Chas. T. Main, Inc. v. Fireman's Fund Ins. Co.

• Decision Date: 08 March 1990
• Citation: 551 N.E.2d 28,406 Mass. 862
• Parties: CHAS. T. MAIN, INC. v. FIREMAN'S FUND INSURANCE COMPANY et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 28

551 N.E.2d 28

406 Mass. 862

CHAS. T. MAIN, INC. v. FIREMAN'S FUND INSURANCE COMPANY et al. ¹

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Dec. 5, 1989.

Decided March 8, 1990.

Kenneth J. Mickiewicz, Boston (Richard S. Nicholson, with him) for plaintiff.

John P. Ryan (Robert G. Eaton, Boston, with him) for defendants.

Acheson H. Callaghan, Jr., Steven L. Schreckinger and Michael T. Gass, Boston, for Medical Malpractice Joint Underwriting Ass'n of Massachusetts and another, amici curiae, submitted a brief.

Before LIACOS, C.J., and ABRAMS, NOLAN, O'CONNOR and GREANEY, JJ.

NOLAN, Justice.

In a complaint which contains counts for breach of contract, and violations of G.L. c. 93A, §§ 2, 11 (1988 ed.) (Consumer Protection Act), and G.L. c. 176D, § 3 (1988 ed.) (unfair or deceptive acts in the insurance industry), the plaintiff seeks recovery based on its insurance policy with the defendants.

The plaintiff's motion for summary judgment was denied and summary judgment was entered for the defendants. See Mass.R.Civ.P. 56(c), 365 Mass. 824 (1974). The plaintiff appealed and we transferred the case to this court on our own motion. We affirm.

From the material presented to the judge, we learn that in 1977, the city of Lakeland, Florida, hired the plaintiff to provide professional services as consulting engineer for the design and construction of an extension to a power generation facility. On September 14, 1984, when sued by a subcontractor on this job, Lakeland named the plaintiff as a "counterdefendant." At the time that this claim was asserted by Lakeland, the plaintiff maintained primary professional liability coverage with CNA Insurance Companies (CNA) and excess insurance coverage with the defendants. These policies were in effect during the period May 1, 1984, to May 1, 1985, and all were written on a "claims made" basis, as we shall discuss. The plaintiff gave notice of the Lakeland claim to CNA on or about September 20, 1984. However, the plaintiff did not give notice of the Lakeland claim to the defendants until March, 1987. The defendants denied coverage because, they contended, the notice was untimely. We agree.

The only issue is whether the defendants are required to demonstrate prejudice resulting from the untimeliness of the notice. Although the parties argue the issue of choice of law as between the law of Massachusetts and the law of Florida, we need not discuss this issue because we decide that Massachusetts law coincides with Florida law on the relevant issues and we, accordingly, apply Massachusetts law.

Requirement of timely notice. This case involves a claims-made insurance policy. Our analysis requires an understanding of the difference between such policies and occurrence policies. Coverage is effective in an occurrence policy if the covered act or covered omission occurs within the policy period, regardless of the date of discovery. A claims-made policy covers the insured for claims made during the policy year and reported within that period or a specified period thereafter regardless of when the covered act or omission occurred.

There are, in general, two types of notice requirements found in policies. One is a requirement that notice of the claim be given to the insurer "as soon as practicable" after the event which gives rise to coverage. This type of notice requirement is almost always found in occurrence policies and frequently is found in claims-made policies. The other type of notice provision requires reporting of the claim during the term of the policy or within a short period of time (thirty or sixty days) following the expiration of the policy. This type of notice is always found in claims-made policies and is never found in occurrence policies.

The purposes of the two types of reporting requirements differ sharply. The purpose of a notice requirement, "as soon as practicable," is to permit an insurer to make an investigation of the facts and occurrence relating to liability. See Bayer & Mingolla Constr. Co. v. Deschenes, 348 Mass. 594, 600, 205 N.E.2d 208 (1965). However, fairness in rate setting is the purpose of a requirement that notice of a claim be given within the policy period or shortly thereafter, as we explain below.

An insurer has a difficult time setting rates in these inflationary, and otherwise rapidly changing, times, especially in connection with occurrence policies. The insurer may not be in a position to make good on its promise to indemnify the insured until many years after the insured event, that is, the occurrence, has happened. For example, in 1990, an insurer may promise to...