Great American Insurance v. C. G. Tate Construction Co.

265 S.E.2d 467 (1980)

GREAT AMERICAN INSURANCE COMPANY
v.
C. G. TATE CONSTRUCTION COMPANY.

No. 7910SC904.

Court of Appeals of North Carolina.

May 6, 1980.

Johnson, Patterson, Dilthey & Clay by Robert M. Clay and Robert W. Sumner, Raleigh, for plaintiff-appellee.

Nye, Mitchell, Jarvis & Bugg by Charles B. Nye, Durham, for defendant-appellant.

HEDRICK, Judge.

The policy of insurance issued by Great American to Tate, which was concededly in force during the period at issue in this lawsuit, contains the following provision:

4. Insured's duties in the event of occurrence, claim or suit:

(a) In the event of an occurrence, 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 of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable.

Notice provisions such as this one, which are common if not universal, seek to protect the insurer's rights by affording it an opportunity to conduct timely and adequate investigations of the circumstances surrounding the occurrence which gave rise to the claim against its insured. State Farm Mutual Automobile Insurance Co. v. Milam, 438 F. Supp. 227 (S.D.W.Va.1977); accord, Peeler v. United States Casualty Co., 197 N.C. 286, 148 S.E. 261 (1929). It has been observed by Professor Appleman that requiring timely notice from the insured so as to provide the insurance companies this opportunity promotes early settlements and prevents fraudulent claims. 8 J. Appleman, Insurance Law and Practice § 4731 (1962) (1973 Cum.Supp.; 1979 Supp.). See also 68 Harv.L.Rev. 1436 (1955); Muncie v. Travelers Insurance Co., 253 N.C. 74, 116 S.E.2d 474 (1960) (Parker, J., concurring).

Bearing in mind this purpose of the notice requirement, we think it also vital that we keep in mind the general principle of legal analysis that insurance policies should be given a reasonable construction in accordance with their terms and should be interpreted to provide coverage when rationally possible to do so, rather than to defeat it. Ambiguities in language are resolved in favor of the insured, and exceptions to liability are not favored. 7 Strong's N.C. Index 3d, Insurance §§ 6.1, 6.2, 6.3 (1977), and cases cited therein.

The resolution of the instant appeal revolves, we think, around the meaning of the phrase in the policy requiring notice "as soon as practicable." Whether the requirement has been met in a given case obviously cannot be determined by setting a precise period of time within which notice must be communicated. To the contrary, the phrase embodies a fluid concept which can only take shape from the facts and circumstances of the particular case. Thus, "as soon as practicable" means as soon as is reasonably possible, considering the situation. Although we have found no North Carolina case which so holds, recent decisions from a number of our sister jurisdictions have interpreted insurance policies requiring notice "as soon as practicable" to mean notice within a reasonable time. See, e. g., State Farm Mutual Automobile Insurance Co. v. Milam, supra; Falcon Steel Co., Inc. v. Maryland Casualty Co., 366 A.2d 512 (Del. Super.1976); Lumbermens Mutual Casualty Co. v. Oliver, 115 N.H. 141, 335 A.2d 666 (1975); Greer v. Zurich Insurance Co., 441 S.W.2d 15 (Mo.1969). Moreover, we believe such an interpretation is not only inherent in the language of the phrase, but also implicit in the decision of our Supreme Court in Muncie v. Travelers Insurance Co., supra, and Justice Parker in his concurring opinion said as much. The insured, of course, bears the burden of proving compliance with the notice provisions. Id.; accord, Lumbermens Mutual Casualty Co. v. Oliver, supra.

In the case before us, the question whether notice was given within a reasonable time was answered negatively by Judge Bailey, and he found facts purporting to support that determination. Those facts are supported by some competent evidence of record, even though the evidence would support contrary findings. For the reasons to follow, however, and despite the arguments advanced on appeal, we do not think the inquiry ends with that determination.

First of all, in holding as he did, Judge Bailey stated to counsel prior to entering judgment that he was relying "primarily on the doctrine of the Muncie case." Although Muncie appears to be the leading case in this jurisdiction with respect to the interpretation of the phrase "as soon as practicable," in the context of the instant case we are satisfied that the decision is inapposite, or at least, distinguishable. As the subsequent opinion of the Court in Fleming v. Nationwide Mutual Insurance Co., 261 N.C. 303, 134 S.E.2d 614 (1964), made clear, the holding in Muncie was simply and narrowly this: Notice given eight months or at any time after the happening of an accident, without any explanation of or justification for the delay, as a matter of law is not given "as soon as practicable." Accord, Buckeye Union Casualty Co. v. Perry, 406 F.2d 1270 (4th Cir. 1969), wherein Judge Sobeloff for the Court held that a 70-day delay was an unreasonable delay as a matter of law only because the delay was unexplained.

However, once the insured tenders an explanation for its delay in giving notice, as Tate did in the case at bar, whatever length of time the delay comprises, the issue whether the notice provisions of the policy have been complied with becomes a question of fact to be determined by the finder of the facts. Id.; see also 8 J. Appleman, Insurance Law and Practice, supra; State Farm Mutual Automobile Insurance Co. v. Murnion, 439 F.2d 945 (9th Cir. 1971) (three-year delay, where adequate explanation was offered, held excusable). Justice Parker, concurring in Muncie, intimated as much when he observed that, since the facts were not in dispute there as to why notice had not been given, then whether notice had been given "as soon as practicable" was a question of law for the court. See also First Citizens Bank and Trust Co. v. Northwestern Insurance Co., 44 N.C.App. 414, 261 S.E.2d 242 (1980) (when the facts are in dispute, the question whether notice was given "as soon as practicable" is a jury matter). This distinction also follows naturally from our interpretation of the language of the policy to permit flexibility in determining whether notice was given "as soon as practicable" by reference to the surrounding facts and circumstances.

Intrinsic in this approach is our belief that the determination of reasonable notice as a question of fact depends on the prejudice to the insurer precipitated by the delay, as well as on the length of and reasons for the delay. See 13 G. Couch, Cyclopedia of Insurance Law 2d, § 49:88 (R. Anderson ed. 1965). "Prejudice to the insurer is a material element in determining whether notice is reasonably given." Wendel v. Swanberg, 384 Mich. 468, 478, 185 N.W.2d 348, 353 (1971). Thus, the mere fact of failure of notice, or of notice given after an unreasonable delay, where such failures are explained, will not ipso facto provide the insurer with a sufficient legal reason for avoiding its obligations under the policy. Nor does it matter from what source the insurance company eventually receives notice. Bibb v. Dairyland Insurance Co., 44 Mich.App. 440, 205 N.W.2d 495 (1973). We think the rationale for requiring the insurer to show prejudice was succinctly capsulized by the Court in State Farm Mutual Automobile Insurance Co. v. Milam, supra at 232:

It must be remembered, too, that in all of these "lack of notice" cases, the insurer, sooner or later, does receive notice of the occurrence. In order then for the insurer to successfully avail itself of the "lack of notice" defense, it must show that it was prejudiced by reason thereof. The test to apply is whether the insurer would be in a better position with regard to the investigation of the circumstances surrounding the event which resulted in the claim being made either against it or its insured had it been furnished notice within a reasonable time of the occurrence which gave rise to such claim. [Citations omitted.]

We are persuaded also by reasons of policy to conclude that the insurer must demonstrate in what particulars it was prejudiced by its insured's delay in giving notice before it can escape its duties under the policy. Insurance contracts are not negotiated agreements between parties of equal bargaining strength. They are written by the insurance companies, and thus the notice provision is hardly a matter of choice. Furthermore, where the penalty paid by the insured is a forfeiture of coverage, we believe the insurer must advance good reasons to avoid its undertaking. Since the notice provision is designed to allow the insurer an opportunity to conduct a timely and adequate investigation in order to gather and preserve evidence and to protect its ability to defend the claim, if that opportunity is afforded despite the failure of timely notice, the insurer has suffered no prejudice from the delay and no good reason is evident to permit it to escape liability. As the Pennsylvania Supreme Court observed in the well-reasoned opinion of Brakeman v. Potomac Insurance Co., 472 Pa. 66, 76, 371 A.2d 193, 198 (1977):

Allowing an insurance company, which has collected full premiums for coverage, to refuse compensation to an accident victim or insured on the ground of late notice, where it is not shown timely notice would have put the company in a more favorable position, is unduly severe and inequitable.

Specifically, we hold that, in deciding whether an insured has complied with a notice provision in an insurance policy requiring notice to the insurer "as soon as practicable," the finder of the facts must determine: (1) Was notice given within a reasonable time considering all the facts and circumstances of the particular case, and (2) if not, has the insurer suffered prejudice from the insured's delay in giving notice? In so holding, we are confident that our decision accords with the weight of authority wherein the question has arisen and that it represents the better-reasoned judgment. See, e. g., in addition to the cases hereinabove cited, American Record Pressing Co. v. United States Fidelity & Guaranty Co., 466 F. Supp. 1373 (S.D.N.Y. 1979); ACF Produce, Inc. v. Chubb/Pacific Indemnity Group, 451 F. Supp. 1095 (E.D.Pa. 1978); Sager v. St. Paul Fire & Marine Insurance Co., 461 S.W.2d 704 (Mo.1971); St. Paul Fire & Marine Insurance Co. v. Petzold, 418 F.2d 303 (1st Cir. 1969); Atlantic Mutual Insurance Co. v. Cooney, 303 F.2d 253 (9th Cir. 1962).

In determining whether the insurer has been prejudiced, the obvious inquiry is whether the delay has frustrated the purpose of the notice provision to afford the insurer an opportunity to conduct an adequate and timely investigation. That is, in what respects is the insurer in a less advantageous position to defend itself or its insured? Among the factors to be considered are the availability of witnesses to the accident; the ability to discover other information regarding the conditions of the locale where the accident occurred; any physical changes in the location of the accident during the period of the delay; the existence of official reports concerning the occurrence; the preparation and preservation of demonstrative and illustrative evidence, such as the vehicles involved in the occurrence, or photographs and diagrams of the scene; the ability of experts to reconstruct the scene and the occurrence; and so on.

The record before us discloses that the parties sought to and did elicit evidence relevant to the question of whether Great American had been prejudiced by the fact that it was not notified of Tate's possible involvement in the collision of 6 April 1978 until 3 May 1978. Moreover, we are of the opinion that ample evidence was presented from which the court could have found that the company had in no wise been prejudiced by the delay, despite the court's finding that the delay was "unjustified." For example, Donald Quick, the company's claims manager in Columbia, South Carolina, testified that he was "reasonably sure" all witnesses had been identified; that the company had obtained statements from all witnesses; and that the company had available to it "voluminous photographs made of the scene during the fire while the tanker was still burning and of the roadway after the accident." In addition, the accident report prepared by Investigating Officer Cole was accessible, and newspaper accounts of the accident were obtainable. Although Quick contended that the company had suffered prejudice in that "we were unable to contact the witnesses immediately after the accident when everything was fresh in their minds," he admitted that the statements obtained from them by company adjusters were substantially the same as the statements they gave Officer Cole shortly after the collision. Quick's further contention that the company was prejudiced because the skid marks on the highway had been erased by the time of its investigation was rebutted by his concession that "[t]he best. . . and the most reliable witness concerning the location of the skid marks and how long they were would be [Officer] Cole."

Although the evidence is plenary on the issue of prejudice, it is necessary that we remand this case to the Superior Court for further proceedings since the record shows that the trial judge refused to consider and determine this question on the basis that, in his opinion, the issue of prejudice "does not arise." Moreover, because the question heretofore has not been squarely presented, nor the rule of law clearly enunciated by the courts of this State, we think it only fair that these parties be given an opportunity to present any other available evidence on the issue of prejudice and to argue the matter in light of the standards herein announced.

As we noted earlier, the trial judge has answered the question of whether Tate gave notice to Great American within a reasonable time under all the circumstances of the case. His resolution of this question in favor of the plaintiff is supported by the evidence, and need not be determined again.

For the reasons stated the judgment of the trial court entered 17 May 1979 is reversed, and the cause is remanded for further proceedings in accordance with this Opinion.

Reversed and remanded.

ARNOLD and ERWIN, JJ., concur.