14-Month Late Notice Found Unreasonable As a Matter of Law

CGL – LATE NOTICE – GOOD FAITH BELIEF IN NON-LIABILITY – 14-MONTH DELAY – REASONABLE POSSIBILITY OF THE POLICY'S INVOLVEMENT
Ponok Realty Corp. v. United National Specialty Ins. Co.
(Sup. Ct., Queens Co., decided 6/27/2008)

Ponok Realty, owned in part and run by the apposite anagrammist and attorney, Thomas Konop, leased storage space in Ponok's commercial building to Omega Shell, Ltd., which allowed a related entity, RO Gallery, to store its artwork within the building. United National Specialty Insurance Company insured Ponok and the building for a one-year period, from October 2003 to 2004.

In an action brought in August 2003, RO Gallery alleged that water leaks from/through the roof of Ponok's building in June and July 2002 damaged its artwork. In June 2004, RO Gallery moved for leave to amend its complaint to assert a claim for damage to artworks stored at the premises due to a water leak that occurred on February 5, 2004. The court granted that motion.

Ponok did not notify United National of the February 5, 2004 water loss until April 5, 2005, 14 months later, and United National disclaimed liability coverage for damages alleged to related to that water loss based on Ponok's late notice. Ponok then brought this action.

In granting United National's motion for summary judgment, declaring that it had no obligation to defend or indemnify Ponok in relation to RO Gallery's underlying property damage action, Queens County Supreme Court Justice Peter Kelly held:

Construing all inferences in favor of the insured, the evidence presented establishes, as a matter of law, that Mr. Konop’s alleged belief in Ponok’s non-liability was unreasonable (citation omitted) and a prudent insured "should have realized that there was a reasonable possibility of the subject policy’s involvement" (citations omitted). Mr. Konop was aware of the February 5, 2004 incident on the same day, at which time he inspected the premises and arranged for the repair of the broken drain pipe. Furthermore, Ponok and Thomas Konop had previously received other complaints of water leaks from Mr. Rogal, and were aware of the fact that RO Gallery had made a claim in 2002 against Ponok’s prior insurer for property damage allegedly caused by a water leaks.

Moreover, at the time of the February 5, 2004 incident, the underlying action had already been commenced. Although Ponok and Mr. Konop assert that they were not personally aware of the underlying action at its commencement on August 12, 2003, this is of no moment. Ponok acknowledges that the summons and complaint in the underlying action were served on the Secretary of State, and it is the corporation’s obligation to keep a current address on file with the Secretary of State (BCL § 306[b]). Contrary to Mr. Konop’s suggestions, Ponok must have been aware of the Underlying action prior to the February 5, 2004 incident, as an answer dated December 3, 2003 had been served on its behalf in that action. It is noted that Ponok, in the underlying action, did not move to dismiss on jurisdictional grounds and did not preserve the defense of lack of personal jurisdiction in its answer. Ponok, therefore, should have realized that there was a possibility that RO Gallery would make a claim regarding the February 5, 2004 incident, whether or not Ponok could possibly be liable for the alleged damage to the artworks. Ponok’s failure to notify United National of the February 5, 2004 incident until April 5, 2005, a year and two months later, and some three months after it was aware of the amendment of the underlying complaint, was without legal justification and vitiates the insurance contract.

This is a case of life imitating art. Artwork spoiled by water. Coverage spoiled by late notice of artwork's spoilage.