Court Opinion

ID: 9618416
Source: CourtListenerOpinion
Date Created: 2023-08-22 05:12:12.580483+00
Date Added: 2024-06-11T11:32:26.236224
License: Public Domain

Justice Meyer
dissenting.
I must respectfully dissent. First, I cannot agree with the result reached by the majority; and second, even if I agreed with that result, I am convinced it could have been reached by the application of law well established in this jurisdiction and certainly without the violence done to existing precedent by the majority opinion.
I.
It is well settled in this jurisdiction that a provision in a policy of liability insurance which requires the insured to give notice “as soon as practicable” is reasonable, valid and enforceable. Muncie v. Insurance Company, 253 N.C. 74, 116 S.E. 2d 474 (1960); accord Waters v. American Automobile Insurance Company, 363 F. 2d 684 (D.C. Cir. 1966); Allstate Insurance Company v. Edwards, 237 F. Supp. 195 (N.D. Ca. 1964); Resseguie v. *401American Mutual Liab. Ins. Co., 51 Wisc. 2d 92, 186 N.W. 2d 236 (1971).
For over half a century North Carolina has followed the rule that if under the policy of insurance the insured is required to give the insurer notice of an accident “as soon as practicable” and that requirement is made a condition precedent to coverage under the policy, then it is immaterial whether the insurer is prejudiced by the insured’s failure to give such notice. The failure to give notice is a failure to comply with the notice requirement and constitutes a violation of a condition precedent to coverage. As a result, coverage is forfeited. Fleming v. Nationwide Mutual Insurance Co., 261 N.C. 303, 134 S.E. 2d 614 (1964); Muncie v. Travelers Insurance Company, 253 N.C. 74, 116 S.E. 2d 474 (1960); Peeler v. United States Casualty Co., 197 N.C. 286, 148 S.E. 2d 261 (1929). See also Taylor v. Insurance Co., 35 N.C. App. 150, 240 S.E. 2d 497, pet. for discret. rev. denied, 294 N.C. 739, 244 S.E. 2d 156 (1978).
The most recent case applying North Carolina law was filed 14 August 1980, three months after the decision of the Court of Appeals in this case. In Fortress Re, Inc. v. Jefferson Ins. Co., 628 F. 2d 860 (4th Cir. 1980), the Fourth Circuit affirmed Judge Dupree’s lower court ruling, applying North Carolina law, that failure of the insured to comply with a contractual requirement of prompt notice resulted in a forfeiture of insurance coverage. I realize that Judge Dupree lacked the authority to overrule existing North Carolina cases as the majority has done here, but I point out that Judge Dupree and the Fourth Circuit Court of Appeals held that the insured’s failure to comply with the notice provision resulted in forfeiture of coverage under the policy. Specifically rejected was the insured’s contention that a showing of prejudice is required.
While there is indeed a modern trend to the contrary, I believe this continues to be the majority rule in this nation:
The rule established by the weight of authority is that where, by the terms of the insurance contract, a specific notice of accident, given by or on behalf of the insured to the insurer, is made a condition precedent to liability on the part of the latter, the failure to do so will release the insurer from *402the obligations imposed by the contract, although no prejudice may have resulted.
By reason of the overwhelming weight of authority of the courts of last resort within the United States, we are compelled to hold that on account of the respondent’s failure to perform the condition precedent, stipulated in the policy as such, of giving notice of the suit and forwarding summons and complaint within a reasonable time, no action on his part lay against the company. Lack of prejudice, under the terms of the policy, was immaterial.
State Farm Mut. Automobile Ins. Co. v. Cassinelli, 216 P. 2d 606, 610-611, 616 (Nev. 1950), quoting Houran v. Preferred Acc. Ins. Co. of New York, 109 Vt. 258, 195 A. 253, 259 (1937) and citing numerous cases reaching a similar result.
As one commentator has noted:
The majority, however, have refused to abandon their disciplined approach to contract law. While there appears to be a trend towards a more liberal approach in favor of the insured, the plurality of courts still place great emphasis on the sanctity of the policy.
The majority of courts favor adherence to this strict contractual obligation except where the terms of the policy are ambiguous or unemphatic.
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, 261, 262 (1970). See Annot., 18 A.L.R. 2d 443 (1951); 44 Am. Jur. 2d Insurance § 1455; Note, Insurance — A New Approach for the Interpretation of Insurance Contracts, 17 Wake Forest L. Rev. 141 (1981). See also Ziman v. Employer’s Insurance Co., 493 F. 2d 196 (2d Cir. 1974); Sohm v. United States Fidelity & Guaranty Co., 352 F. 2d 65 (6th Cir. 1965); National Surety Co. v. Dotson, 270 F. 2d 460 (6th Cir. 1959); Preferred Accident Insurance Co. of New York v. Castellano, 148 F. 2d 761 (2d Cir. 1945); Hartford Accident & Indemnity Co. v. Loyd, 173 F. Supp. 7 (W.D. Ark. 1973); *403Maryland Casualty Co. v. Wilkerson, 119 F. Supp. 383 (E.D. Va. 1953), aff’d per curiam, 210 F. 2d 245 (4th Cir. 1954); Liberty Mutual Insurance Co. v. Bob Roberts & Co., 357 So. 2d 968 (Ala. 1978); Bituminous Casualty Corp. v. J. B. Forrest & Sons, Inc., 133 Ga. App. 864, 212 S.E. 2d 497 (1975); Viani v. Aetna Insurance Co., 95 Idaho 22, 501 P. 2d 706 (1972); INA Insurance Co. of Illinois v. City of Chicago, 62 Ill. App. 3d 80, 379 N.E. 2d 34 (1978); Security Insurance Group v. Emery, 272 A. 2d 736 (Me. 1971); Rose v. Regan, 344 Mass. 223, 181 N.E. 2d 796 (1962); Gizzi v. State Farm Mutual Insurance Co., 56 App. Div. 2d 973, 393 N.Y.S. 2d 107 (1977); Shelton v. Ray, 570 S.W. 2d 419 (Tex. Civ. App. 1978).
I do not believe this case is the proper vehicle for so drastic a departure from our prior case law. The facts of the case simply do not justify it. This is a declaratory judgment action by which the plaintiff-insurance company seeks a judicial determination as to whether it must provide coverage to the defendant-contractor under a policy of insurance. I cannot agree with the majority that under the facts of this case the defendant may be entitled to coverage.
I cannot conclude from the record before me that Tate’s failure to notify the plaintiff of the accident was either justified or excusable. This is not a case of a bent fender on the family car — this accident involved the head-on collision between a gasoline tanker and a passenger automobile in which the tanker exploded, causing very serious personal injuries to several people and substantial property damage. Tate’s own bulldozer-type tractor was severely burned. On the very evening of the accident, within hours of the collision, the South Carolina patrolman who investigated the accident told Tate’s job superintendent that both the driver of the car and the driver of the tanker stated that Tate’s bulldozer-type tractor backed into the road and caused the collision. There were stories in the local news media attributing fault to Tate. These stories were known to the job superintendent. In view of the serious nature of the accident, the injuries and damage that grew out of it, and the magnitude of potential claims, it is inconceivable to me that any ordinary, prudent person would not or should not have known that claims might be filed against Tate and that the insurance carrier should be notified.
Judge Bailey, a very able and experienced trial judge, after hearing all of the evidence, found as fact that Tate knew, or *404should have known, in the exercise of ordinary and reasonable prudence, that claims might be filed against it. Tate knew of its potential involvement in the accident shortly after it occurred. There was ample evidence to support that finding and the conclusion that Tate’s failure to give notice as soon as practical was “unjustified and inexcusable.” The majority does not contend otherwise. They tacitly acknowledge that under these circumstances, unless we change the law, precedent would dictate that we reverse the Court of Appeals and affirm the trial judge. The majority has voted to change the law of this State and today hold that Tate’s “unjustified and inexcusable” delay does not relieve Great American of its obligation to defend and indemnify Tate unless the delay operates materially to prejudice Great American’s ability to investigate and defend. This is not interpreting the law —it is making it — a process we would be well advised to leave to the legislature.
I am also concerned about several other aspects of the majority opinion.
After establishing the new rule that the delay in giving (and presumably here failure to give1) notice must materially prejudice the ability of the insurer to defend the claim, the majority then places the burden on the insurer to prove material prejudice. I contend that the burden should be upon the party attempting to excuse his failure to comply with the contract — the insured. Admittedly, it may be difficult for either party to satisfy the burden. It seems to me that common sense dictates that the insured will have more relevant facts within its knowledge concerning the accident than an untimely notified carrier. The insured’s knowledge of the facts surrounding an accident would also necessarily be more timely. The insured would be in a far better position to meet that burden of proof. See Restatement (Second) of Contracts § 225 (1973). In my opinion, prejudice should be presumed with the burden being upon the insured to show that the insurer suffered no prejudice. I believe that to be the majority view in those courts which have elected to follow the modern trend. See 8 J. Appleman, Insurance Law and Practice § 4732 at 15-19 (1962) where this comment appears:
*405Many courts have adopted the rule that it is unnecessary for the company to show that it was prejudiced by the neglect of the insured in order to assert this policy defense, it being frequently stated that prejudice is presumed under these circumstances. This does not mean that upon a showing of delay, alone, the insurer walks out of court free of potential claims. It means, rather, that prejudice being a difficult matter affirmatively to prove, it is not required to make such proof. Prejudice may be presumed, with the burden upon the one seeking to impose liability to show that no prejudice did, in fact, occur — for example, that a complete investigation was made by another insurer or by competent persons who turned over the results to the ‘late notice’ insurer.
A few courts, however, have adopted a so called rule of ‘substantial prejudice’ which requires that the insurer, in order to be relieved of liability, demonstrate that it was materially and substantially hampered in the making of its defense or in the discovery of facts by the lack of timely notice. Since it is often impossible for the insurer to know what witnesses it would have found or what facts it could have ascertained had immediate notice been given and a prompt investigation made, it is submitted that this test is unworkable. The burden should be placed upon the one seeking to recover. (Emphasis added.)
Nor can I agree with the majority that “the risk undertaken by the insurer remains unchanged” under the new rule. Such a conclusion ignores reality. Previously the insurer had no burden of showing prejudice. Under the new rule it has the added burden of proving that its ability to investigate and defend was materially prejudiced by the delay. This new burden creates a substantial additional risk of non-persuasion. Prior to this case, the insurer bore no such risk.
I agree with the majority that the polar star in interpreting notice provisions should be to interpret them “in accord with the reasonable expectations of the parties.” Unlike the majority, however, I do not feel this to be an innovative idea. Nor do I find this idea an impediment to what I deem to be the proper resolution of this case. As this Court said over forty years ago, the intent of the contracting parties is assumed to be the fulfillment of *406both parties’ expectations: to guarantee the insurer the payment of premiums and protection from fraud and imposition, and to give the insured the protection and benefits for which it paid. Woodell v. Aetna Life Ins. Co., 214 N.C. 496, 499, 199 S.E. 719, 721 (1938). In my opinion, the majority has not adequately considered the reasonable expectations of the insurer.
II.
Now, assuming arguendo that the majority is correct that the carrier should not be relieved of its policy obligations under the particular facts of this case, I believe that result could and should be reached by a different route, thereby avoiding so radical a departure from precedent. In my view this case ought to be decided on the basis that the delay of twenty-seven days was excusable by reason of the fact that Tate’s investigation revealed no involvement in the accident by its personnel or vehicles.
The majority acknowledges the latitude allowed by our previous decisions in excusing delays where there is good reason to do so. The record before us indicates that the dialogue between Tate and the insurance company began on the same day the carrier received notice of the accident by way of the Workers’ Compensation claim of Thomas. The insurance company here received actual notice of the accident within twenty-seven days of its happening.
There are many cases from other jurisdictions to the effect that the insured may be excused for a delay or even failure to give notice where it appears that, acting as a reasonable, prudent person, he believed that he was not liable for the accident. Hartford Accident and Indem. Co. v. Lochmandy Buick Sales, 302 F. 2d 565 (7th Cir. 1962); Standard Accident Ins. Co. v. Turgeon, 140 F. 2d 94 (1st Cir. 1944); Dunn v. Travelers Indemnity Co., 123 F. 2d 710 (5th Cir. 1941); Young v. Travelers Ins. Co., 119 F. 2d 877 (5th Cir. 1941); United States Casualty Company v. Reese, 229 F. Supp. 24 (E.D. Tex. 1964); Day v. Hartford Accident and Indemnity Company, 223 F. Supp. 953 (N.D. Okla. 1963); Hughey v. Aetna Casualty & Surety Company, 30 F.R.D. 508 (Del. 1962); Barnes v. Waco Scaffolding & Equip. Co., 589 P. 2d 505 (Colo. App. 1978); H. H. Hall Construction Company v. Employer’s Mut. Liability Ins. Co., 43 Ill. App. 2d 62, 193 N.E. 2d 51 (1963); Leytem v. Firemen’s Fund Indemnity Co., 249 Iowa 524, 85 N.W. 2d 921 *407(1957); Frederick v. John Wood Company, 263 Minn. 101, 116 N.W. 2d 88 (1962); Williams v. Cass-Crow Wing Co-op. Ass’n, 224 Minn. 275, 28 N.W. 2d 646 (1947); Pawtucket Mutual Insurance Company v. Lebrecht, 104 N.H. 465, 190 A. 2d 420 (1963); Farm Bureau Mut. Automobile Ins. Co. v Manson, 94 N.H. 389, 54 A. 2d 580 (1947); Figueroa v. Puter, 84 N.J. Super. 349, 202 A. 2d 195 (App. Div. 1964); LoTempio v. Safeco Ins. Co. of America, 71 App. Div. 2d 799, 419 N.Y.S. 2d 347 (1979); Public Service Mut. Ins. Co. v. Levy, 57 App. Div. 2d 794, 395 N.Y.S. 2d 1 (1977); Utica Mut. Ins. Co. v. C.L. Haines Mfg. Co., 55 App. Div. 2d 834, 390 N.Y.S. 2d 320 (1976); Marallo v. Aetna Casualty and Surety Company, 148 N.Y.S. 2d 378 (S.Ct. 1955); Munal Clinic v. Applegate, 273 S.W. 2d 712 (Tenn. App. 1954); Employers Casualty Company v. Scott Electric Co., 513 S.W. 2d 642 (Tex. Civ. App. 1974).
The facts of this case fit comfortably in the category of the cases in which the delay or failure to give the required notice was justified or excused, assuming as the majority has done that the record does not support Judge Bailey’s conclusion that Tate’s failure to give notice was unjustified and inexcusable.
Conclusion
I compliment the majority opinion for its explanation of the “three-step test” for determining whether the insurer is obligated to defend. It will certainly be needed.
Lastly, even under the new rule adopted by the majority, I fail to see how remand for further proceedings is justified under the particular facts of this case. I question how, on remand, Tate’s actions can be found to be “in good faith” in view of the fact that they have already been found to be “unjustified and inexcusable.”
I vote to reverse the Court of Appeals and reinstate Judge Bailey’s judgment in favor of the plaintiff.

. Even though in this case Tate never reported the accident, it is still a question of delay in the receipt of notice and the majority opinion is couched in terms of “delay.”