Brakeman v. Potomac Insurance

Concurring Opinion by

Cercone, J.:

The law abhors a “forfeiture” almost as devoutly as nature abhors a vacuum; and, jurists press to find grounds consistent with legal theory to avoid the occurrence of forfeitures. From this view is derived the notion that “extenuating circumstances” may excuse the non-occur*330rence of a condition precedent to an insurance company’s obligation to pay under its agreement with its insured. The abhorrence of forfeitures infects laymen also; so that, in the jury trial below, we find the jury holding that “extenuating circumstances” excused the condition that the insurance company be notified “as soon as practicable” of a potential claim, despite the fact that there was no credible evidence to support that conclusion. Therefore, in granting the insurer’s motion for judgment n.o.v., the judge properly concluded that there was no extenuating circumstance shown to postpone or excuse the condition of timely notice.1

On the other hand, I agree with the majority that extenuating circumstances should not be the sole basis upon which the timely notice provisions in insurance policies may be excused. The difficulty with that “rule” is that it treats only part of the question with which we should be concerned; i.e., while it directs the inquiry to whether the insured’s dereliction is excusable by circumstances, it fails to lead the court or the jury to consider whether excuse of the condition would put the insurance company in a significantly more difficult position than it would have been in had the insured provided timely notice.2 The calculus of the law enables us to adopt and apply a rule which more consistently produces an equitable result than does the extenuating circumstances rule.3

*331The Restatement of Contracts, Second, Section 2554 suggests a rule manifestly suited to the problem before us. Section 255 provides:

“Excuse of a Condition to Avoid Forfeiture
To the extent that the non-occurrence of a condition would cause extreme forfeiture, a court may excuse the condition unless its occurrence was a material part of the agreed exchange.”

The two criteria, which must be weighed together, are the extremity of the forfeiture to the obligee (insured) and the materiality of the non-occurrence of the condition to the obligor (insurer). In the instant case, there can be no doubt that the insured’s forfeiture of his indemnification against appellant’s judgment of $10,000 is an extreme forfeiture.5 The unanswered question, however, is whether the condition was material to the insurance company at the time it failed to occur.6 In other words, from the standpoint of the insurance company’s ability to assess the extent of its insured’s liability, and prepare and defend a lawsuit by appellant against the insured, was the insurance company in substantially the same position seven months after the accident as it would have been in had the insured notified the company “as soon as practicable?” That is the question upon which the court re*332fused to instruct the jury at the trial below, and that is why we must remand for a new trial, which should be limited solely to this question of materiality.

The application of broad terms like “material” and “extreme forfeiture” to individual circumstances is not an easy task. As Professor Murray has noted: “The new Restatement analysis is a manifestation of the strong abhorrence of forfeitures and suggests a desirable result. However, the difficulties in determining whether the nonoccurrence of the condition is 'relatively unimportant’ to the obligor and whether the forfeiture is ‘extreme’ should not be underestimated.”7 Nevertheless, the section does provide a structure for expression of the law’s policy against forfeiture,8 which is all the stronger when it occurs in the context of insurance contracts,9 while providing a basis for interstate uniformity in interpreting reasonable notice provisions in insurance contracts.

The burden of proving the elements necessary to excuse the non-occurrence of a condition precedent under Section 255 logically falls upon the party seeking to avoid the impact of the condition’s non-occurrence. Although Section 255 is susceptible to the interpretation that the insured need only show extreme forfeiture so that the court may “excuse the condition unless [the insurance company shows that] its occurrence was a material part of the agreed exchange,” I agree with the majority that placing this burden of proof upon the company would be inappropriate. As Professor Keeton has stated, prompt notice provisions may operate not only in favor of insurance companies, but also in favor of the insured indi*333vidually and the public at large.10 Since delay in presentation of a claim may substantially enhance the possibility that fraud has occurred, or that the insurance company may lose on a claim when timely discovery would have produced a different result, the claimant under the policy should demonstrate that his dereliction had no such effect on the company’s position in his case.11

Finally, the result reached herein is consistent with the clear trend in the law which is toward excusing conditions of timely notice where the evidence establishes that timely notice would not have significantly enhanced the position of the insurer. See, e.g., Pickering v. American Employers Ins. Co., 282 A.2d 584 (R.I. 1971); State Farm Mut. Auto Ins. Co. v. Murnion, 439 F.2d 945 (9th Cir. 1971); Cooper v. Government Employees Ins. Co., 237 A.2d 870 (N.J. 1968); Keith v. Lutzweit, 153 N.E.2d 695 (1957). The result also comports with the ever-strengthening public policy that innocent victims of automobile accidents should not go uncompensated unless strong countervailing reasons exist therefor. See Harleys-ville Mut. Cas. Co. v. Blumling, 429 Pa. 389 (1968); Nationwide Mut. Ins. Co. v. Ealy, 221 Pa. Superior Ct. 138 (1972). See also The No-fault Motor Vehicle Insurance Act, Act of July 19, 1974, P.L. 489, No. 176, 40 P.S. §§1009.101 et seq. (Supp. 1975).

I, therefore, would reverse the judgment non obstante veredicto and remand the case for a new trial limited solely to the question of the materiality to the insurer of the insured’s failure to notify the insurer as soon as practicable.

Hoffman and Spaeth, JJ., join in this concurring opinion.

. The court expressly refused to charge that the insured’s age, seventeen years and seven months at the time of the accident, could constitute an extenuating circumstance.

. Extreme forfeiture by failure of the condition is a virtual “given” in these insurance cases.

. It has been suggested that employment of a “prejudice” standard for excuse of a reasonable notice provision has a significant practical impact on insurance companies in the context of their ability to ferret out fraudulent claims and defend against improper ones. See R. Keeton, Basic Text on Insurance Law § 7.1(b) (1971). On the other hand, the value of that inquiry for *331the insurer should not be underestimated. Given the propensity of Juries to find extenuating circumstances on the flimsiest evidence thereof, and the disinclination of the courts to interfere with their conclusions, the insurer may actually benefit from an inquiry into the damage that was done to its case by the insured’s essentially inexcusable tardiness. At least, the jury will know that in raising the condition in defense, the insurer was not merely seizing on a technicality to avoid its contractual obligation.

. Tentative Draft #7 (1972).

. Since this is a subrogation claim, it is the loss to the insured, not his victim, which is relevant.

. Restatement of Contracts, Second, §§255, Comment a, and 266(c).

. Murray on Contracts, § 168 at p. 331 (1974).

. See also Restatement of Contracts, Second, § 266 (Tent. Draft #8, 1973).

. Restatement of Contracts, Second, § 255, Comment b suggests that “[t]he character of the agreement may, as in the case of insurance agreements, affect the rigor with which the requirement is applied.”

. R. Keeton, Basic Text on Insurance Law § 7.2(a) (1971).

. Id. at §7.1 (b), p. 442. See also United Services Auto. Ass’n. Appeal, 227 Pa. Superior Ct. 508 (1974).