Aetna Cas. and Sur. Co. v. Murphy

• Decision Date: 01 March 1988
• Docket Number: No. 13206,13206
• Citation: 206 Conn. 409,538 A.2d 219
• Court: Connecticut Supreme Court
• Parties: AETNA CASUALTY AND SURETY COMPANY v. George A. MURPHY III.

Page 219

538 A.2d 219

206 Conn. 409

AETNA CASUALTY AND SURETY COMPANY v. George A. MURPHY III.

No. 13206.

Supreme Court of Connecticut.

Argued Jan. 5, 1988.

Decided March 1, 1988.

Lester Katz, Hartford, with whom was Rebecca B. Lamont, West Hartford, for appellant (defendant-third party plaintiff).

Richard A. Roberts, Milford, with whom, on the brief, was Paul A. Morello, Jr., for appellee (third party defendant).

Before PETERS, C.J., and ARTHUR H. HEALEY, CALLAHAN, GLASS and COVELLO, JJ.

PETERS, Chief Justice.

The sole issue in this appeal is whether an insured who belatedly gives notice of an insurable claim can nonetheless recover on the insurance contract by rebutting the presumption that his delay has been prejudicial to the insurance carrier. The plaintiff, Aetna Casualty and Surety Company, brought an action against the defendant, George A. Murphy III, to recover for damage he allegedly caused to a building it had insured. The defendant then filed a third party complaint impleading his comprehensive liability insurer, Federal Insurance Company, Chubb Group of Insurance Companies (hereinafter Chubb), as third party defendant. Chubb successfully moved for summary judgment on the ground that Murphy, the defendant and third party plaintiff, had inexcusably and unreasonably delayed in complying with the notice provisions of the insurance contract. The defendant appeals from this judgment. We find no error.

The underlying facts are undisputed. The defendant, George A. Murphy III, a dentist, terminated a lease with Hopmeadow Professional Center Associates on or about November 30, 1982. The manner in which he had dismantled his office gave rise to a claim for damages to which the plaintiff, Aetna Casualty and Surety Company, became subrogated. Although served with the plaintiff's complaint on November 21, 1983, the defendant gave no notice of the existence of this claim to Chubb until January 10, 1986. The motion to implead Chubb as third party defendant was filed on May 14, 1986, and granted on June 2, 1986.

Chubb moved for summary judgment on its three special defenses, ¹ alleging Murphy's noncompliance with the terms of his insurance policy. Its first claim was that it was entitled to judgment because Murphy had ignored two provisions in the Chubb policy imposing notice requirements on its policyholders. The first of these provisions states: "In the event of an occurrence, written notice ... shall be given by or for the insured to the company ... as soon as practicable." The other states: "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." In his answer to Chubb's special defenses, Murphy admitted his failure to comply with these provisions. Accordingly, his affidavit opposing summary judgment raised no question of fact but relied on his argument that, as a matter of law, an insurer may not deny coverage because of late notice without a showing, on its part, that it has been prejudiced by its insured's delay.

The trial court granted Chubb's motion for summary judgment on its first special defense. It found that Murphy's two year delay in giving notice to Chubb was inexcusable and unreasonable, and concluded that such a delay "voids coverage and insurer's duties under the contract [of insurance]...."

On appeal, Murphy challenges only the trial court's conclusion of law. Despite his inexcusable and unreasonable delay in giving notice, he maintains that he is entitled to insurance coverage because Chubb has failed to allege or to show prejudice because of his late notice.

As Murphy concedes, the trial court's decision accurately reflects numerous holdings of this court that, absent waiver, an unexcused, unreasonable delay in notification constitutes a failure of condition that entirely discharges an insurance carrier from any further liability on its insurance contract. Lafayette Bank & Trust Co. v. Aetna Casualty & Surety Co., 177 Conn. 137, 139, 411 A.2d 937 (1979); West Haven v. United States Fidelity & Guaranty Co., 174 Conn. 392, 398, 389 A.2d 741 (1978); Andover v. Hartford Accident & Indemnity Co., 153 Conn. 439, 444-45, 217 A.2d 60 (1966); Shelby Mutual Ins. Co. v. Williams, 152 Conn. 178, 186-87, 205 A.2d 372 (1964); Silver v. Indemnity Ins. Co., 137 Conn. 525, 530-32, 79 A.2d 355 (1951); Curran v. Connecticut Indemnity Co., 127 Conn. 692, 696, 20 A.2d 87 (1941); Haskell v. Eagle Indemnity Co., 108 Conn. 652, 655-56, 144 A. 298 (1929).

In our appraisal of the continued vitality of this line of cases, it is noteworthy that they do not reflect a searching analysis of what role prejudice, or its absence, should play in the enforcement of such standard clauses in insurance policies. That issue was put on the table, but not resolved, by a vigorous dissent in Plasticrete Corporation v. American Policyholders Ins. Co., 184 Conn. 231, 240-44, 439 A.2d 968 (1981) (Bogdanski, J., dissenting). The time has come for us to address it squarely.

We are confronted, in this case, by a conflict between two competing principles in the law of contracts. On the one hand, the law of contracts supports the principle that contracts should be enforced as written, and that contracting parties are bound by the contractual provisions to which they have given their assent. Among the provisions for which the parties may bargain are clauses that impose conditions upon contractual liability. "If the occurrence of a condition is required by the agreement of the parties, rather than as a matter of law, a rule of strict compliance traditionally applies." E. Farnsworth, Contracts (1982) § 8.3, p. 544; see Grenier v. Compratt Construction Co., 189 Conn. 144, 148, 454 A.2d 1289 (1983); Brauer v. Freccia, 159 Conn. 289, 293-94, 268 A.2d 645 (1970); Strimiska v. Yates, 158 Conn. 179, 185-86, 257 A.2d 814 (1969). On the other hand, the rigor of this traditional principle of strict compliance has increasingly been tempered by the recognition that the occurrence of a condition may, in appropriate circumstances, be excused in order to avoid a "disproportionate forfeiture." See, e.g., 2 Restatement (Second), Contracts (1981) § 229; ² Johnson Controls, Inc. v. Bowes, 381 Mass. 278, 280, 409 N.E.2d 185 (1980); 3A A. Corbin, Contracts (1960 & Sup. 1984) § 754; E. Farnsworth, supra, § 8.7, pp. 570-71; 5 S. Williston, Contracts (3d Ed. Jaeger 1961) §§ 769 through 811.

In numerous cases, this court has held that, especially in the absence of conduct that is "wilful," a contracting party may, despite his own departure from the specifications of his contract, enforce the obligations of the other party with whom he has dealt in good faith. In construction contracts, a builder's deviation from contract specifications, even if such a departure is conscious and intentional, will not totally defeat the right to recover in an action against the owner on the contract. Grenier v. Compratt Construction Co., supra, 148-49, 454 A.2d 1289; Vincenzi v. Cerro, 186 Conn. 612, 615, 442 A.2d 1352 (1982). In contracts for the sale of real property, the fact that a contract states a date for performance does not necessarily make time of the essence. Kakalik v. Bernardo, 184 Conn. 386, 392, 439 A.2d 1016 (1981); see Ravitch v. Stollman Poultry Farms, Inc., 165 Conn. 135, 148, 328 A.2d 711 (1973). A purchaser of real property does not, despite his knowing default, forfeit the right to seek restitution of sums of money earlier paid under the contract of sale, even when such payments are therein characterized as liquidated damages. Vines v. Orchard Hills, Inc., 181 Conn. 501, 509, 435 A.2d 1022 (1980); Pierce v. Staub, 78 Conn. 459, 466, 62 A. 760 (1906). Finally, despite a failure to deliver contract goods, a seller need not pay an amount contractually designated as liquidated damages to a buyer who has suffered no damages attributable to the seller's breach. Norwalk Door Closer Co. v. Eagle Lock & Screw Co., 153 Conn. 681, 689, 220 A.2d 263 (1966).

This case law demonstrates that, in appropriate circumstances, a contracting party, despite his own default, may be entitled to relief from the rigorous enforcement of contract provisions that would otherwise amount to a forfeiture. On the question of what circumstances warrant such relief, no better guidelines have ever been proffered than those articulated by Judge Benjamin Cardozo in the celebrated case of Jacob & Youngs, Inc. v. Kent, 230 N.Y. 239, 129 N.E. 889 (1921). Discussing the interpretation of contracts to ascertain how the parties intended to govern their contractual relationship, Cardozo first notes that "[t]here will be no assumption of a [contractual] purpose to visit venial faults with oppressive retribution." Id., 242, 129 N.E. 889. The opinion then continues: "Those who think more of symmetry and logic in the development of legal rules than of practical adaptation to the attainment of a just result will be troubled by a classification where the lines of division are so wavering and blurred. Something, doubtless, may be said on the score of consistency and certainty in favor of a stricter standard. The courts have balanced such considerations against those of equity and fairness, and found the latter to be the weightier.... Where the line is to be drawn between the important and the trivial cannot be settled by a formula. 'In the nature of the case precise boundaries are impossible' (2 Williston on Contracts, sec. 841). The same omission may take on one aspect or another according to its setting.... The question is one of degree, to be answered, if there is doubt, by the triers of the facts ... and, if the inferences are certain, by the judges of the law.... We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. Then only can we tell whether...