In Travelers’ Property Cas. Co. of America v. Stresscon Corp., 370 P.3d 140 (Colo. 2016), the Colorado Supreme Court held that an insured contractor’s settlement for a bodily injury claim that arose on a construction site where the subcontractor was working, without the insurance company’s consent, violated the insurance policy’s no-voluntary-payments clause and forfeited coverage as a matter of law irrespective of whether the insurer was able to prove that it was actually prejudiced by the settlement.
In this case, an employee of a non-insured subcontractor who was operating a crane was injured in a work site accident. The crane operator then sued the general contractor and the insured’s subcontractor who had hired the crane operator’s employer to work on the project. In turn, the general contractor cross-claimed against the insured, Stresscon. Stresscon then requested indemnification from Travelers under its CGL policy. It was uncontroverted that the general contractor and Stresscon settled the dispute between them without having first consulted with or notifying Travelers. A divided Colorado Supreme Court found that it was error to extend the notice-prejudice rule to the enforcement of the policy’s no-voluntary-payments clause. The Court observed that unlike a situation where there was non-compliance with a notice requirement that resulted from a simple inadvertent omission, voluntarily making a payment, assuming an obligation, or incurring an expenses necessarily entailed affirmative, and voluntary action on the part of the insured. Depriving the insurer of its opportunity to defend or settle implicated concerns of collusive behavior between the insured and the plaintiff. The Court rejected the claim of bad faith that was asserted. The majority found that “[w]hile unreasonably delaying or denying the payment of an insurance claim entitles an insured to more than contractual remedies, never have we suggested that resorting to self-help, by confessing third-party claims in order to maintain ongoing business relationships, can effectively expand coverage beyond the express terms of an insurance policy.”
A three-member dissent would have extended the notice-prejudice rule to this situation.
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