5 Month Delay in Disclaiming Found Untimely As a Matter of Law

CGL – ADDITIONAL INSURED – INSURANCE LAW § 3420(D) – UNTIMELY DISCLAIMER
Rael Automatic Sprinkler Co., Inc. v. Schaefer Agency(2nd Dept., decided 6/17/2008)

On December 11, 2001, an employee of Rael Automatic Sprinkler Company was injured from a fall while installing sprinklers at the Metropolitan Museum of Art. MMA was insured by Gulf Insurance Company, and Rael was insured by Clarendon National Insurance Company. Although Rael had requested blanket contractual liability coverage, the Clarendon policy contained an exclusion from coverage where the obligation to pay damages arose by the "assumption of liability in a contract or agreement," unless the agreement constituted an "insured contract". The policy also excluded coverage for Rael's employees if bodily injury sustained by those employees arose "out of and in the course of employment by the insured".In May 2002, the Rael employee commenced a personal injury action against MMA and the general contractor. On May 16, 2002, Gulf requested that Rael and Clarendon defend and indemnify MMA. On August 8, 2002, Clarendon disclaimed coverage to MMA and the general contractor on the ground that those defendants were never added as additional insureds under Rael's policy. On August 16, 2002, Clarendon disclaimed coverage based upon the contractual liability exclusion and the employer's liability exclusion.Ther personal injury action settled with Rael and its insurance broker, Schaefer Agency, each contributing $250,000. Rael then brought this action against Schaefer for its alleged failure to procure blanket contractual liability coverage, and Schaefer impleaded Clarendon, among others. In AFFIRMING the Nassau County Supreme Court's order granting Schaefer's cross motion for summary judgment against Clarendon, declaring that it was obligated to defend and indemnify Rael in the underlying action, the Second Department held:

Since Clarendon's disclaimer was based on policy exclusions, Clarendon was required to provide Rael with timely notice of its disclaimer under Insurance Law § 3420(d) (citations omitted). In response to a request for interrogatories, Clarendon indicated that it began investigating the grounds for disclaiming coverage as early as March 5, 2002. On May 22, 2002, Clarendon's insurance administrator received a letter from Gulf Insurance Group, requesting that it defend and indemnify MMA. In view of the foregoing, Clarendon's disclaimer in August 2002 was untimely as a matter of law (citations omitted), and it is obligated to defend and indemnify Rael.