Jones v. Bituminous Cas. Corp.

• Decision Date: 19 December 1991
• Docket Number: No. 90-SC-746-DG,90-SC-746-DG
• Citation: 821 S.W.2d 798
• Parties: John JONES, Movant, v. BITUMINOUS CASUALTY CORPORATION, Huston Partin, Darrell Petry, Dean Petry, Ronnie Petry, Elmer Petry, Robert Petry, Clanis Partin, Michael Paul, Mitchell Powers, Glenous Lawson, Steve Randle, Rick Curnett, Larry Walker, Carl Mays, Lonnie Hamblin, S & J Mining Company, Respondents.
• Court: United States State Supreme Court — District of Kentucky

Page 798

821 S.W.2d 798

John JONES, Movant, v. BITUMINOUS CASUALTY CORPORATION, Huston Partin, Darrell Petry, Dean Petry, Ronnie Petry, Elmer Petry, Robert Petry Clanis Partin, Michael Paul, Mitchell Powers, Glenous Lawson, Steve Randle, Rick Curnett, Larry Walker, Carl Mays Lonnie Hamblin, S & J Mining Company, Respondents.

No. 90-SC-746-DG.

Supreme Court of Kentucky.

Dec. 19, 1991.

Guy E. Millward, Jr., Millward and Jewell, Barbourville, for movant.

David C. Long, Robert S. Walker, III, Marco M. Rajkovich, Lexington, for respondent, Bituminous Cas. Corp.

Paul Baker, Penny R. Warren, Warren & Baker, Artemus, for respondents, Huston Partin, et al.

LEIBSON, Justice.

Bituminous Casualty Corporation, the respondent, filed a Declaration of Rights action in Knox Circuit Court seeking a judgment declaring it has "no obligation or duty to appear and defend ... or to indemnify" under a liability insurance policy issued to Huston Partin and others doing business as S & J Mining Company, with regard to injuries sustained by John Jones, the movant, in an explosion on the mining company's premises occurring February 7, 1988.

At one point John Jones had been a partner in the enterprise, but at the time of the explosion he was no longer associated with it. He testified that he was revisiting the premises to check on some equipment and to see when the mine would be reopened. He suffered serious injuries when a fire barrel kept on the premises exploded while in use. At the time of the explosion Huston Partin was either the principal party or the sole owner in S & J Mining Company.

The insurance carrier, Bituminous Casualty, was not notified of the occurrence for six and one-half months. The trial court rendered summary judgment in favor of the insurance carrier, declaring "the policy in question is voided because of the insured's breach of the policy requirement of prompt notice." Jones argued the insurance carrier suffered "no prejudice" from the delay in providing notice, but the trial court made its decision on the basis that prejudice is not required. The Court of Appeals has affirmed. We have accepted discretionary review, and we reverse for reasons that follow.

Huston Partin testified by deposition that he purchased the public liability insurance policy at issue because he was required by government authorities to do so in order to obtain his mining permit. Kentucky Administrative Regulation, 405 KAR 10:030, Sec. 4, requires a public liability insurance policy to cover personal injury and property damage to others, including damage caused by the use of explosives.

The policy in question is designated "Commercial General Liability Coverage." The policy period was from June 11, 1987 to June 11, 1988. Throughout the time span of coverage the partners in S & J Mining changed, continually, except for Huston Partin. John Jones became a partner in December 1987, and remained one until the mine was shut down two weeks before the explosion on February 7, 1988.

According to his deposition, Jones went back to the premises to see if the mine owner, Huston Partin, had any plans to reopen in the near future and to check on equipment owned by a different company, Nan Belle Corporation, where Jones was also employed, which was still located at the mine site. Jones and others who had come to the site to see if the mine was going to be reopened started a fire in a fire barrel located on the premises to provide warmth. Some time later Jones went back to the barrel to poke up the fire and the barrel exploded. His right leg was amputated and his hearing and eyesight were permanently impaired as a result of the explosion. Huston Partin testified by deposition that state and federal investigators had reported the explosion was caused by powder (explosives) in the barrel. Subsequently he was cited by the government as the mine operator for a violation generated by his mishandling of explosives.

John Jones testified that he had no idea as to the cause of the explosion, and for some time thought someone had intentionally tried to blow him up. It was only after completion of the investigation that John Jones considered the explosion might have been an accidental occurrence and the subject of a liability insurance claim.

Huston Partin learned of the explosion and injury to Jones on the day it occurred, but he seems to have been unaware he had insurance that might cover Jones' injury. Thus he failed to notify his insurance carrier of the injury. Indeed, for whatever reason, whether because his financial circumstances render him judgment proof or otherwise, Partin has shown little interest in these proceedings, having failed to respond to his insurance carrier's motion for summary judgment or to appeal the declaratory judgment denying him coverage. Nevertheless, it is quite evident that the real party in interest in the coverage question is Jones, the victim of the explosion.

The insurance carrier, Bituminous Casualty, first became aware of the occurrence through a letter sent to Partin by Jones' attorney, dated August 20, 1988, with a copy to Partin's insurance agent, Energy Insurance Agency, advising Jones intended to pursue a claim. This agency in turn reported the potential claim to Bituminous Casualty on August 24, 1988.

The particular provision in the policy with which we are concerned is in "Section IV--COMMERCIAL GENERAL LIABILITY CONDITIONS." This Section includes multiple, diverse conditions pertaining to obligations of both the insurer and the insured. The one in question is:

"2. Duties In The Event Of Occurrence, Claim Or Suit.

a. You must see to it that we are notified promptly of an 'occurrence' which may result in a claim."

"Section V" of the policy covers "DEFINITIONS" and provides:

"9. 'Occurrence' means an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

The trial court decided this prompt notice clause of the policy was breached by the six and one-half months' delay between the date of the occurrence and the date the occurrence was first reported to the insurance carrier, and further, that this breach was fatal to the coverage without regard to whether the liability insurer sustained prejudice from the delay in giving notice. The trial court cited as authority the view that such "prompt notice" requirements are strictly a matter of contract law, and, as such, "a condition precedent to recovery on the policy." Reserve Ins. Co. v. Richards, Ky., 577 S.W.2d 417, 419 (1979). In addition to the Reserve Ins. Co. v. Richards case, the trial court's summary judgment cited as precedent Aetna Casualty & Sur. Co. of Hartford, Conn. v. Martin, Ky., 377 S.W.2d 583 (1964), Standard Accident Insurance Co. v. Sonne, 128 F.Supp. 83 (W.D.Ky.1954), and Shipley v. Kentucky Farm Bureau Ins., Ky., 747 S.W.2d 596 (1988).

However, although the leading case, Reserve Ins. Co. v. Richards, expressed the view that notice is a condition precedent and prejudice from the delay is not material, as Justice Wintersheimer pointed out in his dissent in Shipley, in fact "[i]n Richards, supra, the liability carrier did not receive notice until after judgment was entered against the insured which denied the insurance company any opportunity to defend." 747 S.W.2d at 599. The three judge dissent in Shipley took the position there was a factual question involving both whether the insured had exercised "reasonable diligence" in providing notice considering the circumstances, and whether the delay in providing notice had prejudiced the insurer.

A recent annotation on the subject in 32 A.L.R. 4th 141 addresses the "Modern Status of Rules Requiring Liability Insurer[s] to Show Prejudice to Escape Liability Because of [the] Insured's Failure or Delay in Giving Notice of Accident or Claim, or in Forwarding Suit Papers." It seeks to cover all the more recent cases on this subject from all jurisdictions, including those following a "traditional" view that the "liability insurer need not show that it was prejudiced by an insured's unreasonable and unexcused omission or delay in giving notice," Id. at 146, and those "representing a modern trend away from the traditional that prejudice to a liability insurer is immaterial" to a new position that "a liability insurer is required to show that it was prejudiced by the insured's omission or delay." Id. at 157. Kentucky, citing Reserve Ins. Co. v. Richards, supra, is listed among those states still using the so-called "traditional" view.

Without attempting to summarize the multitude of cases listed and discussed in the ALR Annotation, and acknowledging that there are various gradations in adherence to both the "traditional view" and the "modern trend," it suffices to say that a substantial majority now supports the modern trend, holding that an insurer cannot withdraw coverage on the ground that a notice condition has not been met unless the insurer can show that it was prejudiced by the act of the insured. Allowing for certain difficulties in doing the accounting, the ALR Annotation and its Supplement provide cases from some 29 other states now holding that the insurer must show prejudice, and only about 20 still adhering to the view that the presence or absence of prejudice is immaterial. The traditional view has become the minority view, and the view requiring proof of prejudice before invoking a forfeiture now represents the mainstream of American jurisprudence on this subject.

The time has come for Kentucky to reconsider whether failure to provide prompt notice should automatically defeat liability insurance coverage regardless of circumstances. While we fully recognize the value of stare decisis, we also recognize our obligation to modify or overrule precedent which is no longer viable in terms of present development of the law.

There are at least four major features in the status of insurance law as it has presently evolved in Kentucky ...