Question of Fact Found on Timeliness of GL Insurer's Coverage Declination Letter

CGL – DUTY TO DEFEND – LATE NOTICE – INSURANCE LAW §3420(D) – TIMELINESS OF DISCLAIMER
QBE Specialty Ins. Co. v. Property Resources Corp.
(Sup. Ct., New York Co., decided 5/22/2008)

We have a new contender for the longest name of an exclusion. Just like with the new longest case name, someone call Guinness (the record book people, not the brewers). It is:

“Injury and Liability Resulting from or Caused by the Work of a Contractor, Subcontractor, and/or Sub-Subcontractor Including without Limitation Injuries to the Employee of a Contractor, Subcontractor, and/or Sub-Subcontractor.”

QBE commenced this DJ action for a declaration that it was not obligated to defend or indemnify its insureds, PRC, Estela Houses, and Chatzky, with respect to an underlying personal injury action. The salient chronology is:

• June 2005 -- Estela Houses issues a work order to non-party QNCC to fix four exterior floodlights.
• June 24, 2005 -- QNCC employee, Caban, is injured while attempting to determine why the floodlights are not working. Caban is taken from the scene in an ambulance to the hospital. PRC is aware that day of Caban's accident and injuries.
• September 2005 -- Caban or his agents visit Estela Houses, take photographs, and inform PRC management that “people” would be coming to discuss the claim.
• July 2006 -- Caban and his wife commence the underlying personal injury action against PRC, Estela House and Chatzky.
• July 25, 2006 -- PRC forwards the suit papers to its insurance broker.
• July 26, 2006 -- PRC's broker forwards the suit papers to QBE's TPA, Rockville Risk Management.
• July 28, 2006 -- Rockville sends a claim acknowledgement and ROR letter to PRC.
• August 3, 2006 -- Rockville sends another letter to PRC advising it that Rockville had been retained to investigate, and that the matter had been referred to a law firm "to protect [PRC's] interests".
• September 12, 2006 -- Rockville sends another letter to PRC, reminding it of its obligations under the policy to cooperate in Rockville’s investigation of the claim.
• October 5, 2006 -- Coverage counsel for QBE writes to PRC, copied to Cabans' attorney, QBE and the broker, declining PRC's request for coverage based on PRC's late notice of the occurrence.
• October 27, 2006 -- QBE's coverage counsel writes again to PRC as well as to Estela Houses and Chatzky, asserting the policy exclusion for “Injury and Liability Resulting from or Caused by the Work of a Contractor, Subcontractor, and/or Sub-Subcontractor Including without Limitation Injuries to the Employee of a Contractor, Subcontractor, and/or Sub-Subcontractor.”

In its DJ complaint, QBE alleged that it owed no coverage to the insureds with respect to the underlying action because they breached the policy's notice condition, and based on the application of an exclusion in the policy, which negated coverage to the named insured “with respect to any construction, alteration, demolition, or repair of real property or any structures or mobile equipment thereon” where the named insured had not entered into a prior written and signed contract with the contractor to indemnify the named insured in the event of a loss.

The three insureds moved for summary judgment, contending tha QBE was obligated to defend and indemnify them in the Caban action because: (1) QBE's disclaimer was untimely under Insurance Law § 3420(d); (2) QBE failed to disclaim on the basis of late notice as to Estela Houses or Chatzky; and (3) the exclusion cited does not apply to the work performed by Caban for his employer QNCC at the time of the accident.

In ordering that the issue of the timeliness of QBE's disclaimer to be heard and decided by a special referee after an evidentiary hearing, New York County Supreme Court Justice Martin Shulman ruled:

The issue thus presented is whether QBE conducted a prompt and diligent investigation of the timeliness of the insureds' notice. * * *

The First Department in the Lloyds case further instructed that "[tlhere is no objective standard against which the time it takes an insurer to issue its disclaimer can be measured. It is a fact sensitive inquiry that is based upon all of the surrounding circumstances and focuses on the period between when the insurer first learned of the grounds for disclaimer and finally served its written notice disclaiming coverage on the insured".

Although the facts weigh in favor of the conclusion that QBE’s investigation was reasonable in time and scope and that its disclaimer was timely under the circumstances, the contradictory contentions create issues of fact that cannot be determined as a matter of law without an evidentiary hearing. Since resolution of this issue may be dispositive of this action, a hearing is warranted at this juncture.

The court went on to reject the insureds' contention that QBE's first coverage declination letter was effective only to PRC, because it was not also addressed to Estela Houses and Chatzky.

This assertion is without merit because the moving defendants are unified in interest. The Declination Letter was collectively directed at the moving defendants and gave fair notice of QBE’s disclaimer as against all three insureds[.] * * * Therefore, the court holds that QBE disclaimed coverage to PRC, Estela Houses and Chatzky on or about October 5, 2006 in the Declination Letter.

Bottom line: the case goes to a special referee to hear and report on the timeliness or untimeliness of QBE's October 5, 2006 coverage declination letter. All other non-coverage grounds are to be held in abeyance, pending the determination of the disclaimer's timeliness.