Cooperative Fire Ins. Ass'n of Vermont v. White Caps, Inc.

Decision Date28 March 1997
Docket NumberNo. 96-258,96-258
Citation166 Vt. 355,694 A.2d 34
CourtVermont Supreme Court

Richard P. Foote of Conley & Foote, Middlebury, for plaintiff-appellant.

John T. Leddy of McNeil, Leddy & Sheahan, Burlington, for defendant-appellee City of Burlington.

John L. Kellner and Kevin E. Brown of Langrock Sperry & Wool, Middlebury, for intervenor-appellee Stancil.


MORSE, Justice.

Traditionally, an insurer was released from its contractual obligations if its insured committed an unexcused breach of the prompt-notice provisions of the policy, regardless of whether the insurer was prejudiced by the delay. Past decisions of this Court have adhered to this rule when the policy plainly makes notice a condition precedent to coverage. See Nelson v. Travelers Ins. Co., 113 Vt. 86, 98, 30 A.2d 75, 82 (1943); Houran v. Preferred Accident Ins. Co., 109 Vt. 258, 272-74, 195 A. 253, 259-60 (1937). During the past several decades, however, the traditional view has been largely supplanted, and a majority of jurisdictions now apply the rule that an insurer must prove it was prejudiced from the delay before it may be relieved of its duties. See generally Annotation, Modern Status of Rules Requiring Liability Insurer to Show Prejudice to Escape Liability Because of Insured's Failure or Delay in Giving Notice of Accident or Claim, or in Forwarding Suit Papers, 32 A.L.R.4th 141, 157-59 (1984) (collecting cases). Although this Court has recognized the recent trend of decisions, see Putney School, Inc. v. Schaaf, 157 Vt. 396, 405, 599 A.2d 322, 327 (1991), it has not heretofore had occasion to reexamine its earlier holdings. But cf. Dumont v. Knapp, 131 Vt. 342, 349-50, 306 A.2d 105, 109-10 (1973) (Barney, J., concurring) (urging a "reexamination of the holdings of Houran v. Preferred Accident Insurance Co. ... and Nelson v. Travelers Insurance Co.").

The time has come for Vermont to consider whether the more modern view represents the better rule. We conclude that it does. Accordingly, we hold that an insurer which seeks to be relieved of its obligations under a liability insurance policy on the ground that the notice provision was breached must prove that the breach resulted in substantial prejudice to its position in the underlying action. It follows that the judgment in this case, declaring that the insurer had a continuing duty to defend and indemnify its insureds, must be affirmed.


The material facts are undisputed. In July 1992, intervenor-defendant David Stancil slipped and fell outside of the White Caps Restaurant at the Burlington Boathouse complex. The restaurant, owned and operated by defendant White Caps, Inc., leased a portion of the Boathouse from defendant City of Burlington, and under its lease was required to make the City an additional insured under its liability policy. Two months after the incident, Stancil's attorney sent a claim letter to White Caps (with a copy to the City), which alleged that the accident was caused by "grease-ladened waste water" from the restaurant. Counsel requested that both White Caps and the City refer the claim to their insurance carriers and have them contact his office. Although the letter was sent in September 1992, defendants' insurer, Cooperative Fire Insurance Association of Vermont, did not receive notice of the claim until eighteen months later, in April 1994. Defendants offered no excuse or justification for the delay.

Under a section entitled "Commercial General Liability Conditions," the Cooperative policy required that its insureds provide "prompt written notice" of any claim or suit, and "[i]mmediately send ... copies of any demands, notices, summonses or legal papers received in connection with the claim or 'suit.' " The "Conditions" section further stated that no suit for coverage could be brought on the policy "unless all of its terms have been fully complied with."

Based on defendants' failure to provide prompt and immediate notice of Stancil's claim, Cooperative filed this action in the Addison Superior Court seeking a declaration that its duties to defend and indemnify under the policy had been forfeited. Stancil successfully moved to intervene as a party defendant in the action, and then moved for summary judgment. Stancil advanced two arguments in support of the motion: (1) the policy failed expressly to make prompt notice a condition precedent to coverage, and therefore Cooperative remained bound by the contract unless it could demonstrate prejudice from the delay; and (2) even if the policy allowed Cooperative to forfeit coverage for the late notice, it must still prove that its position had been prejudiced thereby. Stancil urged the court, in this regard, to reexamine Houran and its progeny and reject the rule of automatic forfeiture in favor of one requiring the insurer to establish prejudice in all cases.

The trial court ruled in favor of Stancil on the first point, finding that the policy language did not clearly and unambiguously make prompt notice a condition precedent to coverage, and therefore breach of the notice clause did not release Cooperative from its duties absent a showing of prejudice. Its narrow reading of the policy language relieved the court of the need to consider the continued viability of Houran. The court further concluded that Cooperative had failed to adduce any evidence that its position in the underlying action had been prejudiced by the delay. Accordingly, the court entered summary judgment for defendants, declaring that Cooperative's duty to defend and indemnify in the underlying action remained in force. This appeal followed.


Nearly sixty years ago, this Court held in Houran that an insured's unexcused breach of a policy provision making prompt notice a condition precedent to coverage relieved the insurer of its obligations under the policy, without regard to whether it was prejudiced by the late notice. As the Court explained:

The rule established by the weight of authority is that where, by the terms of the insurance contract, a specified notice of accident, given by or on behalf of the insured to the insurer, is made a condition precedent to liability on the part of the latter, the failure to do so will release the insurer from the obligations imposed by the contract, although no prejudice may have resulted.

109 Vt. at 272, 195 A. at 259. To constitute a condition precedent, the Court further explained, "a specific forfeiture clause is unnecessary.... It is enough if the policy provides that liability thereunder is 'subject to the following conditions.' " Id. at 273-74, 195 A. at 260 (quoting Hoffman v. Employer's Liability Assur. Corp., 146 Or. 66, 29 P.2d 557, 560, 562 (1934)). Decisions subsequent to Houran have reaffirmed the rule that "notice is of the essence of the insurance contract and failure to comply with it ... voids any liability of the company under the policy." Nelson, 113 Vt. at 98, 30 A.2d at 82; see also Ziman v. Employers Fire Ins. Co., 493 F.2d 196, 199 (2d Cir.1974) ("[T]he Houran decision ... establishes [that] no showing whatsoever of material harm or prejudice to the insurer was required."); Boyer v. American Casualty Co., 332 F.2d 708, 710-11 (2d Cir.1964) (applying Houran to hold that breach of prompt notice provision voided policy); Town of Windsor v. Hartford Accident & Indem. Co., 885 F. Supp. 666, 670 (D.Vt.1995) ("In Vermont, compliance with the notice provision of an insurance contract is a condition precedent to establishing the liability of the insurer under the policy.").

The trial court here attempted to distinguish this line of authority on the ground that the Cooperative policy language was "substantially different" from the policy language in Houran and subsequent decisions. Although the trial court's approach is understandable, given the rather drastic consequence of a total forfeiture of coverage, the effort to distinguish Houran is unpersuasive. A comparison of the Cooperative policy with the policies in Houran and other cases reveals no meaningful differences. See Nelson, 113 Vt. at 98, 30 A.2d at 82 ("notice shall be given ... as soon as practicable" upon occurrence of accident); Houran, 109 Vt. at 263, 195 A. at 254 (policy agreement "subject to the following conditions," including "[n]otice of accident ... as soon as is reasonably possible"); Ziman, 493 F.2d at 198 n. 4 ("In the event of an occurrence, written notice ... shall be given ... as soon as practicable."); Boyer, 332 F.2d at 710 n. 1 ("Condition[ ] 9.... When an accident or occurrence takes place, written notice shall be given ... as soon as practicable"); Town of Windsor, 885 F. Supp. at 670 n. 5. (notice must be provided immediately after claim was made or suit was brought). Indeed, if anything the Cooperative policy is even stronger, expressly prohibiting any suit for coverage under the policy "unless all of its terms have been fully complied with." (Emphasis added).

The fundamental question as to the continuing viability of Houran cannot therefore be avoided. For several reasons, all of which have been utilized in varying degrees by the many courts rejecting the traditional rule, we conclude that a failure to provide prompt notice should not automatically defeat liability insurance coverage regardless of circumstances. 1 Insurance law in Vermont, as in most other states, has evolved substantially from the strict contractual approach reflected in the rule that courts should not interfere with the parties' presumed freedom to draft whatever agreement they desire. This notion unmistakably informed the opinion in Houran, which applied a straightforward contractual analysis to hold that the notice clause plainly made time of the essence, "was a term of the contract...

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