Court Opinion

ID: 9730909
Source: CourtListenerOpinion
Date Created: 2023-08-26 15:27:42.261886+00
Date Added: 2024-06-11T18:26:10.140764
License: Public Domain

POMEROY, Justice,
dissenting.
The Court today holds “that where an insurance company seeks to be relieved of its obligations under a liability insurance policy on the grounds of late notice, the insurance company will be required to prove that the notice provision was in fact breached and that the breach *88resulted in prejudice to its position.” Opinion of the Court, ante at 198. I agree with the majority, although for different reasons, that in the absence of prejudice an insurance company should not be able to avoid liability solely on the ground that the notice of accident was not timely. I cannot agree, however, that if a breach of a notice provision is proved, the burden of demonstrating prejudice to defense of a claim should be borne by the insurer. In short, I am of the view that the Superior Court’s holding was correct.1
I.
The majority correctly observes that prior to the instant decision, Pennsylvania law, employing traditional contract principles, upheld the validity of a clause in an insurance policy requiring written notice of accident to be given “as soon as practicable.” Opinion of the Court, ante at 195 and cases cited. Moreover, the policy provision that compliance with such a clause was a condition precedent to recovery was literally enforced, resulting in relieving the insurer of the liability which might otherwise been imposed. Id. This was on the theory that breach of the notice requirement raised a conclusive presumption that the insurer was prejudiced, irrespective of whether the insurer had in fact suffered prejudice. Meierdierck v. Miller, 394 Pa. 484, 486, 147 A.2d 406, 408 (1959); Ross v. Mayflower Drug Stores, Inc., 338 Pa. 211, 215, 12 A.2d 569, 571 (1940). The important question in cases litigated under prior law was whether the insured breached the prompt notice clause. *89As the majority notes, our case law interpreted “as soon as practicable” in a flexible fashion, taking into account the facts and circumstances of each case, and gave due regard to extenuating circumstances where notice was delayed. Opinion of the Court, ante at 195, 196 and cases cited.
In support of today’s decision to depart from the so-called “strict contractual approach” of our past decisions, opinion of the Court, ante at 196, the majority offers several reasons: “an insurance contract is not a negotiated agreement,” id. at 196; enforcing the notice clause as a condition precedent involves a forfeiture, id. at 196, 197; and for an insurer to be released from liability due solely to late notice in a situation where no prejudice is shown to the insurer’s position does not “comport with the reasonable expectations of those who purchase insurance policies,” id. at 198 (footnote omitted). I find myself unable to accept this rationale in its entirety. While some courts have chosen to reject traditional contract principles in interpreting insurance policies, I perceive no reason to do so in wholesale fashion. Indeed, a majority of the jurisdictions in this country still adhere to the traditional approach. See Annot., 18 A.L.R.2d 443 (1951); 8 J. Appleman, Insurance Law and Practice, § 4732 (1962), and cases cited therein. Moreover, under the unnecessarily broad and sweeping language of the majority in this case, virtually any clause in an insurance contract could easily be held to be unenforceable, even though it is neither unconscionable nor against public policy. I therefore cannot join in the majority’s analysis in the case at bar. Thus is not to say, however, that some change in our prior law is not called for in light of the practices and expectations that presently characterize the purchasing of liability insurance.
The starting point for analysis of any rule of law lies in an examination of its purpose. The purpose of a requirement that an insurer be given reasonably prompt *90notice of accident was described in Hachmeister, Inc. v. Employers Mutual Liability Ins. Co., 403 Pa. 430, 433, 169 A.2d 769, 770 (1961): “The ‘reasonable notice clause’ is designed to enable an insurer to investigate the circumstances of an accident while the matter is fresh in the minds of all, and to be able to make a timely defense against any claim filed. [Citation omitted]. The possibility that a settlement or a verdict more favorable to an insurer might be achieved if prompt notice had been received by it, cannot be discounted.” A somewhat fuller statement of purpose of a notice provision in an insurance policy has been given by a well-known commentator as follows:
“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 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.” 8 J. Appleman, Insurance Law and Practice, § 4731 at 2-3 (1962) (footnotes omitted).
Finally, as Professor Keeton has observed, prompt notice clauses serve broad social interests as well:
“[T]he purpose of the requirement of notice is to give the insurer reasonable opportunity to protect its rights. In so doing, however, the insurer is sometimes *91protecting the interests of the particular insured in the instant case as well and often is serving the best interests of its insureds as a group. Thus problems involving enforcement of such provisions cannot properly be regarded as raising merely issues of competing interests between the insurer and the insured in the particular case.
3: $ ‡ ‡ ‡ ‡ ‡
“The interests of insureds generally and the public interest may also be served in some instances in which the requirement of prompt notice is a disadvantage to the insured in the instant case. Under any type of insurance, early investigation reduces the risk of successful fraudulent claims. This is a disadvantage to the specific claimant, who often is also the insured, but it is a disadvantage fully supportable in the public interest.
“Provisions designed to require timely presentment of claims . . . are advantageous to insurers and insureds ... in the control of claims in a very broad sense. First, they reduce the overall cost of the coverage below what it would be in the absence of such provisions. . . . Second, they reduce the burden of providing reserves for undetermined claims by reducing the period and degree of uncertainty concerning the number of claims . . . and their amounts . .” R. Keeton, Insurance Law — Basic Text, § 7.2(a) at 445-46 (1972) (footnotes omitted).
It is clear, therefore, that prompt notice clauses serve significant and indeed necessary purposes, and to my mind are in no way unreasonable or contrary to public policy. Recognizing the validity of these purposes, however, should not serve to relieve an insurer of its obligations under the policy or to deprive an insured of coverage if in a particular case the purposes of the notice clause have in fact been satisfied, albeit the notice is untimely. Thus if the insurer is not prejudiced by a tardy *92notice, so that it can make as effective a defense or settlement as it could have made had timely notice been given, the purposes of the clause are fulfilled and the insurer should not, solely because of untimeliness of notice, be relieved from its contractual obligations. Thus insofar as a majority holds that prejudice to the insurer is a “material factor in determining whether to relieve the insurance company of its coverage obligations by virtue of late notice,” opinion of the Court, ante at 195, 196, I concur in the opinion.
II.
The Court holds, however, not only that prejudice to the insurance carrier is a prerequisite to avoidance of carrier liability in notice of accident cases, but also that the burden of affirmatively proving such prejudice is upon the. carrier. In so holding the majority reasons that “[i]n view of the facts that an insurance contract is not a truly consensual agreement, that what is involved is a forfeiture and it is the insurance company who chooses to disclaim its obligations under the policy, it is more equitable to place the burden of showing prejudice on the insurance company.” Opinion of the Court, ante at 198 (footnote omitted). I must disagree.
First, while it is no doubt true that an insurance contract is not negotiated in the traditional sense, it does not automatically follow that any or all of its terms are unconscionable or unreasonable or that they do not coincide with the parties’ intentions. As noted above, prompt notice provisions are not only reasonable and necessary, but they also serve to protect the interests of individual insureds and insureds as a group. Moreover, the fact that the ultimate result of any given case may be a “forfeiture” is no reason to allocate the burden to one party or another. In fact, the new requirement that lack of timely notice be prejudicial to the insurer before liability is excused is designed to prevent unjust forfeitures of cov*93erage. Finally, while the carrier is indeed seeking to avoid or minimize liability, the insured is also seeking to avoid, without reasonable excuse, the plain and unambiguous terms of the policy upon which coverage in the first instance was granted. In short, the mere invocation of such concepts as adhesion contracts, forfeiture, and avoidance of liability should not be held determinative of the issue.
To my mind, it makes far more sense, both in terms of equity and the realities of an accident situation to require the insured to demonstrate that unreasonable delay in giving notice of accident, unexcused by any extenuating circumstances, was not prejudicial to the insurer’s position. Appleman puts the matter in perspective:
“Many 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 ascer*94tained 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.” 8 J. Appleman, Insurance Law and Practice § 4732 at 15-19 (1962) (footnotes omitted).
As Judge Van der Voort for the Superior Court majority observed, “The thoughts of [Appleman] are sound. Placing the burden of proving prejudice upon the insurer would essentially be similar to requiring it to disprove a negative. The insurer’s lack of knowledge of particular facts helpful to a defense may also operate to make it impossible for the insurer to show the underlying prejudice.” Brakeman v. Potomac Ins. Co., supra at 327, 344 A.2d at 558 (emphasis in original). See also Note, Liability Insurance Policy Defenses and the Duty to Defend, 68 Harv.L.Rev. 1438 (1955). Indeed, the majority of this Court concedes that “prejudice is a difficult matter for the insurance company to prove affirmatively. .” Opinion of the Court, ante at 198. In contrast, while it may well be difficult for an insured to demonstrate a lack of prejudice, common sense indicates that the insured will havé more relevant facts within its knowledge concerning the accident than an untimely notified carrier, and therefore will be in a better position to meet its burden of proof. Moreover, it should be remembered that it is the insured who is seeking to be excused from failure to comply with the timely notice requirement of the policy. I have no. doubt whatever that it is more equitable to place the burden of proof on the breaching party than on the other. See Restatement of Contracts, Second, Section 255 (Tentative Draft # 7, 1972); Brakeman v. Potomac Ins. Co., supra at 332 — 33, 344 A.2d at 561 (Cercone, J., concurring).
For the reasons stated, I would affirm the order' of the Superior Court granting a new trial, but with the burden of proof allocation as stated in the majority opinion of the Superior Court.

. A majority of the Superior Court held that
“ . . . [L]ate notice to a liability insurer of an event possibly leading to claims against the coverage, in violation of a policy provision requiring prompt notice, and in the absence of extenuating circumstances, creates a presumption of prejudice to the insurer. . . [T]his presumption of prejudice may be overcome by proof by the claimant that the insurer was not prejudiced by the tardy notice.” Brakeman v. Potomac Ins. Co., 236 Pa.Super. 320, 328, 344 A.2d 555, 559 (1975).