Siravo v. Great American Ins. Co.

• Decision Date: 10 January 1980
• Docket Number: No. 79-190-A,79-190-A
• Citation: 122 R.I. 538,410 A.2d 116
• Parties: Rachael SIRAVO v. GREAT AMERICAN INSURANCE CO. et al. ppeal.
• Court: Rhode Island Supreme Court

Page 116

410 A.2d 116

122 R.I. 538

Rachael SIRAVO v. GREAT AMERICAN INSURANCE CO. et al.

No. 79-190-Appeal.

Supreme Court of Rhode Island.

Jan. 10, 1980.

[122 R.I. 547] Hodosh, Spinella & Angelone, Thomas C. Angelone, [122 R.I. 548] Steven I. Rosenbaum, Providence, for plaintiff.

Gunning, LaFazia & Gnys, Inc., Raymond A. LaFazia, Providence, for defendants.

OPINION

WEISBERGER, Justice.

The United States Court of Appeals for the First Circuit, acting pursuant to Sup.Ct.R. 6, has certified to us the following question of law:

"Does an insured's late filing of the sworn proof of loss, which under the standard form of fire insurance policy, R.I.Gen.Laws § 27-5-3, he is supposed to render within sixty (60) days after the loss, bar the insured's recovery under the policy in the absence of the company's proving prejudice stemming from the insured's failure to comply with the time limits contained in said proof of loss provision?"

The plaintiff sought recovery in the District Court from the defendant insurance companies under the terms of two fire insurance policies ¹ covering her home, which was completely destroyed by fire. The insurers advanced three defenses for avoidance of the claim: arson traceable to the plaintiff, the plaintiff's misrepresentation of the extent of loss, and the plaintiff's failure to file a sworn proof of loss on time. ² The jury rendered a general verdict for the defendants, and the plaintiff appealed, alleging error in the court's jury instructions and in the admission of evidence.

Upon finding that the remainder of plaintiff's allegations of error lacked merit, the Court of Appeals held that the answer to the question certified was determinative of the cause pending before it. After reviewing the opinions of this court cited by the parties, the Court of Appeals was unsure of how we would rule on the question. It therefore abstained from deciding this question of state law and invoked the certification procedure provided by Sup.Ct.R. 6.

The plaintiff relies on Pickering v. American Employers Insurance Co., 109 R.I. 143, 282 A.2d 584 (1971) to argue that her failure to file the proof of loss within sixty days should not bar recovery unless defendants are able to demonstrate that they were thereby prejudiced. In Pickering, the plaintiff sought recovery on her automobile liability insurance policy for injuries caused by an uninsured motorist. Among the defenses raised by the insurer was the plaintiff's failure to comply with three provisions included in the policy. Those provisions declared that the giving of notice of a loss and the filing of a sworn written proof of claim should be done "as soon as practicable," while copies of legal process served in the uninsured motorist's suit were to be forwarded to the insurer "immediately." Id. at 157-58, 282 A.2d at 592.

In Pickering, we defined the term "notice" to include such items as the furnishing of a proof of claim and a copy of the summons and complaint. We then held that an insurer could not rely on any of the so-called "notice" provisions of its policy unless it could demonstrate that it had been prejudiced by the lack of notice. ³ Id. at 160, 282 A.2d at 593; Donahue v. Hartford Fire Insurance Co., 110 R.I. 603, 604, 295 A.2d 693, 693 (1972). We based our holding on the express recognition that an insurance policy is not a true consensual arrangement but one that is usually described as a contract of adhesion, available to the premium-paying customer on a take-it-or-leave-it basis.

Initially, defendants direct our attention to an opinion of the United States District Court of Rhode Island, W. & H. Jewelry Co. v. Aetna Casualty & Surety Co., 141 F.Supp. 296 (D.R.I.1956). The plaintiff had sought recovery on a policy insuring against losses caused by water damage. The policy contained provisions identical to plaintiff's standard-form fire insurance policy in regard to notice and proof of loss and maintenance of suit on the policy. The insured had failed to comply with the notice and proof-of-loss requirements. Relying on our earlier decision in Sherwood Ice Co. v. U. S. Casualty Co., 40 R.I. 268, 100 A. 572 (1917), the court ruled that the insurer, to avoid the claim, need not show prejudice caused by the delays in notice and filing. Subsequently, however, we rejected that part of the holding of Sherwood Ice Co. in Pickering. The District Court's ruling on this issue therefore loses its persuasive force.

Having determined that W. & H. Jewelry Co. is no longer apposite, we consider the parties' arguments relating to the applicability of the Pickering rule to noncompliance with the proof-of-loss provision in a standard-form fire insurance policy. The defendants point first to the distinction between a proof-of-loss requirement in a fire insurance policy and the proof-of-claim and notice-of-loss requirements in an automobile policy. They contend that the distinction weighs against extending Pickering to the proof-of-loss provision. Basically, they claim the provisions serve different purposes, especially in the context of comparing automobile insurance with fire insurance. On the other hand, plaintiff appears to argue that a proof of claim is functionally equivalent to a proof of loss; thus noncompliance therewith is a technical breach, as in Pickering, requiring the insurer to show prejudice to bar recovery.

Although both notice and proof-of-loss provisions serve a broad common purpose of informing an insurer of the loss for which a claim is made, the two are distinct. 14 Couch, Insurance 2d § 49:391 at 23 (1965); 5A Appleman, Insurance Law and Practice § 3481 at 428 (1970). The sole purpose of a notice-of-loss provision is to afford the insurer a Seasonable opportunity for investigation to protect its interests. 13 Couch, Insurance 2d § 49:38 at 659 (1915); 5A Appleman, Insurance Law and Practice § 3481 at 428. The purpose of a proof of loss, on the other hand, is to afford the insurer an Adequate opportunity to protect its interests by facilitating its investigation. 14 Couch, Insurance 2d § 49:373 at 15 (1965); 5A Appleman, Insurance Law and Practice § 3481 at 428 (1970).

We believe, however, that the distinction does not warrant a refusal to extend Pickering to proof-of-loss provisions. Pickering required that an automobile insurer show prejudice resulting from an untimely notice of loss. Such prejudice would result from an insurer's inability to conduct any investigation until the time that notice of loss is provided. Without notice of loss, an insurer can conduct no investigation at all. ⁴ In contrast, an insured's untimely compliance with a proof-of-loss provision may adversely affect the adequacy, but not the existence, of an insurer's opportunity to investigate a claim. The Supreme Court of Wisconsin has noted, "There is no great hurry there (to furnish a proof of loss), such as there is when loss occurs and the insurer must be notified so that it may proceed * * *." Britz v. American Insurance Co. of Newark, N. J., 2 Wis.2d 192, 202, 86 N.W.2d 18, 23 (1957). We therefore conclude that logic and reason impel a showing of prejudice, even more forcefully, before a declaration of forfeiture may be based upon an insured's untimely compliance with a proof-of-loss provision. For this purpose, we analogize a proof-of-loss provision to the so-called group of "notice" provisions at issue in Pickering.

Notwithstanding this determination, defendants have argued that we should not extend to fire insurance policies a rule applied previously to automobile insurance. They assert that the proof-of-loss requirement signifies the Legislature's concern with fraudulent claims resulting from "arson for profit." While we grant that a proof of claim is required, in part, to protect an insurer against fraud, Fournier v. German-American Insurance Co., 23 R.I. 36, 49 A. 98 (1901), we do not believe that application of the Pickering rule will substantially impair the provision's utility for determining the nature of a fire's origin. Nor do we consider a proof-of-loss provision to be a significant bulwark of the legislative effort to detect and prevent arson. More relevant to the determination of the origin of a fire is § 23-28.2-11 which in part directs that:

"The state fire marshal * * * shall investigate the cause, origin and circumstances of every fire of suspicious origin, by which property has been damaged or destroyed * * *. Such investigation shall begin immediately after the occurrence of such fire and local government officials shall cooperate completely and assist the state fire marshal's office in all phases of any such investigation."

In their next argument, defendants note that the provisions of a fire insurance policy, unlike the provisions of the automobile policy at issue in Pickering, are prescribed by statute, G.L.1956 (1968 Reenactment) § 27-5-3, and were required by § 27-5-2 to be included in all fire insurance policies covering property located in this state. ⁵ The defendants raise two arguments based on this distinction.

The insurers point to our recent decision in AAA Pool Service & Supply, Inc. v. Aetna Casualty & Surety Co., R.I., 395 A.2d 724 (1978). We there stated that the standard-form fire insurance policy, issued pursuant to § 27-5-2 and § 27-5-3, is not a contract of adhesion. Id. at 726. ⁶ We made this assertion while rejecting the contention that an insurer's bad-faith refusal to settle a claim arising under a standard-form fire insurance policy constitutes a breach of an implied contractual duty to act in good faith and gives rise to an independent tort action. In light of a portion of the rationale expressed for our holding in Pickering, defendants question its applicability to a policy not characterized as a contract of adhesion.

The plaintiff directs us to Donahue v. Hartford Fire Insurance Co., 110 R.I. 603, 295 A.2d 693 (1972), decided about a year after Pickering. While reiterating the...