Darcy v. Hartford Ins. Co.

• Decision Date: 22 May 1990
• Citation: 554 N.E.2d 28,407 Mass. 481
• Parties: Lillian DARCY et. al. 1 v. The HARTFORD INSURANCE COMPANY et. al.; 2 Royal Globe Insurance Company, third-party defendant.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 28

554 N.E.2d 28

407 Mass. 481

Lillian DARCY et. al. ¹ v. The HARTFORD INSURANCE COMPANY et. al.; ² Royal Globe Insurance Company, third-party defendant.

Supreme Judicial Court of Massachusetts Suffolk.

Argued March 8, 1990.

Decided May 22, 1990.

Roger A. Emanuelson (William P. Smith, Boston, with him), for Royal Globe Ins. Co.

Joseph G. Abromovitz, Boston, for plaintiffs.

Peter C. Kober, Boston, for The Hartford Ins. Co., was present but did not argue.

Before LIACOS, C.J., and WILKINS, ABRAMS, LYNCH and GREANEY, JJ.

GREANEY, Justice.

After trial, a judge in the Superior Court concluded that Lillian Darcy and Mary Iglesias (plaintiffs), and third-party plaintiff, The Hartford Insurance Company (Hartford), could recover the proceeds of a liability insurance policy issued by Royal Globe Insurance Company (Royal Globe). Royal Globe has appealed, claiming that the delay in notice of the plaintiffs' claims, and the failure of its insured to cooperate, permitted Royal Globe to disclaim coverage under the policy. We transferred the appeal to this court on our own motion. We agree with the judge that Royal Globe may not avoid coverage on either of its stated grounds. Consequently, we affirm the judgment of the Superior Court.

The facts found by the judge are as follows. In 1979, Aladdin Building Maintenance Company (Aladdin) was awarded a contract to provide janitorial services for the John F. Kennedy Federal Building in Boston. Aladdin subsequently entered into a subcontract assigning those duties to United Building Maintenance, Inc. (United). At all relevant times, Aladdin carried a comprehensive commercial liability insurance policy with personal injury coverage issued by Hartford, while United carried a similar policy issued by Royal Globe. On September 15, 1979, the plaintiffs were working in the Federal building at their desks, which were separated by a free-standing room partition or baffle. The baffle was accidentally knocked over by a United employee who was attempting to clean around it, and it fell on the plaintiffs, injuring them both severely.

The plaintiffs brought suit against United in the Superior Court on February 18, 1981, seeking damages for their personal injuries. United never filed an appearance, nor did it notify its insurer, Royal Globe, of either the accident or the lawsuit. On August 15, 1981, the plaintiffs filed suit against Aladdin, the main contractor, in the United States District Court for Massachusetts. This action was concluded on September 23, 1983, when the plaintiffs won judgments for $582,080.12, and $82,055.35, respectively.

On November 4, 1983, the plaintiffs sought to satisfy their Federal court judgments by suing Hartford in the Superior Court to reach and apply the proceeds of the Hartford policy issued to Aladdin. Hartford responded by filing a third-party complaint against Royal Globe, seeking recovery from Royal Globe as the liability insurer of United, Aladdin's subcontractor. Hartford's complaint, filed on January 8, 1985, reached Royal Globe nine days later, on January 17, 1985. This was the first notice Royal Globe had received of the accident, which had occurred on September 15, 1979.

At the time Royal Globe received notice of the plaintiffs' claims against its insured, the underlying tort action against United in the Superior Court had not been resolved. Accordingly, Royal Globe undertook an investigation of the claim. The claims adjuster assigned to the case examined Royal Globe's records and discovered reference to a previous claim involving United. The records indicated that United had not responded to Royal Globe's correspondence in that case. The claims adjuster thus assumed that any attempt to make contact with United's principals directly would be futile, and he hired an investigation bureau to locate them.

As found by the judge, the investigation authorized by Royal Globe was limited to the following efforts: An investigator was assigned to locate United's principals. To this end, the investigator examined the telephone directory and various public records, and wrote to the attorney listed on United's articles of incorporation. The investigator eventually located one Pasquale Verro, who was named as a principal of United. However, upon reaching this man, the investigator discovered that he was not the Pasquale Verro associated with United, but was a relative. The investigation went no further. The Royal Globe claims adjuster responded to this information by sending a letter to the Pasquale Verro located by the investigator, despite actual knowledge that this was not the right man, informing him that Royal Globe was disclaiming coverage due to lack of notice and cooperation from United. Subsequently, on August 14, 1987, and October 19, 1987, respectively, default judgments entered against United in the pending State court actions. More than two years had elapsed between Royal Globe's first notice of the claim (January 8, 1985) and the eventual entry of the default judgments against United, Royal Globe's insured.

On October 19, 1987, Hartford and the plaintiffs entered into a settlement agreement pursuant to which the plaintiffs agreed to dismiss their claims against Hartford with prejudice in consideration of a $300,000 payment. The plaintiffs, in the meantime, had brought claims directly against Royal Globe. Hartford and the plaintiffs further agreed to pursue their respective claims against Royal Globe, and stipulated that any recovery on those claims would be divided equally between them.

A trial ensued on the issue whether the plaintiffs and Hartford could reach and recover the proceeds of Royal Globe's policy with United. Royal Globe defended on the basis that it had properly disclaimed coverage because United, its insured, had violated its policy obligations to provide seasonable notice of the claims and to cooperate in the defense thereof. The judge rejected both claims. Relying upon G.L. c. 175, § 112, and our decision in Johnson Controls, Inc. v. Bowes, 381 Mass. 278, 409 N.E.2d 185 (1980), the judge concluded that Royal Globe had not carried its burden of proving that the delay in giving notice had materially prejudiced its interests. Further, the judge determined that Royal Globe had not fulfilled its duty to exercise diligence and make a good faith effort to obtain United's cooperation. See Allen v. Atlantic Nat'l Ins. Co., 350 Mass. 181, 214 N.E.2d 28 (1966). Accordingly, the judge concluded that neither breach entitled Royal Globe to disclaim liability, and entered a judgment against Royal Globe (divided between the plaintiffs and Hartford) in the total amount of $300,000.

1. The duty to provide seasonable notice. The Royal Globe policy issued to United contains the notice provision set forth below ³. As Royal Globe concedes, breach of that provision by an insured is not an independently sufficient basis for an insurer to disclaim liability. Rather, the insurer must prove that its interests have been prejudiced by the insured's failure to provide timely notice of the accident. See G.L. c. 175, § 112, as amended by St.1977, c. 437 ("An insurance company shall not deny insurance coverage to an insured because of failure of an insured to seasonably notify an insurance company of an occurrence, incident, claim or of a suit founded upon an occurrence, incident or claim, which may give rise to liability insured against unless the insurance company has been prejudiced thereby."); Johnson Controls, Inc. v. Bowes, supra, 381 Mass. at 282, 409 N.E.2d 185 (insurer bears the burden of proving prejudice) ⁴. See also MacInnis v. Aetna Life & Casualty Co., 403 Mass. 220, 223, 526 N.E.2d 1255 (1988).

Royal Globe urges that we adopt a rebuttable presumption of prejudice in cases where the delay in notifying an insurer of a claim or possible claim is "extreme." Such a rule, Royal Globe contends, "makes sense in light of the legitimate purposes served by the notice provisions and fairly balances the competing interests of the insurer, insured and third parties." Were we to adopt such a rule, argues Royal Globe, we should find (contrary to the judge) that the more than five-year delay in notifying Royal Globe in this case was "extreme," and thus entitles Royal Globe to the benefit of the presumption. We decline Royal Globe's request to modify existing law in this area.

Adopting the presumption Royal Globe seeks would, in effect, constitute a retreat to a mode of interpretation of insurance policies which invites technical forfeitures, and would conflict sharply with the view, previously expressed by both the Legislature and this court, that forfeitures should occur only upon a showing of actual prejudice to an insurer's interests. See G.L. c. 175, § 112 (1988 ed.); Johnson Controls, Inc. v. Bowes, supra. By its very nature, a presumption, in cases in which it applied, would tend to relieve an insurer of its burden to demonstrate actual harm to its interests. Such a rule could permit an insurer to avoid liability on the basis of the possibility, rather than on proof of actual prejudice. The proposed rule would tend to shift unfairly the burden of showing prejudice from the party in the best position, and with the most resources, to ascertain the existence of prejudice to the party who is least capable of investigating the likelihood that a claim, despite a delay in notice, can be adequately defended. In the process, the protections for which insurance was obtained and paid for, could be denied. Additionally, the Legislature's concern that an insurer attempting to disclaim coverage for lack of notice must show prejudice would be frustrated contrary to the directive of G.L. c. 175, § 112.

The length of delay, of course, in notice will always be a relevant factor to be considered in determining whether actual prejudice has been shown by an insurer, and the longer the delay, the more likely that prejudice exists. But, before a...