On March 16, 2012, the Connecticut Supreme Court unofficially released its opinion in Arrowood Indemnity Co. v. King, 304 Conn. ___ (2012). In King, which will be officially released March 27, 2012, the Supreme Court considered three questions of law that were certified to it by the Second Circuit Court of Appeals. The certified questions arose out of the named insured's son's use of an ATV and an accident which occurred while the son was operating the ATV on a private road in a homeowner's association while towing his friend on a skateboard. As a result of the accident, the friend sustained serious injuries.

Approximately a year after the accident occurred, the Kings notified their homeowners insurer, Royal Indemnity Company, now known as Arrowood, of the accident. Thereafter, suit was filed against the Kings. Royal tendered a defense to the Kings under a reservation of rights, specifically reserving the right to disclaim coverage because the accident giving rise to the claimant's injuries did not occur on an "insured location" or on a "premises used in connection with the residence premises." Further, Royal reserved its right to deny coverage due to the Kings' failure to provide timely notice of the accident to Royal.

On behalf of Royal, Halloran & Sage commenced a declaratory judgment action in United States District Court to test the coverage issues. Summary judgment was granted in favor of Royal in a ruling issued by Judge Stefan Underhill, and the Kings appealed to the Second Circuit Court of Appeals.

The first question of law certified to the Connecticut Supreme Court by the Second Circuit asked whether, for purposes of a negligent entrustment claim, the "insured location" was the place where the entrustment of the vehicle took place, the place where the vehicle was garaged, or the place where the accident occurred. The Supreme Court agreed with Arrowood that, for purposes of the Kings' negligent entrustment claim, the "insured location" was the place where the accident occurred.

The Supreme Court answered the second certified question in favor of Arrowood, holding that because that portion of the roadway where the accident occurred was not regularly used by the Kings, although other roads within the association were so used, the location of the accident could not be considered a "premises used in connection with the residence premises."

Although the Supreme Court's answers to the first two certified question ensured victory for Arrowood, the Second Circuit had certified a third question of law to the Supreme Court. Specifically, the Second Circuit asked the Supreme Court to decide whether social interactions between an insured and a claimant making no reference to an accident claim justify an insured's delay in giving notice of a claim to his insurer as soon as practical. In its analysis of this issue, the Supreme Court held that the obligation to provide notice triggers the inquiry whether a reasonable person would understand that liability may be incurred. Contrary to the position adopted by the Kings, the notice requirement did not turn on the insured's subjective assessment. Accordingly, under the facts of the case, the social interactions between the Kings and the claimant and his family did not excuse the Kings' failure to provide timely notice to Royal.

The Supreme Court was not finished, however. Instead, the Supreme Court elected to go one step further and consider an issue that had not been addressed either by the District Court or the Second Circuit. On its own initiative, the Supreme Court decided to revisit its decision in Aetna Casualty & Surety Co. vs. Murphy, 206 Conn. 409 (1988). In Murphy, the Supreme Court held that where an insured provides late notice of a claim to his insurer, the burden is on the insured to prove that the insurance company was not prejudiced by the late notice. In King>, the Supreme Court reversed the holding in Murphy, choosing to follow the majority of jurisdictions in the United States which hold that in late notice cases, the insurance company is better suited to prove prejudice and therefore, the burden is on the insurance company to prove that it was prejudiced by the insured's failure to provide timely notice.

Frankly, the Supreme Court's decision to reallocate the burden of proof of prejudice in late notice cases from the insured to the insurer comes as little surprise. Indeed, Courts typically frown upon a forfeiture of coverage for breach of a policy condition, especially a breach of the policy's notice condition. Even in states such as New York which traditionally have strictly applied the notice provision, Courts and legislatures alike have expressed a willingness to relax what otherwise had been a strict application of the notice of requirement.

Practically speaking, we do not believe that the burden of proof rule as announced in Kingwill significantly affect the way in which insurers in Connecticut address coverage issues arising out of an insured's failure to provide timely notice of a claim. Simply stated, for all intents and purposes, an insurance company asserting a late notice defense while Murphywas the rule should have been in a position to assume the burden of proving prejudice. In fact, in King, although the District Court did not address the notice issue, we did submit evidence to the Court to demonstrate affirmatively that Royal had been prejudiced by the late notice. That is, we were prepared to assume the burden of proving prejudice as opposed to simply relying upon a rebuttable presumption of prejudice. In our opinion, therefore, while the decision in Kingdoes effect a substantive change to the law such that there no longer is a presumption of prejudice when the insured fails to provide timely notice, Murphy'spresumption of prejudice and the insured's obligation to prove lack of prejudice, in our judgment, was not sufficient in and of itself to ensure success on a late notice defense. Indeed, under the Murphyrule any policyholder's attorney worth his or her salt would attempt to defeat the late notice defense by putting on evidence, including testimony of insurance company personnel, to establish that the insurer would not have conducted its investigation any differently had it been provided notice earlier. And in order to counter such arguments, coverage counsel would have to be prepared to show that the insurer was prejudiced. The bottom line, therefore, is that going forward, the holding in Kingshould not significantly impact carriers' strategic decisions in the context of the assertion of a late notice defense.