TORT AND INSURANCE LAW
Liability Insurance:
Notice-Prejudice After Friedland
by Marilyn S. Chappell and Damian J. Arguello
Liability insurance policies require insureds to provide prompt notice of
claims. In 2005, the Colorado Supreme Court held that liability insurers
must prove prejudice to assert a late notice coverage defense. Colorado
courts have not yet fleshed out the prejudice requirement.
Liability insurance policies typically require the insured to promptly notify the insurer of
a claim as a condition for providing coverage for the claim. Such notice provisions are intended
to help the insurer obtain the information necessary to investigate and defend the claim.
Consequently, if the insured violates this provision by failing to provide the required notice, the
insurer may assert a “late notice” defense to coverage. This assertion can disrupt the insured’s
expectation of receiving the coverage for which it contracted.
In the 1981 decision Marez v. Dairyland Ins. Co.,1 the Colorado Supreme Court rejected
the argument that the late notice defense should be available only to liability insurers who have
been prejudiced by the delayed notice. However, in 2001, the Court held that an uninsured
motorist insurer must demonstrate prejudice to rely on the defense in the case Clementi v.
Nationwide Mut. Fire Ins. Co.2 The Clementi decision was interpreted to suggest that the Court
would adopt the notice-prejudice rule in the liability insurance context, as well.3
In Friedland v. Travelers Indemn. Co.,4 decided by the Colorado Supreme Court on
January 31, 2005, the Court adopted a prejudice requirement for liability insurance cases
involving late notice. However, the Court discussed the content of the prejudice requirement
only in general terms. Thus, although it is now clear in Colorado that insurers generally must
prove prejudice to successfully invoke the late notice defense, the content of the prejudice
requirement has yet to be explained by Colorado courts. This article summarizes the Court’s
holding in Friedland, examines the prejudice requirement as adjudicated by other courts, and
briefly addresses practical aspects of the notice-prejudice rule to help practitioners determine the
implications of the Friedland decision.
The Friedland Decision
In the Friedland case, plaintiff Robert M. Friedland (“insured”) was a former officer and
director of a company sued by the United States and the State of Colorado under the
Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”)5 due to
pollution from mining operations.6 The company had been insured under comprehensive general
liability insurance policies issued by defendant The Travelers Indemnity Company (“insurer”).7
#720685.1
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After approximately four years of litigation, the insured settled the CERCLA claims against
him.8 He then notified the insurer of the claim and filed suit against the insurer, seeking
reimbursement of his defense costs and indemnity payments.9 Notice to the insurer of the
CERCLA claim occurred more than six years after the CERCLA action had been filed, and
approximately six months after settlement of the action.10
The insurer moved for summary judgment, based in part on the insured’s alleged
noncompliance with the notice provisions of the applicable insurance policies.11 Relying on the
Marez12 decision, the trial court granted the insurer’s motion.13 The trial court did not consider
whether the insurer had been prejudiced by the late notice of the claim.14 Under C.A.R. 50, the
Colorado Supreme Court granted certiorari review while the case was pending in the Colorado
Court of Appeals.15
“Under the specific facts of Friedland, the Court determined that the insurer
was entitled to a presumption of prejudice, because it did not receive notice of
the claim until after settlement.”
The Colorado Supreme Court, in a 4-2 decision,16 expressly overruled Marez and applied
the notice-prejudice rule to liability policies.17 The Court recognized that timely notice of a
claim helped provide an insurer with “adequate opportunity to investigate the claim, present
legitimate defenses to its insured’s liability, and be involved in settlement negotiations.”18
However, lack of timely notice should not bar coverage in all cases: “an ever-growing majority
of jurisdictions . . . adopted the notice-prejudice rule, whereby late notice does not result in loss
of coverage benefits unless the insurer proves prejudice to its interests by a preponderance of the
evidence.”19 The Court added, as it had determined in Clementi,20 that three factors supported
adoption of the notice-prejudice rule: (1) the adhesive nature of insurance contracts; (2) the
public policy objective of compensating tort victims; and (3) the inequity of the insurer receiving
a windfall and the insured not receiving policy benefits due to a technicality.21
The Court further held that a three-step analysis governs the prejudice determination:
1.
Was the notice “untimely” and the insured’s delay in giving notice
“unreasonable”?
2.
If the notice was untimely and the insured’s delay in giving notice was
unreasonable, can the insurer “demonstrate that it was prejudiced”?
3.
If the late notice occurred after the insured’s settlement of the underlying case,
there is a “presumption of prejudice in favor of the insurer.”22 Under this third
prong, in some factual circumstances the insurer may not suffer actual prejudice
despite lack of notice until after resolution of the underlying litigation.23
Consequently, the insured “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.”24 If the insured comes forward with
evidence rebutting this presumption, “it is then up to the insurer to go forward
with the evidence that actual prejudice existed.”25
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Under the specific facts of Friedland, the Court determined that the insurer was entitled
to a presumption of prejudice, because it did not receive notice of the claim until after
settlement.26 The Court reversed the trial court’s decision granting summary judgment in favor
of the insurer, and remanded for a determination of whether the insurer had been prejudiced by
late notice of the claim.27
In rebuttal on remand, the insured should be allowed to introduce evidence that in
defense of the underlying action:
all material information that could have been obtained was
obtained, all legitimate defenses were raised, [the insured’s]
liability in the case was reasonably clear under the facts and the
law, and [the insurer], had it received notice, could not have
obtained any materially better outcome than what [the insured]
obtained without [the insurer’s] assistance.28
If the insured met this burden, the insurer then would need to prove “actual” prejudice by a
preponderance of the evidence to prevail on the late notice defense.29 In short, although the
insurer need not prove “precisely what outcome” would have resulted from timely notice, it must
show that timely notice would have resulted in “a substantial likelihood of avoiding or
minimizing the covered loss” through the insured’s prevailing in the underlying litigation or
achieving settlement of the claim for a smaller amount than actually occurred.30
Following remand, the Friedland case settled,31 and as a result, the prejudice issue was
not further litigated. Specifically, there was no adjudication of particular factual circumstances
under which prejudice would or would not be found. To date, no Colorado appellate court has
addressed the Friedland holding. Thus, the question of what constitutes prejudice remains
unanswered.
The Content of the Prejudice Requirement
Although Colorado courts have not yet addressed the content of the prejudice
requirement, cases from other jurisdictions requiring proof by the insurer of prejudice from late
notice demonstrate how courts have addressed the requirement.32 Notably, these cases show that
the prejudice question requires a fact-specific, case-by-case analysis from which it is difficult to
extrapolate general principles.33 Moreover, the prejudice inquiry is inherently problematic
because it requires proof of a hypothetical—what would have resulted from an act (timely
notice) that did not occur—and thereby “necessarily involves some conjecture.”34 The nature of
the prejudice inquiry thus provides “fertile ground for exploration” and dispute by the insured.35
The insurer must present evidence that demonstrates that prejudice occurred as a result of
the delayed notice.36 The critical issue is what the insurer “would have done,” not what it “might
have done,” based on timely notice that realistically could have been provided.37 Proof of
prejudice may require testimony of “experienced claims personnel”38 or other expert testimony.
Prejudice generally is a question of fact, but may be decided as a matter of law in clear-cut
cases.39
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Based on the current body of case law, the prejudice inquiry has focused on the ability of
the insurer, notwithstanding the delayed notice, to: (1) gather evidence concerning the claim;
(2) assert defenses to coverage; (3) assert defenses on behalf of the insured to liability as against
the third-party claimant; and (4) control the amount of the insured loss. For example, courts
have determined that the insurer was prejudiced where delayed notice was accompanied by one
of the following:
•
loss of significant evidence pertaining to the claim40
•
the inability of the insurer to assert defenses to coverage41
•
statements by the insured admitting liability to the third-party claimant42
•
the inability to assert defenses to liability on behalf of the insured43
•
an increase in the amount of loss from the claim44
•
the inability of the insurer to meaningfully participate in settlement negotiations45
•
the inability of the insurer to bring claims against other parties potentially
responsible for the loss.46
On the other hand, courts have determined that the insurer was not prejudiced where:
•
the insurer had the opportunity to investigate the claim but failed to do so47
•
the insurer had access to investigation files prepared by other entities48
•
although evidence had been destroyed, it could be reconstructed through expert
testimony49
•
timely notice would not have changed the result because no viable defenses were
available to the insured50
•
the insurer received notice in time to significantly participate in litigation of the
claim51
•
the insurer would not have chosen a significantly different litigation strategy from
that of the insured52
•
the insured settled or otherwise resolved the claim for a reasonable amount53
•
the insured prevailed in the underlying lawsuit.54
However, as noted above, the prejudice analysis requires a fact-specific, case-by-case
inquiry. Depending on the facts of an individual case, any one of the above-listed factors,
standing alone, may not be dispositive of the prejudice issue.
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Loss of Evidence
Loss of evidence has been one of the liveliest issues of contention in the prejudice arena.
This is because delayed notice can be accompanied by loss of memory or death of crucial
witnesses, loss or destruction of relevant documents, and significant alterations in the condition
of key evidence. The question is whether such changes are so great as to prevent the insurer
from adequately investigating and defending against the claim. Again, this question requires a
case-by-case analysis, making it difficult to predict the outcome in any given case.
For example, in environmental contamination cases, significant alteration of site
conditions before notice may or may not be adequate to demonstrate prejudice.55 In Port
Services Co. v. General Ins. Co.,56 the insurer obtained summary judgment based on a threemonth delay in receiving notice of a claim involving contamination at a vehicle-processing site
leased and operated by the insured. The court noted that the insured acknowledged it knew of
the claim at the beginning of the three-month period and, “more disturbingly,” waited to notify
the insurer of the claim until after the site owner, with the insured’s knowledge, had all evidence
of the contamination removed and destroyed.57 Under these circumstances, the insurer was
deprived of the opportunity to investigate the claim, participate in remedial efforts, and
investigate potential claims against third parties, resulting in “clear” prejudice.5858
By contrast, in Sagendorf v. Selective Ins. Co. of America,59 the court reversed summary
judgment in the insurer’s favor based on a two-year delay in receiving notice of a claim arising
out of leaking underground storage tanks. The insured had the tanks removed and disposed of at
an unknown location, hired an environmental consultant, engaged in negotiations with a state
environmental agency regarding monitoring and remediation of the site, and agreed to undertake
corrective action before notifying the insurer.60 The court noted that the insurer had access to
expert information from the state and the insured’s consultant, but failed to demonstrate that such
evidence was “unreliable.”61 Furthermore, the insurer failed to demonstrate, other than through
“speculation,” that an opportunity to inspect the tanks before their removal would have affected
the merits of the insured’s defense against the state by, for example, indicating an alternative
source of the contamination.62
Practical Considerations of The Notice-Prejudice Rule
In addition to addressing the substantive question of whether prejudice exists, Colorado
insurers and insureds must consider practical aspects of the notice-prejudice rule. For example,
an insurer receiving notice of a claim that appears untimely may have a greater need to
expeditiously investigate the claim than before adoption of the notice-prejudice rule. As
indicated above, an insurer who fails to investigate a late notice claim will have a difficult time
proving prejudice.
Moreover, the notice-prejudice rule may affect the insurer’s choice of options when
seeking to assert a late notice defense. Those options are: (1) denying coverage to the insured
and awaiting resolution of the underlying claim; (2) providing coverage for the underlying claim
under a reservation of rights; and (3) filing a declaratory judgment action on coverage issues
before resolution of the underlying claim. Under Friedland, an insurer may be less likely to
deny coverage for a late notice claim because, if the insurer later is determined to have been
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incorrect in its prejudice assertion, it may face a suit for bad faith breach of insurance contract.63
Notably, a declaratory judgment action on coverage may be precluded as premature if coverage
issues overlap issues relating to the underlying dispute that have not yet been resolved.64
Similarly, an insured must consider the practical implications now that prejudice is a key
factor in determining whether notice to an insurer is effective. For example, the prejudice
requirement may give an insured more flexibility in determining when to provide notice of a
claim. Because giving notice may establish a negative claims history that could lead to increased
premiums, an insured may wish to see whether a claim will exceed its self-insured retention
before providing notice.
Now that delayed notice may not automatically bar coverage, an insured may be able to
briefly delay providing notice without losing coverage. Note, however, that such an approach
has attendant risks. Specifically, the insured should take great care to avoid prejudicing the
insurer, especially by destroying evidence. Furthermore, the insured should carefully consider
providing notice before resolution of the claim to avoid the burden-shifting third prong of the
Friedland test described above.
The notice-prejudice rule also may afford the insured options for methods of providing
notice. For example, some insureds report claims to their insurers but label them “For Record
Only.” Although insurer practices vary, such notice often prompts an insurer to record the fact
that the claim was reported, but not assign the claim to an adjuster for active investigation. As
noted above, under Friedland, such an approach may make it more difficult for an insurer to
argue that it was prejudiced by late notice when it had actual or constructive notice of the claim.
Such an approach may be less risky to insureds than it was in the past. Finally, an insured that
has been denied coverage due to late notice should marshal all available evidence to counter a
potential insurer prejudice argument, and may need to obtain expert testimony to assist its case.
Conclusion
The Friedland case extended the notice-prejudice rule to liability coverage. Specifically,
a liability insurer generally must prove that it was prejudiced to successfully deny coverage to an
insured that provided delayed notice of a claim. Although Friedland established a three-step
analysis to govern the prejudice determination, the Colorado Supreme Court did not discuss the
particular factual circumstances under which prejudice would be found. Until Colorado courts
further explain the prejudice analysis, insureds and insurers facing the interesting and troubling
questions the notice-prejudice rule raises will have to make do with guidance provided by other
courts. Cases on prejudice have focused on the insurer’s ability to investigate, defend, and
participate in the resolution of the claim, particularly where evidence is lost during the delay.
Finally, insureds and insurers will need to assess the practical implications of the noticeprejudice rule.
This column provides information concerning current tort law issues and insurance
issues addressed by practitioners representing either plaintiffs or defendants in tort cases. In
addition, it addresses issues of insurance coverage, regulation, and bad faith.
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Column Editor: William P. Godsman of the Law Office of William Godsman, Denver—
(303) 455-6900, wgodsman@qwest.net
About The Authors: This month’s article was written by Marilyn S. Chappell, Denver,
an attorney with Wells, Anderson & Race, LLC, where she specializes in insurance coverage,
product liability, and construction defect litigation—(303) 813-6539, mchappell@warllc.com;
and Damian J. Arguello, Denver, an associate with Davis Graham & Stubbs LLP, where he
specializes in insurance coverage litigation of environmental and mass tort matters—
(303) 892-7411, damian.arguello@dgslaw.com.
NOTES
1
Marez v. Dairyland Ins. Co., 638 P.2d 286 (Colo. 1981).
2
Clementi v. Nationwide Mut. Fire Ins. Co., 16 P.3d 223 (Colo. 2001).
3
See Hersh, “The Requirement for a Showing of Prejudice in Cases of Late Notice of Claim,” 30 The Colorado
Lawyer 5 (May 2001).
4
Friedland v. Travelers Indem. Co., 105 P.3d 639 (Colo. 2005).
5
42 U.S.C. §§ 9601 et seq.
6
Friedland, supra note 4 at 641.
7
Id. at 642.
8
Id. at 641-42.
9
Id.
10
Id. at 642.
11
Id.
12
See Marez, supra note 1.
13
Friedland, supra note 4 at 642.
14
Id. at 642-43.
15
Id. at 641.
16
Justices Kourlis and Coats dissented, and Justice Bender did not participate.
17
Friedland, supra note 4 at 643. The Court noted that Marez actually was a “no-notice” rather than a
“late-notice” case. Id. at 645. However, the Court recognized that Marez had been construed to apply to cases
involving late notice. Id.
18
Id. at 648.
19
Id. at 643.
20
Clementi, supra note 2 at 229.
21
Friedland, supra note 4 at 645-46.
22
Id. at 647.
23
Id. at 648.
24
Id.
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25
Id., quoting Justice Quinn’s dissent in Marez, supra note 1 at 292-93.
26
Id.
27
Id. at 649.
28
Id. at 648.
29
Id. at 649.
30
Id. at 648 n.5, quoting Russ and Segalla, Couch on Insurance, § 193:29 (3d ed. 1999 and Supp. 2004)
(hereinafter “Couch”).
31
See Friedland v. Travelers Indem. Co., Case No. 2002 CV 4435, Denver Dist.Ct., Minute Order, Sept. 26, 2005
(attorneys notify court that settlement has been reached); Order Re: Stipulation of Dismissal of Prejudice,
Nov. 10, 2005 (case dismissed with prejudice in its entirety).
32
Approximately thirty-three other states require a showing of prejudice. See 32 A.L.R.4th 141, “Modern Status
of Rules Requiring Liability Insurer to Show Prejudice to Escape Liability Because of Insured’s Failure or
Delay in Giving Notice of Accident or Claim, or in Forwarding Suit Papers” (2005).
33
See Allstate Ins. Co. v. State Farm Mut. Auto. Ins. Co., 767 A.2d 831 (Md. 2001), holding that courts’
articulations of prejudice standard:
tend to be keyed to the facts or circumstances of the particular case and do not take sufficient account of
the very different circumstances, and thus the very different kinds of prejudice, that can be presented by
breaches of these provisions. It is very difficult to fashion a workable “one size fits all” standard.
34
Couch, supra note 30 § 193:29 at 193-45.
35
Id.
36
Hunt v. Kling Motor Co., 841 F.Supp. 1098, 1104 (D.Kan. 1993), aff’d sub nom. Hunt v. Ford Motor Co.,
65 F.3d 178 (10th Cir. 1995) (prejudice must result from insured’s failure to give notice, rather than from
insurer’s failure to act on receiving notice); Canron, Inc. v. Fed. Ins. Co., 918 P.2d 937 (Wash.App. 1996) (no
prejudice where insurer failed to present evidence concerning environmental site changes and unavailability of
witnesses occurring during delay period).
37
Sagendorf v. Selective Ins. Co., 679 A.2d 709, 716 (NJ 1996) (emphasis added); see also Falcon Steel Co.,
Inc. v. Md. Cas. Co., 366 A.2d 512, 518 (Del.Super.Ct. 1976) (evidence in question must be that which “it is
reasonably probable could have been developed by prompt investigation”).
38
Couch, supra note 30 § 193:29 at 193-45.
39
See id. § 193:31 at 193-48.
40
West Bay Exploration Co. v. AIG Specialty Agencies of Texas, Inc., 915 F.2d 1030, 1037 (6th Cir. 1990) (where
critical coverage issue was whether environmental release was “sudden and accidental” under the relevant
policy’s “pollution exclusion,” insured’s destruction of relevant barrels during cleanup “materially
compromised the [insurers] ability to present their most powerful defense to liability under the policy”); Port
Servs. Co. v. Gen. Ins. Co. of Am., 838 F.Supp. 1402, 1405 (D.Or. 1993) (prejudice found in underground tank
contamination case where insured delayed giving notice until after “virtually all the contaminated soil was
removed and all evidence concerning the tanks, piping systems, and related underground structures was hauled
away for scrap”); Fireman’s Fund Ins. Co. v. ACC Chem. Co., 538 N.W.2d 259, 266 (Iowa 1995) (prejudice
found where appearance of site changed during five-year delay).
41
Canron, supra note 36 at 485 (“late notice may affect the insurer’s ability to prepare and present coverage
defenses”).
42
Wood v. Duckworth, 401 N,W.2d 258, 260 (Mich.App. 1986) (insured, before providing notice, “essentially
admitted liability” in answer to complaint in underlying case and “made inculpatory admissions” during pretrial
proceedings, leaving dispute only as to amount of claimed damages).
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43
Hunt, supra note 36 at 1103 (insurer unable to assert affirmative defenses on behalf of insured, because default
judgment had entered against insured before notice provided).
44
Sec. Nat’l Bank of Kansas City v. Cont’l Ins. Co., 586 F.Supp. 139, 150 (D.Kan. 1982) (notice requirement in
bankers’ bond policy violated when bank failed to timely disclose discovery of check-kiting scheme, resulting
in prejudice from “loss increasing on a daily basis”).
45
See, e.g., Am. Ins. Co. v. Fairchild Indus., Inc., 56 F.3d 435, 440 (2d Cir. 1995) (insured negotiated
environmental liability with state agency before giving notice to insurer; “the very deprivation of an opportunity
to play a meaningful role” in settlement negotiations constitutes “substantial prejudice to an insurer”); In re
Texas E. Transmission Corp. PCB Contamination Ins. Coverage Litig., 15 F.3d 1249, 1255 (3d Cir. 1994) (by
presenting environmental liability settlement proposal to Environmental Protection Agency (“EPA”) before
providing notice to insurers, insured “completely destroyed any meaningful opportunity for the [insurers] to
shape negotiations,” indicating “prejudice resulting from a material change in the [insurers’] bargaining
position”); Hyde Athletic Indus., Inc. v. Cont’l Cas. Co., 969 F.Supp. 289, 300-01 (E.D.Pa. 1997) (prejudice
found where insureds “conducted settlement negotiations” and expended large sums on attorney fees before
notifying insurers; “[t]his is clearly a case in which the insurance companies, if given an opportunity for early
control over the litigation, might have chosen a different strategy to resolve the case”).
46
See, e.g., Aetna Cas. & Surety Co. v. Dow Chem. Co., 10 F.Supp.2d 800, 813-14 (E.D. Mich. 1998) (prejudice
established “as a matter of law” through showing that delayed notice “materially impair[ed] [the insurer’s]
ability to pursue contribution actions” against other parties potentially liable for environmental claim); Port
Servs., supra note 40 at 1405 (late notice of environmental claim that resulted in inability of insurer “to
investigate the contamination, to participate in the remedial efforts, and to investigate any possible claims
against third parties” caused prejudice); Schoffman v. Blue Cross and Blue Shield of Minn., 557 N.W.2d 625
(Minn.App. 1997) (impairment of subrogation rights from late notice constitutes prejudice).
47
Woodfin Equities Corp. v. Harford Mut. Ins. Co., 678 A.2d 116 (Md.App. 1996), aff’d in part, rev’d in part sub
nom. Harford Mut. Ins. Co. v. Woodfin Equities Corp., 687 A.2d 652 (Md. 1997); Employers’ Liab. Assurance
Corp. v. Hoechst Celanese Corp., 684 N.E.2d 600 (Mass.App. 1997); Coop. Fire Ins. Assoc. of Vt. v. White
Caps, Inc., 694 A.2d 34 (Vt. 1997); Canron, supra note 36 at 489.
48
Falcon Steel, supra note 37 at 516 (no prejudice to liability insurer as it had access to evidence gathered through
investigation by workers’ compensation insurer).
49
See Employers’ Liab., supra note 47 at 477; Sagendorf, supra note 37 at 716.
50
Pederson’s Fryer Farms, Inc. v. Transamerica Ins. Co., 922 P.2d 126 (Wash.App. 1996) (in environmental
cleanup case where insured was strictly liable for cleanup cost, no prejudice resulted from late notice as timely
notice would not have allowed insurer to prove release was caused by an “act of God,” war, or a third person).
51
Tiedke v. Fidelity & Cas. Co. of N.Y., 222 So.2d 206 (Fla. 1969) (insurer obtained statement or deposition from
every material witness before trial); Champion v. Panel Era Mfg. Co., 410 So.2d 1230, 1237-38 (La.App. 1982)
(insurer had “ample” opportunity to participate in pretrial discovery); Presrite Corp. v. Commercial Union Ins.
Co., 680 N.E.2d 216 (OhioApp. 1996) (insurer obtained depositions and witness statements and was able to
participate in motions practice and settlement).
52
See Pulse v. Northwest Farm Bureau Ins. Co., 566 P.2d 577, 579 (Wash.App. 1977), quoted in Friedland, supra
note 4 at 648-49:
[I]t is highly questionable whether [insurer’s counsel] could have been more persuasive than
[insured’s counsel] in keeping the amount of the damages down. At best, [the insurer] would
have chosen different counsel, would have demanded a jury, and may or may not have chosen a
different judge to preside over the trial.
53
Trustees of Univ. of Penn. v. Lexington Ins. Co., 815 F.2d 890, 899 (3d Cir. 1987) (to prove prejudice, insurer
must show that, but for delay, it could have obtained expert testimony that would have persuaded claimant to
settle case for lower amount); Pederson’s Fryer Farms, supra note 50 at 443 (no prejudice from insured’s
alleged failure to control remediation costs where insurer failed to prove that remediation could have been
accomplished for lesser amount).
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54
TPLC, Inc. v. United Nat’l Ins. Co., 44 F.3d 1484, 1492 (10th Cir. 1995) (applying Pennsylvania law) (after
insurer denied coverage, insured prevailed in underlying suit; in suit by insured against insurer for
reimbursement of defense costs, insured victory in underlying suit held to indicate lack of prejudice from late
notice).
55
Compare Fireman’s Fund, supra note 40 at 266 (jury finding of lack of prejudice reversed on appeal; insurer
prejudiced as a matter of law where, before insured provided notice, appearance of environmental site had
changed, at least one witness had died, many relevant documents had been destroyed, and insured had
negotiated consent decree with EPA) and Associated Indem. Corp. v. Dow Chem. Co., 248 F.Supp.2d 629, 650
(E.D.Mich. 2003) (poor records and death of witness prevented insurer from determining which environmental
remediation costs were reasonable, resulting in prejudice) with Pederson’s Fryer Farms, supra note 50 at
439-42 (insured removed leaking underground storage tank and negotiated cleanup plan with state
environmental agency before notifying insurer of claim; insurer failed to prove prejudice) and Sagendorf supra
note 37 at 716 (finding no prejudice under similar facts).
56
Port Servs. Co., supra note 40.
57
Id. at 1405.
58
Id.
59
Sagendorf, supra note 37.
60
Id. at 711-13.
61
Id. at 716.
62
Id.
63
See Evanston Ins. Co. v. OEA, Inc., No. CIV-S-02-1505 DFL PAN (E.D.Cal. 2005) (applying Colorado law)
(insured claimed bad-faith denial of coverage where insurer relied on late notice defense without assertion of
prejudice based on case law after Clementi but before Friedland, denial held not in bad faith). Cf. Ostranger
and Newman, Handbook on Insurance Coverage Disputes, 9th Ed. (1998), § 5.02(b) at 201-05 (when coverage
question depends on factual issue that will not be determined in underlying action, insurer may permissibly
deny defense of underlying claim pending resolution of coverage issue).
64
See Harleysville Ins. Co. v. Rosenbaum, 351 A.2d 197 (Md.App. 1976) (in declaratory judgment action on
insurance coverage for automobile accident claim, resolution of late notice prejudice issue held “premature”
before trial of underlying claim). J
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