371 A.2d 193 (Pa. 1977), Brakeman v. Potomac Ins. Co.

Citation:371 A.2d 193, 472 Pa. 66
Opinion Judge:Author: Eagen
Party Name:Allan E. BRAKEMAN, Appellee, v. The POTOMAC INSURANCE COMPANY, Appellant.
Case Date:March 16, 1977
Court:Supreme Court of Pennsylvania
 
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Page 193

371 A.2d 193 (Pa. 1977)

472 Pa. 66

Allan E. BRAKEMAN, Appellee,

v.

The POTOMAC INSURANCE COMPANY, Appellant.

Supreme Court of Pennsylvania.

March 16, 1977

Argued Sept. 23, 1976.

Page 194

[472 Pa. 68] Roger H. Taft, John M. Wolford, MacDonald, Illig, Jones & Britton, Erie, for appellant.

Paul D. Shafer, Jr., Thomas, Shafer, Walker, Dornhaffer & Swick, Meadville, for appellee.

Before JONES, C.J., and EAGEN, O'BRIEN, ROBERTS, POMEROY and MANDERINO, JJ.

OPINION OF THE COURT

EAGEN, Chief Justice.

On March 3, 1970, the appellee, Allan E. Brakeman, was involved in an accident when his motorcycle collided with an automobile operated by David Baker in Meadville, Pennsylvania. The Baker automobile was owned by Edwin Baker, David's father. David, a seventeen-year-old licensed operator, was insured under an automobile liability insurance policy maintained by the elder Baker with the appellant, The Potomac Insurance Company (hereafter Potomac). As a result of the accident, Brakeman allegedly suffered permanent disability and loss of income. Potomac did not receive written notice of the accident until October 6, 1970, after the Bakers had received a letter from Brakeman's attorney stating that suit against David Baker was being instituted. Potomac refused to defend against Brakeman's suit or accept any liability flowing from the accident, stating that Baker breached the insurance contract by failing to provide Potomac with timely notice of the accident. Brakeman filed suit against Baker on February 24, 1971, in the Court of Common Pleas of Crawford County. Baker retained his own counsel and on January 10, 1972, a verdict[472 Pa. 69] in the sum of ten thousand dollars ($10,000.00), the exact amount of Baker's insurance coverage, was directed by the Court in favor of Brakeman and against Baker by agreement of the parties and without actual trial.

Brakeman then brought the instant action against Potomac in the Court of Common Pleas of Crawford County to recover the amount of the consent judgment. A jury returned a general verdict in favor of Brakeman for ten thousand dollars ($10,000.00). The court, however, subsequently granted Potomac's motion for judgment Non obstante veredicto on the ground that Baker's written notice to Potomac, some seven months after the accident, was unreasonable and in violation of the clause in the insurance policy requiring notice of the accident 'as soon as practicable.'

Brakeman appealed to the Superior Court of Pennsylvania which reversed the judgment entered in the trial court in favor of Potomac and remanded the record with directions to proceed with a new trial. The Superior Court ruled that a delayed notice of an accident will not release the insurer from liability under the policy, even in the absence of extenuating circumstances, if the claimant can show that the insurer was not in fact prejudiced thereby. Brakeman v. Potomac Insurance Co., 236 Pa.Super. 320, 344 A.2d 555 (1975). 1 We granted allocatur.

The insurance policy in the instant case contained the following provisions:

'In the event of an accident, occurrence or loss, written notice containing

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particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, Shall be given by or for the [472 Pa. 70] insured to the company or any of its authorized agents as soon as practicable.

'No action shall lie against the company unless, As a condition precedent thereto, the insured shall have fully complied with all of the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either By judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company.' (Emphasis added.)

Our past decisions clearly establish the validity of a provision in an insurance policy requiring written notice of accident to be given 'as soon as practicable' and where an insurance policy has contained such a clause, we have said that the duty to give the notice as stipulated is a condition precedent, and its breach releases the insurance company from the obligations imposed by the policy, regardless of whether the company suffered prejudice thereby. Meierdierck v. Miller, 394 Pa. 484, 147 A.2d 406 (1959); Jeannette Glass Co. v. Indemnity Insurance Co. of North America, 370 Pa. 409, 88 A.2d 407 (1952); Unverzagt v. Prestera, 339 Pa. 141, 13 A.2d 46 (1940); Ross v. Mayflower Drug Stores, Inc., 338 Pa. 211, 12 A.2d 569 (1940). We have interpreted 'as soon as practicable' to mean within a reasonable time depending on the facts and circumstances of each case, Farmers National Bank v. Employers Liability Assurance Corp., 414 Pa. 91, 199 A.2d 272 (1964); Jeannette Glass Co. v. Indemnity Insurance Co. of North America, supra; Unverzagt v. Prestera, supra, and the cases indicate that extenuating circumstances may excuse a delay in notification provided there has not been a lack of due diligence. 2 [472 Pa. 71] Wardle v. Miller, 375 Pa. 565, 101 A.2d 720 (1954); Hughes v. Central Accident Insurance Co., 222 Pa. 462, 71 A. 923 (1909).

Thus, under our prior decisions, a party claiming rights under a liability insurance policy has had the burden of proving compliance with the terms and conditions of that policy and the determination whether to relieve the insurer of its obligations under the policy on the ground of late notice has depended only on the length of delay in giving the notice and the reasons offered to excuse the delay. As such, our prior decisions are in line with the rule applied in a majority of jurisdictions. See Annot. 18 A.L.R.2d 443 (1951); 8 J. Appleman, Insurance Law and Practice § 4732 (1962), and cases cited therein. Our research indicates, however, a trend of late in several jurisdictions away from the classic contractual approach towards a view that considers prejudice to the insurance company as a material factor in determining whether to relieve the insurance company of its coverage obligations by virtue of late notification. Even in these last mentioned

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jurisdictions, however, there is no agreement as to whether the insurer has the initial burden of [472 Pa. 72] demonstrating prejudice. Some courts place the burden on the claimant to establish an absence of prejudice to the insurer in order to recover on the policy despite late notice, 3 while others require the insurance company to show that it was prejudiced by the tardiness of the notice in order to escape liability. 4 We think the preferable rule is that which requires the insurance company to prove not only that the notice provision was breached, but also that it suffered prejudice as a consequence.

The rationale underlying the strict contractual approach reflected in our past decisions is that courts should not presume to interfere with the freedom of private contracts and redraft insurance policy provisions where the intent of the parties is expressed by clear and unambiguous language. We are of the opinion, however, that this argument, based on the view that insurance policies are private contracts in the traditional sense, is no longer persuasive. Such a position fails to recognize the true natjre of the relationship between insurance companies and their insureds. An insurance contract is not a negotiated agreement; rather its conditions are by and large dictated by the insurance company to the insured. The only aspect of the contract over which the insured can 'bargain' is the monetary amount of coverage. And, as we have recognized, notice of accident provisions, such as that with which we are concerned instantly,[472 Pa. 73] are uniformly found in liability insurance policies. Meierdierck v. Miller, supra, 394 Pa. at 486, 147 A.2d at 408. Indeed, a review of the cases indicates that often the policies express the condition in identical language. In Cooper v. Government Employees Insurance Co., 51 N.J. 86, 237 A.2d 870 (1968), the Supreme Court of New Jersey stated:

'. . . (W)e have recognized that the terms of an insurance policy are not talked out or bargained for as in the case of contracts generally, that the insured is chargeable with its terms because of a business utility rather than because he read or understood them, and hence an insurance contract should be read to accord with the reasonable expectation of the purchaser so far as its language will permit.'

51 N.J. at 93, 237 A.2d at 873. 5 Thus, an insured is not able to choose among a variety of insurance policies materially different with respect to notice requirements, and a proper analysis requires this reality be taken into account. 6

A strict contractual approach is also inappropriate here because what we are concerned with is a forfeiture. The insurance company in the instant case accepted the

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premiums paid by the insured for insurance coverage and now seeks to deny that coverage on the ground of [472 Pa. 74] late notice. As was said in Cooper v. Government Employees Insurance Co., supra:

'(A)lthough the policy may speak of the notice provision in terms of 'condition precedent,' . . . nonetheless what is involved is a forfeiture, for the carrier seeks, on account of a breach of that provision, to deny the insured the very thing paid for. This is not to belittle the need for notice of an accident, but rather to put the subject in perspective. Thus viewed, it becomes unreasonable to read the provision unrealistically or to find that the carrier may forfeit the coverage, even though there is no likelihood that it was prejudiced by the breach. To do so would be unfair to insureds.'

51 N.J. at 93--94, 237 A.2d at 873--874. 7

We are reluctant, therefore...

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