Tuesday, June 24, 2008

4-Month Delay Found to Constitute Late Notice By Insureds, But Not By Injured Party

Tower Ins. Co. of New York v. Jaison John Realty Corp.
(Sup. Ct., New York Co., decided 6/17/2008)

In counseling insurer clients on late notice issues, we regularly remind them that not one but two late notice analyses and determinations need to be made in every case: one with respect to the insured's delay or failure in providing notice; and the second with respect to the injured party's or claimant's delay or failure.

The latter determination is needed because Insurance Law § 3420(a)(3) gives injured parties an independent right to notify tortfeasors' liability insurers of an accident or occurrence. The standard or test used to measure late notice by an injured party is, however, less stringent than the one applicable to insureds. Notice by an injured party, even if much later than what would be expected from an insured, will be deemed timely if the injured party is found to have acted with due diligence to identify the tortfeasor's liability insurer, and then have placed that insurer on notice as soon after learning that insurer's identity as possible.

In this case, the court found that while the insureds breached their policy obligation to provide Tower with timely notice of falldown accident of which they were immediately aware, Tower had not met its burden of showing that the injured party relied solely on the insured to give notice to Tower and failed to proceed diligently in giving notice of her claim directly to Tower.

Claim Chronology:

  • 9/17/2006 -- Dias falls down staircase in apartment building owned by insureds. Passerby calls 911. Paramedics arrive. Police arrive and cut off a piece of the staircase's railing in order to extricate Dias. Dias taken from scene to hospital ER where she was treated and released. Insured principal shareholder, John, finds staircase handrail missing later that day and calls the police. Receives a call back from the police, who inform him that someone named Dias had fallen on the staircase. Dias claims she called John from the hospital to tell him about her accident, but he said he already knew about it. John denies receiving such a call.
  • 9/18/2006 -- John says he reached and spoke with Dias, but she never mentioned that she had fallen on the apartment's front step and been injured. Denies subsequently receiving a copy of the police report.
  • 12/20/2006 -- Attorney for Dias writes to John advising that he had been retained to prosecute a personal injury claim. John denies receiving that letter.
  • January 2007 -- John claims he first became aware of Dias's injuries when he received a copy of her summons and complaint. He immediately forwards those suit papers to Tower.
  • 2/16/2007 -- Tower disclaims liability and denies coverage based on the insureds' late notice.
  • 6/7/2007 -- Tower reiterates its late notice disclaimer after receiving a letter from John explaining that he did not report the incident on the date of occurrence because he believed Dias was making a false claim (Wait, so he was aware of Diaz's injuries?).
In granting Tower's motion for summary judgment as against the insureds, New York County Supreme Court Justice Jane Solomon noted and ruled:

In this case, John admits that on the day of the occurrence he received notice from someone who identified himself as a police officer that someone named Dias had fallen on his premises and that a piece of railing was removed because of the falll. John‘s assertion that he did not know that anyone was injured is belied by his own statement that he knew that someone fell; Dias's testimony that she called John from the hospital to tell him that she fell and the accident report which states that the police officer contacted Matthew John by phone and notified him of the occurrence (Sander’s Aff., Ex. 3). Under the circumstances, even construing the facts most favorably to the insured, there is no evidence that would lead to a “reasonable belief” that the party who fell would not assert a claim and, with the facts in his possession, John had both the ability and the responsibility to investigate the outcome of the occurrence (citations omitted). John’s failure to investigate the occurrence was unreasonable as a matter of law.

In denying Tower's motion as respects Dias, the injured party, however, the court held:
Here, there has been no showing that Dias had reason to know that notice directly to Tower was required (citation omitted), and under the circumstances, her counsel was reasonably diligent in his efforts to ascertain the identity of John's insurer. Tower urges the court to hold that the efforts by Dias's attorney were inadequate as a matter of law. In light of the fact that her attorney contacted John approximately three months after the accident and commenced the lawsuit one month later, it cannot be said that Dias sat on her rights. Moreover, Tower disclaimed even before John's time to answer the complaint had expired. On February 12, 2007, four days before Tower sent its formal disclaimer letter, it sought, and received, the consent of
Dias's attorney to extend John's time to serve an answer to the complaint * * *. Tower acknowledged receipt of the complaint in its disclaimer letter of February 16, 2007 * * *. Dias's lawyer communicated directly with Tower regarding the litigation, and Tower participated in the litigation by requesting Dias's forbearance in permitting it the opportunity to file a late answer on John's behalf. Under these circumstances, it cannot be said that Tower has met its burden of showing that Dias, as the injured party, relied solely on the insured to give notice to Tower and failed to proceed diligently in giving notice of her claim directly to Tower.


Hugh Fustercluck said...

So Tower wins the battle but loses the war. The successful disclaimer to the insured is purely academic if the disclaimer to the injured party is ruled ineffective. Bottom line: Tower must defend and indemnify.

Roy A. Mura said...

One would think so, but the decision's decretal paragraphs are puzzling, if not inconsistent:

ORDERED that Tower's motion for declaratory judgment that it is not obligated to defend or indemnify the defendants is
granted in part; and it further is

ADJUDGED and DECLARED that plaintiff Tower Insurance Company has no duty to defend or indemnify defendants Jaison John Realty Corp. and Matthew John against claims made against them in the underlying action; and it further is

ORDERED that defendants Jaison John Realty Corp. and Matthew John's cross motion is denied; and it further is

ORDERED that defendant Elizabeth Dias's cross motion is granted; and it further is

ADJUDGED and DECLARED that Tower is not entitled to a declaration as against Dias with respect to her claim in the underlying action or to her right to proceed directly against Tower therein; and it further is

ORDERED that the clerk is directed to enter judgment accordingly.

If Tower has no duty to defend or indemnify the insureds vis-a-vis Dias's claim, what good will it do her to recover a money judgment and proceed against Tower pursuant to Insurance Law § 3420(a)(2)?

Until yesterday's amendment to CPLR § 3001 becomes effective, the Court of Appeals' holding in Lang v. Hanover precludes an injured party's direct action against the tortfeasors' liability insurer until the injured party has obtained a money judgment against them, presented it for payment to the insurer, and waited at least 30 days.

Hugh Fustercluck said...

Yes, the court's decision contains inconsistencies, but if read literally, they mean that Tower has no duty to the insured but does have an obligation to the plaintiff. The plaintiff will sue the insured, who can either pay for their own counsel, or default, or Tower can elect to provide a defense. If the plaintiff wins against the insured, either on the merits or on default, the plaintiff will wait 30 days and then proceed against Tower. In that lawsuit, Dias v. Tower, what will the outcome be? Hmmm.... the court here says that Tower is "not entitled to a declaration" against Dias and that Dias' motion is granted. In order for that to have any meaning, I think the Dias v. Tower suit must result in judgment for Dias. Si or no?