Most property insurance policies include a provision that requires the insured to provide prompt notice of a loss as soon as possible after a covered loss—known as the notice of claim provision or awareness provision.

An insured’s failure to do so may be a breach of the insurance contract and allow the insurance company (insurer) to deny the claim—meaning the insurer would have no obligation to defend or indemnify the insured against the claim—and may allow the insurer to cancel the insurance policy.

Courts in many states have adopted the Notice-Prejudice Rule, which prohibits an insurer from denying a claim—even when the notice provided by the insurer may not have been prompt—unless the insurer can demonstrate actual prejudice resulting from the delayed notice of loss.

But some courts have held that the failure to notify the insurer within a reasonable time constitutes a breach of the insurance contract—unless there is a justifiable excuse or extenuating circumstances explaining the delay—and the insurer cannot be held liable under the insurance contract to defend the insured and pay any settlements or court judgments on the loss. This is known as the Traditional Notice Rule.

In Colorado, the Notice-Prejudice Rule applies to property insurance policies. This rule requires that an insurer cannot deny a claim based on late notice unless the insurer can show that the delay has resulted in actual prejudice to its interests. This means that even if an insured fails to provide prompt notice of a loss as required by the policy, the insurer must demonstrate that the late notice has negatively affected its ability to investigate or defend the claim. If the insurer cannot prove actual prejudice, it may still be obligated to cover the claim. This approach is more policyholder-friendly compared to the Traditional Notice Rule, which allows insurers to deny claims solely based on a breach of the notice provision, without needing to prove prejudice. Colorado courts have consistently upheld the Notice-Prejudice Rule, emphasizing the need for insurers to show how a delayed notice has specifically harmed their position before denying coverage.