The Colorado Supreme Court made it easier on Monday for homeowners to file damage claims with their insurance companies outside the deadline in their policies.

By 4-3, the justices applied a rule they had previously extended to limited circumstances requiring insurers to show their ability to investigate and defend against a homeowner claim is harmed by the policyholder’s late filing. If insurance companies cannot do so, the homeowner’s claim may proceed.

“Those who obtain homeowners’ insurance to cover the cost to repair unforeseen damage to their homes, typically for which the insureds bear no fault, should be compensated according to that insurance coverage,” wrote Justice Richard L. Gabriel in the March 11 opinion.

The case attracted significant attention from the insurance industry and other outside groups. Robyn Levin, an attorney who represented the Colorado Trial Lawyers Association in its argument to expand homeowners’ ability to file claims late, said the majority opinion protects the interests of both policyholders and insurers.

“The idea that in those really difficult moments your insurance company could look at you and say, ‘We know you’ve been paying premiums for years and years, but you’re five days out of time,’ and then leave you stranded,” she said, “just doesn’t comport with the ideas of fairness and protection.”

Justice Melissa Hart, writing in dissent, slammed the majority for “misunderstanding” the insurance market. Because insurance companies draft and price policies with an understanding of when policyholders are obligated to file claims, she argued the Supreme Court had created a sledgehammer to alter the terms of insurance contracts.

If deadlines become technicalities unless insurers can prove their interests were harmed, “I fear that no insurance policy could be enforced as written in Colorado — or at least that insurers will have to worry about that possibility,” Hart wrote.

First recognized by the Supreme Court in 2001, the “notice-prejudice rule,” as it is known, requires insurers to demonstrate a policyholder’s late notice negatively affected their ability to investigate and defend against a claim. Previously, the court only extended the rule to a smaller class of insurance claims involving personal injury cases.

Then, in May 2017, a hailstorm damaged the roof of Karyn Gregory’s Denver home. She did not learn of the damage until a contractor told her in October 2018. Gregory made a claim to her insurer, Safeco, but the company denied it because Gregory filed 17 months after the hailstorm — and beyond the one-year reporting deadline in her insurance policy.

Similarly, Owners Insurance Company denied the claim of Lisa and Sylvan T. Runkel III, whose Superior home received hail damage in July 2019. The Runkels did learn about the damage before their own one-year deadline, and Owners hired an inspector to calculate the roof damage. However, Owners ultimately denied the claim because the Runkels filed it 10 days late.

Lower courts dismissed both sets of plaintiffs’ claims against their insurers, and rejected their arguments that the notice-prejudice rule should apply.

“Maybe so, but we do not see this policy judgment as ours to make,” wrote Judge W. Eric Kuhn for the Court of Appeals, suggesting the state Supreme Court take up the issue.

When the Supreme Court first opened the door to the rule, it cited three reasons for placing the burden on insurance companies to show a late-filed claim negatively affected them:

• Insurance contracts are one-sided in favor of the insurer

• Ensuring “innocent” personal injury victims receive compensation is a public policy goal

• Insurers would receive a windfall by denying coverage on a technicality

Gabriel, writing for the Supreme Court’s majority, explained the same three justifications applied to homeowner policies.

“The insurer usually presents the insured with a form contract drafted by the insurer, and the insured has little bargaining power in deciding whether to enter into the contract,” he wrote.

Although homeowners are not personal injury victims, Gabriel noted they are often not at fault for damage to their homes. Therefore, if hail damage occurred within the duration of the plaintiffs’ policies, the one-year notice requirement was not a “fundamental contract term” that could be used to deny coverage outright.

Hart, writing for herself, Chief Justice Brian D. Boatright and Justice Monica M. Márquez, disagreed that homeowners are the same as personal injury victims. The plaintiffs’ insurance policies “placed on them an obligation to be aware of the condition of their property” and to make timely claims, she explained.

“While notice may be a technicality in some contexts, in many cases a date-certain notice provision may be central to the terms the insurance company is willing to offer,” Hart wrote. “Because the majority’s opinion expands our precedent to a seemingly unlimited degree, I respectfully dissent.”

Levin, the attorney representing the Colorado Trial Lawyers Association in its supportive brief, responded that since the Supreme Court first recognized the notice-prejudice rule in 2001, the insurance market has not been “upended” with the requirement for insurers to show harm to their interests.

“It just doesn’t make any sense for people to not be able to get the benefits of these insurance policies that they pay a heck of a lot of money to ensure are in place in the event there is some kind of expensive damage to their home,” she said.

Rodney J. Monheit, an attorney for the Runkels, said he was surprised at Hart’s assertion that homeowners have an obligation to be aware of property damage.

“The policy contains no such language,” he said. “If you’re an insurer who wants to place a duty on an insured, you have to make that duty explicitly clear and specific in order to be enforceable.”

Lawyers for Safeco and Owners did not immediately respond to a request for comment, nor did the attorneys who wrote to the Supreme Court on behalf of the insurance industry more broadly.

The cases are Gregory v. Safeco Insurance Company of America and Runkel v. Owners Insurance Company.