National Pub. Co., v. Hartford Fire Ins., No. 17647.

949 A.2d 1203

287 Conn. 664

NATIONAL PUBLISHING COMPANY, INC. v. HARTFORD FIRE INSURANCE COMPANY.

No. 17647.

Supreme Court of Connecticut.

Argued September 18, 2007.

Decided July 8, 2008.

James V. Somers, with whom was Regen O'Malley and, on the brief, John B. Farley, Hartford, John C. Pitblado, Simsbury and Daniel P. Scapellati, Hartford, for the appellant (defendant).

Steven D. Ecker, with whom was Peter M. Haberlandt, Hartford, for the appellee (plaintiff).

NORCOTT, KATZ, PALMER, ZARELLA and SCHALLER, Js.

SCHALLER, J.

The sole issue in this certified appeal is whether the trial court properly refused to charge the jury on the defendant's special defense of late notice in this action for breach of an insurance contract. The defendant, Hartford Fire Insurance Company (Hartford), appeals, following our grant of certification,¹ from the judgment of the Appellate Court, which affirmed the judgment of the trial court rendered in accordance with a jury verdict in favor of the plaintiff, National Publishing Company, Inc. (National). See National Publishing Co. v. Hartford Fire Ins. Co., 94 Conn.App. 234, 236-37, 892 A.2d 261 (2006). Hartford claims that the trial court's refusal to charge the jury on its special defense of late notice was harmful error because the timeliness and adequacy of National's notice, as well as the question of whether Hartford was prejudiced by any delay in notice, presented disputed issues of fact for the jury to resolve.² We reverse the judgment of the Appellate Court.

The jury reasonably could have found the following facts. At all times relevant to this litigation, Paul Cohen served as National's sole shareholder, chief executive officer and president. National was in the business of printing and distributing advertising inserts for newspapers throughout the country. In producing and distributing these inserts, National relied on a uniquely designed software package that included a sophisticated proprietary database containing the raw data needed to produce the advertising inserts. National's business operations ran smoothly until 1994, when relations began to sour between Cohen and Eric Richmond and Karen Clarke, two employees with whom Cohen had built National's business. On December 30, 1994, Richmond and Clarke, as well as a number of other employees of National, confronted Cohen and demanded that he relinquish control of the company. Without resolving the dispute, Cohen left National's premises and traveled to Florida. On January 1, 1995, Cohen received letters of resignation from Richmond and Clarke.

On January 3, 1995, upon his return from Florida, Cohen discovered that some of National's property was missing, including computers, customer files, business records, as well as backup discs that contained National's computer software and databases. Cohen did not realize the full extent of the loss until on or about January 20, 1995, when he attempted, with the assistance of two remaining employees, to fill a small order for inserts. While processing the order, Cohen discovered that the computer system did not function properly. He and his employees proceeded to fill the order manually, that is, without the aid of the computer system. Because the computer system did not function properly, Cohen and his remaining employees were unable to fill the large orders for inserts that were necessary to keep the company solvent. National has not filled any orders for inserts since the January 20, 1995 order.

Because National's insurance policies were among the missing items and National's insurance coverage had not been within Cohen's purview, Cohen did not discover that National carried insurance with Hartford until January 25, 1995, when an invoice for a premium payment arrived from Hartford. This invoice referenced J.M. Layton and Company, Inc. (J.M. Layton), a third party insurance broker from whom National had procured the insurance policy. On January 30, 1995, Cohen called J.M. Layton and informed its chief executive officer, David Woodward, of the loss that National had suffered in early January, 1995, and the effect of the loss on National's ability to conduct business.

Woodward did not notify Hartford of National's claim until March 10, 1995, when he sent by facsimile to Hartford a form indicating that National was submitting a claim for employee dishonesty or employee theft. In this facsimile, Woodward also included a letter that he had received from Susan Guthrie, counsel retained by Cohen to represent National in its pursuit of its insurance claim. Guthrie's letter informed Woodward in writing of National's January, 1995 loss and its effect on National's business, and specifically stated that the business had been unable to operate since the losses had occurred.³

On the basis of the information that Woodward had transmitted, Gaspar Kuhn, an adjuster employed by Hartford, determined that the information supplied was insufficient to allow him to determine whether National was entitled to coverage under the policy. According to Kuhn, he thought that, at best, National might be entitled to coverage for its employee dishonesty claim. As for the employee dishonesty claim, Kuhn concluded that although a reported theft could have implicated the business interruption and extra expense coverage sections of the insurance policy, Woodward had not provided enough information to warrant coverage under either of those provisions. On March 13, 1995 Kuhn sent a letter to Guthrie in response, enclosing proof of loss forms and explaining that completion of the proof of loss forms was necessary to aid Hartford in its investigation of National's claim. On June 19, 1995, because he had not received any response to his March 13 letter, Kuhn sent a second letter, noting that Guthrie had not returned his telephone calls and asking her to contact him. On July 24, 1995, Kuhn sent Guthrie a third letter, again noting that he had not yet received a proof of loss form from her, and requesting that she return the enclosed proof of loss form to him, explaining that he was unable to proceed with the investigation until the form was returned.

Following Guthrie's failure to reply, National responded to Kuhn's requests for information in August, 1995, when Eric Von Brauchitsch, a public adjuster hired by National to assist it in pursuing insurance coverage, telephoned Kuhn and informed him that National intended to assert claims for coverage under the business interruption and extra expense sections of the policy. Concluding that National's claim would be much larger and more complex than an employee dishonesty claim, Kuhn transferred National's claim to Thomas Effley, an adjuster employed by Hartford who had more experience handling larger claims.

The record reflects the following additional procedural history. At trial, National alleged that Hartford had breached the insurance contract by failing to pay National's claim. Based on a condition precedent set forth in § E.3.b of the policy, which specifies the insured's duties in the event of loss or damage, Hartford asserted as a special defense that National had failed to provide prompt notice to Hartford. Section E.3.b states in relevant part that the insured must "[g]ive [Hartford] prompt notice of the loss or damage...." At the conclusion of evidence, the trial court declined to give the jury Hartford's requested instruction on its special defense of late notice, and the jury subsequently returned a verdict in favor of National. The trial court rendered judgment in accordance with the verdict awarding $1,100,314.37 in damages to National.⁴

Hartford then appealed from the judgment of the trial court to the Appellate Court, claiming, inter alia, that the trial court improperly had failed to instruct the jury on its special defense of late notice. National Publishing Co. v. Hartford Fire Ins. Co., supra, 94 Conn.App. at 237, 892 A.2d 261. The Appellate Court, assuming without deciding that the failure to give the requested instruction was improper, concluded that any such failure was harmless error. Id., at 271, 892 A.2d 261. In arriving at this conclusion, the court first determined that National provided notice to Hartford on January 30, 1995, when National contacted J.M. Layton. Id., at 274-75, 892 A.2d 261. Central to its determination that notice to J.M. Layton constituted notice to Hartford was the Appellate Court's determination that J.M. Layton was Hartford's agent. Id., at 275, 892 A.2d 261. On the basis of that finding and testimony by Kuhn and Woodward that, in their opinion, Hartford was not prejudiced, the court concluded that National satisfied its burden to show that Hartford was not prejudiced by the timing of the notice. Id., at 273-75, 892 A.2d 261. The Appellate Court then concluded that, because National had met its burden of demonstrating that Hartford was not prejudiced by the timing of the notice, pursuant to our holding in Aetna Casualty & Surety Co. v. Murphy, 206 Conn. 409, 419, 538 A.2d 219 (1988), Hartford could not meet its burden of showing that a charge on late notice likely would have affected the outcome because "[t]he only testimony offered on the issue of prejudice demonstrated a lack of prejudice to Hartford, thereby satisfying National's burden of proof...." National Publishing Co. v. Hartford Fire Ins. Co., supra, at 278, 892 A.2d 261. This certified appeal followed.

On appeal to this court, Hartford claims that the trial court's refusal to charge the jury on its special defense of late notice was improper because whether notice was timely and sufficient, and whether Hartford was prejudiced by any delay in notice presented disputed issues of fact for the jury to resolve. Hartford further argues that, because National failed to meet its burden to show that Hartford was not prejudiced by the timing of the notice, the result of the trial likely would have been different had the trial court instructed the jury...