Lusch v. Aetna Cas. & Sur. Co.

• Decision Date: 07 August 1975
• Citation: 272 Or. 593,538 P.2d 902
• Parties: Roy W. LUSCH, Appellant, v. The AETNA CASUALTY & SURETY COMPANY, a Foreign Corporation, Respondent.
• Court: Oregon Supreme Court

Page 902

538 P.2d 902

272 Or. 593

Roy W. LUSCH, Appellant, v. The AETNA CASUALTY & SURETY COMPANY, a Foreign Corporation Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted April 1, 1975.

Decided Aug. 7, 1975.

David C. Landis, Portland, argued the cause for appellant. With him on the briefs were Gearin, Cheney, Landis, Aebi & Kelley, Fred M. Aebi and Jeffrey M. Batchelor, Portland.

Carrell F. Bradley, Hillsboro, argued the cause and filed a brief for respondent.

DENECKE, Justice.

The notice of accident provision in an automobile liability policy is the basis of this appeal.

The plaintiff brought a declaratory judgment proceeding seeking a declaration of entitlement to coverage under the insurance policy issued by defendant, Aetna Casualty & Surety Company. The jury found for Aetna and the plaintiff appeals.

The plaintiff was the named insured in a policy issued by Aetna. On December 8, 1972, the plaintiff was driving a friend's car and was involved in a collision which injured several people. The plaintiff walked away from the accident without leaving any identifying information. He believed that the authorities could not connect him with the accident. The plaintiff did not report the collision to Aetna at this time.

On January 2, 1973, the injured parties' insurance company notified Aetna of the accident, naming the injured parties and the witnesses. On January third or fourth the plaintiff reported the accident. ¹ Aetna then investigated to determine whether it was obligated to defend the plaintiff. Aetna concluded that it had no obligation and made no further investigation.

Aetna's policy contained the usual provision for giving notice of accident. The provision states:

'In the event of an accident * * * written notice containing particulars sufficient to identify the Insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and available witnesses, shall be given by or for the Insured to the Company or any of its authorized agents as soon as practicable. * * *.

'* * *.

'No action shall lie against the Company unless, as a condition precedent thereto, the Insured shall have fully complied with all the terms of this policy * * *.'

The trial court instructed the jury (after reading it the above-quoted provision) as follows:

'Now as I mentioned this would be a condition precedent and the burden of proof would be upon the plaintiff to establish by a preponderance of evidence that he did give reasonable notice. And whenever circumstances are such that a reasonably prudent--I will give a definition of reasonable notice, when a reasonably prudent person gives notice and did the plaintiff comply as a reasonably prudent person under the circumstances.

'There has been testimony that Mr. Popp was advised of the accident. And if you find that this was reasonable notice and would put the Aetna Insurance Company on notice by this testimony, you could consider the date that was, I believe, December the 21st. Thus your question: Was that reasonable notice or as soon as practicable? If you find it wasn't, then you could consider whether as of January the 2nd of 1973 was this as soon as practicable, and would a reasonably prudent person give a notice sooner than this to the company. It's based upon a reasonably prudent theory of negligence, would be, and you have heard that term many times.

'As I said, that burden of proof is upon the plaintiff to satisfy you that he acted reasonably under the circumstances and that there was the appropriate notice given, which is a practicable length of time.'

The plaintiff excepted to the giving of this instruction and requested the following instruction:

'The defendant contends that the plaintiff did not give timely notice of the accident to the defendant.

'I instruct you that the purpose of the notice condition in the insurance policy is to acquaint the insurance company with the occurrence of an accident so that it may make a proper investigation in order that it can determine whether a claim is likely to be made against the insured.

'I instruct you that if the insurance company, the defendant, received notice of the accident within a short period after the accident and that the defendant was then able to determine whether a claim was likely to be made against its insured, then defendant received sufficient notice.'

Plaintiff assigns as error the giving of this instruction and the trial court's refusal to instruct as requested.

The reasoning underlying our decisions on the effect of failure to give notice of accident promptly have not always been clear. Decisions from other jurisdictions are likewise unclear and also conflicting. Annotation, 18 A.L.R.2d 443, Liability insurance clause with respect to notice of accident or claim, etc. (1951).

Outside of judicial opinions, we have found no writings attempting to clarify this perplexing point of law.

We will first state our conclusions on the proper means of interpreting the notice of accident provision and then relate these conclusions to our previous decisions.

If the insured does not give notice immediately after the accident or if notice is given by a third party, the initial question should be whether the notice is given in time for the insurer to adequately investigate the potential claim and thus protect itself and the insured. This is the purpose of giving notice. Restated, the question is whether the insurer is prejudiced by the failure of the insured to give notice as soon as practicable. Under either statement of the inquiry, if the insured or a third party notifies the insurer in time for the insurer to adequately investigate the claim and protect itself; or, stating it differently, if the insurer is not prejudiced by the insured's failure to give notice as soon as practicable, the insurer cannot escape its policy obligations.

Whether the insured acted reasonably is immaterial in these circumstances. A hypothetical example should illustrate the logic of this proposition: Assume the insured was involved in a serious accident on July first. On July second a third party notified the insured's insurance company of all the pertinent facts involved in the accident. The insured never notified his insurer of the accident. Because the insurer suffered no prejudice under these circumstances, the insurer should not be permitted to deny coverage on the ground that its insured failed to give notice of the accident or that the insured acted unreasonably. In focusing on whether the insurer had notice in time to make a reasonable investigation, rather than on the conduct of the insured, the hypothetical example takes an approach similar to that of Johnson v. Doughty, 236 Or. 78, 385 P.2d 760 (1963), and Bailey v. Universal Underwriters Ins., 258 Or. 201, 474 P.2d 746, 482 P.2d 158 (1971).

In Bailey, after quoting dicta from Johnson v. Doughty, supra (236 Or. 79, 385 P.2d 760), we held:

'* * * (T)hat when the insurer had actual notice of the accident, including most of the circumstances of the accident, and undertook to investigate it, the fact that such notice was not given by the named insured is wholly immaterial. * * *.' 258 Or. at 216, 474 P.2d at 754.

On the other hand, our two most recent cases construing notice of accident provisions correctly focus on the reasonableness of the insured's conduct. In Bernard v. National Guaranty Ins., 270 Or. 827, 530 P.2d 74 (1974), the alleged malpractice on which the claim was based occurred in March 1971. The insured did not notify his insurer of the claim until he was served with the summons and...