Arrowood Indemnity Company v. Pendelton King Et Al. (Supreme Court of Connecticut, March 27, 2012)
The Connecticut Supreme Court has long held that in the context of late notice under an insurance policy, the burden was on the insured to prove lack of prejudice to the insurer as a result of the late notice, rather than on the insurer to prove prejudice. Aetna Cas. & Surety Co. v. Murphy, 206 Conn. 409 (1988). In an important decision issued March 27, 2012, the Connecticut Supreme Court reversed its holding in Murphy, and brought Connecticut in line with the majority of other jurisdictions that require the insurer to bear the burden of proving prejudice.
In Arrowood, the insured’s son, Pendleton King, Jr., had been driving an all-terrain vehicle while pulling a friend, Conor McEntee, who was riding on a skateboard pulled by a rope. Conor McEntee let go of the rope and subsequently fell, suffering a severe head injury that resulted in hospitalization and a temporary coma. Following the accident, the Kings and the McEntees socialized and the McEntees did not indicate that they intended to bring an action related to the accident. More than one year after the accident, however, the Kings received a letter from an attorney representing the McEntees alerting them that an action might be filed, at which time the Kings notified their insurer of the potential claim.
The Connecticut Supreme Court was asked to consider several issues of state law that had been certified to it from the Second Circuit Court of Appeals. One of the certified questions was: “Under Connecticut law, where a liability insurance policy requires an insured to give notice of a covered claim ‘as soon as practical,’ do social interactions between the insured and the claimant making not reference to an accident claim justify a delay in giving notice of a potential claim to the insurer?”
The Connecticut Supreme Court noted that the duty to give notice as “soon as practicable” requires an insured to give notice when facts develop which would suggest to a person of ordinary and reasonable prudence that liability may have been incurred, and the duty is complied with if notice is given within a reasonable time after the situation so assumes an aspect suggestive of a possible claim for damages. The court found that the Kings had an obligation to give notice following the ATV accident, because the injured child suffered a severe head injury leading to hospitalization and a temporary coma connected to Pendleton King, Jr.’s use of an ATV entrusted to him by his parents. The court found that these facts would have led a reasonable person to believe that liability may have been incurred. The court rejected the Kings’ suggestion that notice was not required because their social interactions with the McEntees led them to believe that no claim would be filed. The court noted that the notice requirement turns not on the insured’s subjective assessment of how likely a claim is to be brought, but rather on whether a reasonable person would recognize that liability may have been incurred.
The court then noted that if notice was untimely, a further determination must be made of whether the insurer was prejudiced by the late notice. The court took this opportunity to reexamine the allocation of the burden of proof on this issue, even though that question was not before the court.
The court indicated that it had previously allocated the burden to prove lack of prejudice to the insured, because it was the insured who was seeking to be excused from the consequences of a contract provision with which the insured had concededly failed to comply. In reversing that long-standing holding, the Court stated, “We now conclude that this reasoning, while legally tenable, is not as consistent with the principles we articulated previously herein as the contrary rule. As we recognized in Murphy, the task of proving a negative is an inherently difficult one, and it may be further complicated by the opposing party’s interest in concealment. Imposing this difficult task on the insured – the party least well equipped to know, let alone demonstrate, the effect of delayed disclosure on the investigatory and legal defense capabilities of the insurer – reduces the likelihood that the fact finder will possess sufficient information to determine whether prejudice has resulted from delayed disclosure. This uncertainty, which may prevent the court from meaningfully weighing the parties’ real interests, compromises the principled balance that this court intended to strike in Murphy. To better achieve that balance, we now join the overwhelming majority of our sister states in adopting a rule that facilitates informed determinations of prejudice by incentivizing insurers to bring evidence of prejudice, should it exist, to the court’s attention.” Arrowood, 304 Conn. at 202-03.
For a copy of this decision, click here.