American Fidelity Co. v. Hotel Poultney

• Decision Date: 05 January 1954
• Docket Number: No. 1042,1042
• Citation: 118 Vt. 136,102 A.2d 322
• Parties: AMERICAN FIDELITY CO. v. HOTEL POULTNEY et al.
• Court: Vermont Supreme Court

Page 322

102 A.2d 322

118 Vt. 136

AMERICAN FIDELITY CO. v. HOTEL POULTNEY et al.

No. 1042.

Supreme Court of Vermont.

Jan. 5, 1954.

Ryan, Smith & Carbine, Rutland, for plaintiff.

Andrew C. Calvi, Fair Haven, Lawrence & O'Brien, Rutland, for defendants.

Before SHERBURNE, C. J., and JEFFORDS, CLEARY, ADAMS and CHASE, JJ.

JEFFORDS, Justice.

This is a petition for a declaratory judgment or decree brought to the court of chancery for the county of Rutland. The material allegations in the petition are, in substance, as follows: The plaintiff issued to the defendant Hotel a liability insurance policy. The policy contained a condition that upon the occurrence of an accident, written notice should be given by or on behalf of the insured to the plaintiff or any of its authorized agents as soon as practicable and that this condition was, by the terms of the policy, made a condition precedent to the maintenance of any action against the plaintiff under the policy. That on January 5, 1953 an action had been commenced by one Burton against the Hotel to recover damages for injuries claimed to have been sustained on December 4, 1950, on account of negligence of the Hotel. That no notice in writing, or otherwise, concerning the injuries had been given to the plaintiff or any of its authorized agents until on or about December 8, 1952. That it had been called upon by the Hotel to appear and defend this action. That upon information and belief, if a judgment were rendered against the Hotel it would be called upon to pay the same within the limits of its policy.

Burton was made a party defendant as was also the Socony-Vacuum Oil Co., Inc., on account of workmen's compensation payments made by it to Burton. A temporary injunction was issued restraining the prosecution of the action of Burton against the Hotel.

A hearing was had by the chancellor on the pleadings. At that time various concessions concerning matters pleaded were made by counsel. None of these concessions are material to any issue before us. The chancellor ruled that he was 'unable to declare whether or not the notice was given as soon as practicable, and for that reason, the petition must be dismissed and the injunction dissolved.' A decree was entered dismissing the petition and dissolving the injunction, with costs to the petitionees. Exceptions were allowed the plaintiff and in its bill of exceptions signed by the chancellor the decree was stayed and the injunction was continued in force and the cause was passed to this Court.

It is apparent from the wording of the above-quoted ruling and from the transcript of the hearing that the main reason for the dismissal of the petition was the conclusion of the chancellor that the plaintiff had the burden of proving a violation of the policy condition as to notice and that it had failed to sustain this burden.

In a suit on a policy by the insured against the company the burden of proving that a notice was given as soon as practicable is on the plaintiff. Houran v. Preferred Accident Ins. Co., 109 Vt. 258, 268, 195 A. 253. See also Reynolds v. John Hancock Life Ins. Co., 117 Vt. 541, 544, 97 A.2d 121. The question for us to determine is whether this rule is changed in an action by the insurer for a declaratory judgment or decree of non-liability under a policy. This is the first time we have been called upon to answer this question.

The first case with facts similar to the one at hand wherein this question was specifically decided is Travelers Ins. Co. v. Greenough, 88 N.H. 391, 190 A. 129, 109 A.L.R. 1096. Liability under the policy in that case depended on whether the person driving the automobile covered by the policy was using it at the time of an accident with the insured's consent. The lower court ruled that the burden of proof on this issue was on the company. This holding was reversed by the supreme court which held that the burden of proof rests where it would have rested if the insured had brought an action on the policy. This holding has been followed several times in later decisions of that court

Other cases with facts similar to the ones here in which the same result has been reached are Preferred Acc. Ins. Co. of New York v. Grasso, 2 Cir., 186 F.2d 987, 23 A.L.R.2d 1234; Reliance Life Ins. Co. v. Burgess, 8 Cir., 112 F.2d 234, especially the concurring opinion of Sanborn, Judge; State Farm Mut. Auto Ins. Co. v. Smith, D.C., 48 F.Supp. 570.

A discussion of this question is found in Borchard, Declaratory Judgments, 2d ed., 404-409. Professor Borchard, after first stating that 'Since as a rule the risk of nonpersuasion is on the plaintiff, it is not surprising to find that the burden of proof in declaratory actions rests in the vast majority of cases, on the moving party,' says that in insurance cases such as the one here, 'Inasmuch as the company's claim of immunity is in reality negatively defensive, there seems no impropriety in leaving the burden of proof exactly where it would have been had suit been brought on the policy, namely, on the insured or injured person.' He concludes that the burden of proof in such cases is not automatically on the plaintiff, but on him who without evidence would be compelled to submit to an adverse judgment before the introduction of any evidence or who asserts the affirmative of any issue. He relies for this statement of the rule on the Reliance case, supra. This statement is also approved in Bauer v. Clark, 7 Cir., 161 F.2d 397.

There are several cases from the federal courts, largely district court decisions, which might be said to hold that in cases such as the one at hand the burden of proof is on the company plaintiff. See New York Life Ins. Co. v. Stoner, 8 Cir., 109 F.2d 874; Metropolitan Cas. Ins. Co. of New York v. Miller, 7 Cir., 188 F.2d 702; Standard Accident Ins. Co. v. Leslie, D.C., 55 F.Supp. 134; Lumbermen's Mut. Casualty Co. v. McIver, D.C., 27 F.Supp. 702. The case of Travelers' Ins. Co. of Hartford v. Drumheller, D.C., 25 F.Supp. 606, is the one among such cases which is mainly relied upon by the defendants here in their brief. That case repudiates the holding in Travelers Ins. Co. v. Greenough, supra, and holds squarely that the burden of proof is on the plaintiff in cases such as the one here. Professor Borchard in his work on pages 406 and 407 criticizes this decision as unsound and on page 407, note 4, he says that the circuit court of appeals in the case of Reliance Life Ins. Co. v. Burgess, supra, discredits and overrules the Drumheller case which was decided by a district court judge in that circuit. It may be here noted that Judge Sanborn in his concurring opinion in the Reliance case, above referred to, expressly approves of the holding in the Greenough case and it is given tacit approval in the opinion in Preferred Acc. Ins. Co. v. Grasso, supra.

We are aware of the fact that the rule of the Greenough case has been criticized by several text book writers and in some of the law reviews. The author of the Annotation appearing in 23 A.L.R. 1243 et seq. has this to say on this subject: 'Direct opposition to the rule of the Greenough case is more easily to be found in treatises and law reviews than it is in the decisions. Cases which do not follow the rule more commonly ignore it than discuss it. Cases directly opposing the rule appear to be confined to a small and peculiar group of federal decisions in the Eighth Circuit, the language of which affords some difficulties of interpretation.' The Drumheller, Stoner and Reliance cases, supra, were from courts in that circuit. This interesting question is fully discussed and treated, with numerous cases cited, in the above Annotation.

The weight of authority as shown by the cases which clearly and specifically answer the question now before us supports the rule of the Gr...