigate, defend, and settle a claim. Moreover, our holding in Friedland was premised on the fact that the insured did not give notice to the insurer until after *149settlement of the claim, thus depriving the insurer of those important interests. See id. at 647-48, Because the insured's breach of the no-voluntary-payments clause at issue here implicates virtually identical concerns, I believe our analysis in Friedland controls the outcome of this case.

Notably, the Friedland presumption of prejudice recognizes that an insured's unilateral action to settle or voluntarily pay a claim can deprive the insurer of an opportunity to investigate and defend the claim and participate in settlement negot1at10ns Yet for the reasons we articulated in Friedland, where the insurer is not in fact prejudiced, an insured's breach of a no-voluntary-payments clause should not present an absolute bar to recovery. Thus, in accordance with Friedland, I would hold that an insured's breach of a no-voluntary-payments clause gives rise to a rebuttable presumption of prejudice to the insurer, and the insured has the burden of going forward with evidence to dispel that presumption. If such evidence is presented, the presumption loses any- probative force it may have and the insurer must then show by a preponderance of: the evidence that it suffered actual prejudice from the voluntary payment or settlement,. See id. at 648-49. Because the majority's efforts to distinguish this case from Friedland. are unconvincing, I respectfully dissent.

I am authorized to state that JUSTICE HOOD and JUSTICE GABRIEL join in this dissent. 20.