Marez v. Dairyland Insurance Co. , 638 P.2d 286 ( 1981 )

LEE, Justice.

We granted certiorari to review the opinion of the court of appeals in Dairyland Insurance Co. v. Marez, 42 Colo.App. 536, 601 P.2d 353 (1979). We affirm the judgment of the court of appeals.

On September 18,1973, James Marez was seriously injured when his bicycle collided with an automobile driven by Bernadette Valdez. The automobile was owned by Valdez’ mother, Julia Valdez Montoya, and was insured by Dairyland Insurance Company (Dairyland), the respondent here. Both Valdez and Montoya were aware that Ma-rez had been injured and that he was taken to a hospital.

The Dairyland Insurance policy contained the following conditions:

“1. Notice of Accident ...

When an accident occurs written notice shall be given by or on behalf of the Insured to the company or any of its authorized agents as soon as practicable. Such notice shall contain particulars sufficient to identify the Insured and also reasonably obtainable information respecting the time, place and circumstances of the accident, the names and addresses of the injured and of available witnesses.

2. Notice of Claim or Suit ...

If claim is made or suit is brought against the Insured, the Insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative.

* * * * * *

12. No action shall lie against the company unless, as a condition precedent thereto, there shall have been full compliance with all the terms and conditions of the policy, nor until thirty days after the required proofs of claim have been filed with the company.”

It was stipulated that neither Bernadette Valdez nor Julia Montoya ever provided written notice of the accident to Dairyland. However, Julia Montoya claimed that she telephoned the insurance agency and gave verbal notification of the accident. This was denied by the insurance agent and his employee. The trial court specifically resolved the conflict in this evidence in favor of the insurance company agent, finding as a fact that no verbal notice of the accident was ever given. The trial court found that both Valdez and Montoya were persons of ordinary and reasonable intelligence and were capable of understanding the notice requirements of the insurance policy for reporting the accident, and that they were in fact aware that James Marez sustained significant injuries in the accident; yet they failed to give notice as required by the insurance policy.

On April 30,1976, Bernadette Valdez and Julia Montoya were served with a summons and complaint in an action filed on behalf of James Marez, who died from causes unrelated to the accident. It was undisputed that neither of the parties contacted Dairy-land nor did they forward the suit papers to the insurance company as required by the insurance policy. It was also undisputed that Dairyland first learned of the accident by happenstance more than two and one-half years after the accident. On June 29, 1976, the information concerning the accident came to the attention of a Dairyland field adjustor, who, while working on an unrelated matter, was advised by one of the attorneys for Marez that the accident had occurred and involved serious injuries to Marez. Once Dairyland learned of the claim, it searched its records and finding no record of notification of the accident or claim, it forwarded a reservation of rights document to the insured by registered mail. Dairyland then commenced this declaratory judgment action, seeking a declaration as to its obligations and liabilities under the policy of automobile insurance.

At trial, attorneys for Montoya attempts ed to elicit testimony as to whether Dairy-land was prejudiced by the failure to give Dairyland written notice of the accident and lawsuit. The trial court determined as a matter of law that prejudice to Dairyland, if any, was not to be considered under the facts of this case in determining the obligations and liabilities of Dairyland under the policy. The court concluded that there had been a total lack of compliance with the conditions of the policy; that the notice conditions of the policy were express conditions precedent; that Valdez and Montoya offered no legal excuses for their failure to comply with the policy conditions; and, that since those conditions had not been complied with, the insured had committed a material breach of the insurance contract. The court held that Dairyland was relieved of any liability under the policy to either defend the insureds or to indemnify them with respect to any judgment subsequently obtained arising out of the accident of September 18, 1973.

Marez, Valdez, and Montoya appealed to the court of appeals which affirmed the trial court’s holding that the failure of Valdez and Montoya to notify Dairyland of the accident or to forward suit papers to it was not excused. Furthermore, the court of appeals held that prejudice is not a factor in determining the insurer’s liability when conditions precedent requiring the insured to give notice of an accident and to forward suit papers to the insurance company are breached and the breach of conditions is unexcused.

We affirm the court of appeals.

I.

We adhere to the fundamental concept enunciated in the landmark case of Barclay v. London Co., 46 Colo. 558, 105 P. 865 (1909), that the rights and duties flowing from an accident insurance policy are contractual in nature and are measured by the terms and conditions of the insurance contract to which the parties thereto have agreed. Insurance contracts are to be construed according to the general rules for construction of contracts. As stated in Olinger v. Christy, 139 Colo. 425, 342 P.2d 1000 (1959), a policy of insurance is not sui generis, but is treated in the law in the same way as contracts are treated generally, and is to be interpreted according to the intent of the parties. Accord, Waggoner v. Wilson, 31 Colo.App. 518, 507 P.2d 482 (1973); Jennings v. Brotherhood Accident Co., 44 Colo. 68, 96 P. 982 (1908).¹

Barclay, supra, dealt with provisions for notice of accident and claim similar to those in the present case, and although the policy there required the giving of immediate written notice of an accident or claim, the insured delayed in notifying the insurance company for over three months, and a denial of liability followed. This court characterized the insurance policy as an executory contract and notice provisions as conditions precedent, compliance with which was mandatory, absent a legal excuse for failure to comply. The principles of Barclay have been substantially followed by our courts throughout the years without fundamental change.

In Certified Indemnity Co. v. Thun, 165 Colo. 354, 439 P.2d 28 (1968), this court expressed the rule as follows:

“... failure to notify the insurer within a reasonable time constitutes a breach of that contract requiring a justifiable excuse or extenuating circumstances explaining the delay. Unless the delay is so explained, the insurer cannot be held liable under the insurance contract to defend the insured and to pay any judgments recovered against him.”

Illustrative of the firm adherence to the foregoing rule are the following cases: Cochran v. Massachusetts Bonding and Insurance Co., 76 Colo. 198, 230 P. 788 (1924); Thomas v. Guaranty Nat’l. Ins. Co., 43 Colo.App. 34, 597 P.2d 1053 (1979); Matthews v. Arko, 534 P.2d 658 (Colo.App.1975); Celina Mutual Ins. Co. v. Berg, 486 P.2d 472 (Colo.App.1971), cert. denied; Interstate v. Burns, 29 Colo.App. 276, 484 P.2d 1257, cert. denied (1971); Overturf v. National Union Fire Ins. Co., 470 P.2d 600 (Colo.App.1970); Wetzbarger v. Eisen, 475 P.2d 637 (Colo.App.1970); compare, Barnes v. Waco Scaffolding & Equip. Co., 41 Colo.App. 423, 589 P.2d 505 (1979), cert. denied.²

The foregoing cases involved factual situations where the notice of accident or suit had been delayed but eventually was given to the insurer, though not in a timely manner as required by the policy conditions. We emphasize that in the present case Valdez and Montoya, without justifiable excuse or extenuating circumstances, totally failed to give notice of any kind whatsoever to Dairyland, and that it was only by chance that Dairyland learned of the accident and lawsuit two and one-half years after the accident. A review of the evidence presented at trial fully supports the trial court’s findings on these factual issues. We are not at liberty to otherwise interpret the record were we inclined to do so.

In accordance with the rule of law consistently followed over the years by our courts, under the circumstances of the present case the failure of Valdez and Montoya to comply with the notice of accident and suit conditions, as a matter of law, constituted a material breach of the contract of insurance, relieving Dairyland of its duty to defend the insureds and to indemnify them with respect to any judgment holding them liable for the injuries to Marez.

II.

Petitioners contended in the trial court and assert here that they should have been allowed to present evidence showing that Dairyland was not prejudiced by reason of their failure to comply with the notice provisions of the policy. The trial court held that such evidence was immaterial to the issues before the court. According to the petitioners’ rationale, the insurer should escape liability under the terms of the contract only upon showing that it suffered prejudice as a result of the failure to provide notice and forward suit papers. They argue that public policy concerning automobile liability insurance, as announced by the general assembly in the “Motor Vehicle Financial Responsibility Act,” encourages the compensation of those injured in automobile accidents and favors the validity of automobile insurance contracts. See section 42-7-101, et seq., C.R.S.1973. Therefore, the argument goes, an insurer should not be able to deny liability when an insurance contract is in full force and effect, without first showing that it has been prejudiced by the delay in reporting an accident or in the forwarding of suit papers.

We note in passing that local federal courts have inferred that a rule of prejudice exists in Colorado, which allows the court to consider prejudice in determining insurer liability. Jennings v. Horace Mann Mutual Ins. Co., 549 F.2d 1364 (10th Cir. 1977); Hubner and Williams Construction v. London Guarantee and Accident Co., 280 F.Supp. 288 (D.Colo.1967); Aetna Cas. and Sur. Co. v. Samson, 471 F.Supp. 1041 (D.Colo.1979); Dairyland Ins. Co. v. Cunningham, 360 F.Supp. 139 (D.Colo.1973). This court has not directly addressed the issue of prejudice to an insurer or its effect on an insurer’s obligation to defend and indemnify the insured.

The Colorado Court of Appeals has held that in a case of excused delay in notification, prejudice is irrelevant. Barnes v. Waco Scaffolding & Equip. Co., 41 Colo.App. 423, 589 P.2d 505 (1978).³

Petitioners urge that we depart from the rationale of Barclay v. London Co., supra, and Certified Indemnity Co. v. Thun, supra, and adopt a new rule which takes into account the prejudice to the insurance company occasioned by the unexcused delay in giving notice of accident or claim. Petitioners assert this is the modern trend and that Colorado should join those other jurisdictions which have adopted the prejudice approach in determining liability in delayed notice cases. Generally, the rule in those cases puts the burden upon the insurance company to prove prejudice due to untimely notice if the insurance company is to be relieved of its contractual obligations. See, e.g., Globe Indemnity Co. v. Blomfield, 115 Ariz. 5, 562 P.2d 1372 (Ariz.App.1977); Billington v. Interinsurance Exchange, 71 Cal.2d 728, 456 P.2d 982, 79 Cal.Rptr. 326 (1969); Johnson Controls, Inc. v. Bowes, - Mass. -, 409 N.E.2d 185 (1980).

A small number of jurisdictions presume prejudice to the insurer when there is an untimely delay in providing notice. The burden is placed on the insured to rebut the presumption by proving that prejudice does not exist. See, e.g., Klein v. Allstate Ins. Co., 367 So.2d 1085 (Fla.App.1979); Henderson v. Hawkeye-Security Ins. Co., 252 Iowa 97, 106 N.W.2d 86 (1960); Lumbermen’s Mut. Cas. Co. v. Oliver, 115 N.H. 141, 335 A.2d 666 (1975).

Colorado has consistently followed the prevailing majority rule, based on traditional principles of contract law, that an unexcused delay in giving notice or forwarding suit papers relieves the insurer of its obligations under the policy. See, e.g., Southern Guaranty Ins. Co. v. Thomas, 334 So.2d 879 (Ala.1976); INA Ins. Co. of Ill. v. Chicago, 62 Ill.App.3d 80, 19 Ill.Dec. 519, 379 N.E.2d 34 (1978); Members Mutual Ins. Co. v. Cutaia, 476 S.W.2d 278 (Tex.1972); 8 Appleman, Insurance Law and Practice, § 4732 (1962); Comment, The Materiality of Prejudice to the Insurer as a Result of the Insured’s Failure to Give Timely Notice, 74 Dick.L.Rev. 260 (1970); Annot., 18 A.L.R.2d 443 (1951).

In our view, the facts of this case do not justify a departure from the present rule and the pronouncement of a new rule based on the concept of prejudice. To adopt a new rule in this case — where the insureds have totally failed to comply with the contract conditions — would negate the purpose of the contract conditions and render them meaningless and would in effect rewrite the insurance policy contrary to the intent of the parties as expressed by the clear, unambiguous language of the contract. It is universally acknowledged, as petitioners have admitted, that the notice of accident and claim provisions provide substantial benefits and protections to both the insurance company and the insured. As stated in Certified Indemnity Co. v. Thun, supra:

“The reasons insurers require prompt notice of an accident from the insured are well stated in 8 J. Appleman, supra, § 4731:

‘The purpose of a policy provision requiring the insured to give the company prompt notice of an accident or claim, is to give the insurer an opportunity to make a timely and adequate investigation of all the circumstances. An adequate investigation often cannot be made where notice is long delayed, because of the possible removal or lapse of memory on the part of witnesses, the loss of opportunity for examination of the physical surroundings and making photographs thereof for use at the trial, and the possible operation of fraud, collusion or cupidity. Such a requirement tends to protect the insurer against fraudulent claims, and also against invalid claims made in good faith. And further, if the insurer is thus given the opportunity for a timely investigation, reasonable compromises and settlements may be made, thereby avoiding prolonged and unnecessary litigation.

In view of the salutary purposes of the provisions for notice of accident and claim, they should not be lightly ignored or set aside without substantial justification, which we find lacking in the present case. Moreover, were we to attempt to adopt a new rule of law embodying the various aspects of the concept of prejudice, we would be formulating an abstract rule in a factual vacuum. Absent a factual context which compels, in the interests of justice, a departure from our present long established rule and the adoption of a new rule based on different considerations, it is jurispru-dentially sound to leave the matter to another day, or to the wisdom of the general assembly which has recently enacted sweeping revisions of the Colorado insurance law by adoption of the “Colorado Automobile Accident Reparations Act,” section 10-4-701, et seq., C.R.S.1973.⁴

The judgment is affirmed.

1 . We do not regard the insurance contract in this case to be an adhesion contract. See Jones v. Dressel, Colo., 623 P.2d 370 (1981).

2 . Although some of the above cited decisions of the court of appeals were not selected for official publication, they are included to demonstrate the consistency with which the appellate courts have followed the Barclay, supra rule.

3 . In two unpublished opinions the Colorado Court of Appeals has rejected insurer prejudice as a relevant subject of inquiry in late notice cases. Wetzbarger v. Eisen, 475 P.2d 637 (Colo.App.1970); Matthews v. Arko, 534 P.2d 658 (Colo.App.1975). We decline to either endorse or reject the rationale espoused by the court of appeals in those unpublished opinions, but merely cite them to illustrate the consistency with which these cases have been decided.

4 . Concerning the latter approach, the Supreme Court of Texas noted:

“The matter of whether prejudice is material and under what circumstances the failure to comply with conditions precedent will be excused has been handled by legislation in some states, presumably after public hearings so that all sides may be heard.

“Our conclusion is ... that on balance it is better policy for the contract of insurance to be changed by the public body charged with their supervision, the State Board of Insurance, or by the Legislature rather than for this Court to insert a provision that violations of conditions precedent will be excused if no harm results from their violation.” Members Mutual Ins. Co. v. Cutaia, 476 S.W.2d 278 (Tex.1972).