Injured Party's Notice to Excess Insurer on Eve of Trial Found Timely

CGL – LATE NOTICE – DIRECT ACTION – INSURANCE LAW § 3420(A)
Cicero v. Great Am. Ins. Co.
Cicero v. Great Am. Ins. Co.
(1st Dept., decided 7/29/2008)

Don't adjust your monitor. The First Department issued a pair of decisions yesterday in the same case involving late notice of occurrence/suit to an excess insurer.

Lydia Cicero sued Western Beef, Inc., for serious injuries she suffered on January 20, 1998, when she slipped and fell in its supermarket. A preliminary conference order directed Western Beef to respond to plaintiffs' combined demands, dated May 27, 1999, and disclose "the existence and contents of any insurance agreement as described in CPLR § 3101(f)." On January 21, 2000, defense counsel retained by Zurich American Insurance Group, Western Beef's primary insurer, responded that, at the time of plaintiff's accident, Western Beef was insured by Zurich American Insurance Group under a policy that had a single limit coverage of $1,000,000. Almost four years later, on the eve of trial, Western Beef's broker notified Zurich American that Western Beef had $25 million in excess coverage with Great American Insurance Company. Western Beef's defense counsel then notified plaintiffs' counsel, who promptly gave notice of plaintiffs' claim to General American on January 9, 2004, nearly six years after the slip-and-fall accident.

General American disclaimed coverage because it did not receive timely notice of the accident from its insured, Western Beef. Western Beef then commenced a DJ action against, among others, Great American and the broker who sold it the excess insurance. Cicero settled the underlying personal action (for approximately $2.5 million) and, as part of the settlement, Western Beef assigned to Cicero its rights against Great American and the other defendants in the DJ action.

Cicero then took over the prosecution of the DJ action and also commenced this direct action pursuant to Insurance Law § 3420(a)(2) against Great American to recover the portion of the settlement exceeding the primary policy limit. A motion for summary judgment in the DJ action resulted in a declaration that Great American was under no obligation to satisfy the judgment against Western Beef in the underlying action, the court holding that timely notice by Western Beef to its insurance broker did not constitute timely notice to Great American because the evidence failed to show that the broker was Great American's agent as well as Western Beef's.

Great American moved for leave to amend its answer in this direct action to include an affirmative defense of res judicata and, upon amendment, for summary judgment dismissing the complaint on that ground. In AFFIRMING the New York County Supreme Court's denial of that motion, the First Department held:

We reject Great American's argument that the instant action is precluded by this declaration. The assignment to plaintiffs of Western Beef's rights under its policy with Great American did not diminish their statutory right to pursue a direct action against the insurer, which is independent of the insurance contract (see Lauritano v American Fid. Fire Ins. Co., 3 AD2d 564, 567 [1957], affd 4 NY2d 1028 [1958] [noting the absence of privity]). The determinative issue in the declaratory judgment action was whether notice of plaintiffs' claims in the underlying action given by Western Beef to its broker could be imputed to Great American; here, no contract, agency or insurance coverage issues are involved. Rather, this is a statutory action to collect an unpaid settlement in which the only defense available to Great American is that plaintiffs did not satisfy their statutory obligation to provide notice as soon as reasonably possible "in light of the opportunities to do so afforded [them] under the circumstances" (Appel v Allstate Ins. Co., 20 AD3d 367, 369 [2005] [internal quotation marks and citations omitted]). "While a valid final judgment bars future actions between the same parties on the same cause of action, [a] subsequent action will not be barred by res judicata where the nature or object of the second action is distinct from that in the prior action in which the judgment was rendered" (GTFM, LLC v Nagy, 18 AD3d 266, 268 [2005] [internal quotation marks and citations omitted]).

As to the timeliness of Cicero's 6-year delayed notice to Great American, the First Department REVERSED the New York County Supreme Court's denial of summary judgment to Cicero and awarded judgment to her against Great American in the sum of $1,501,211.00 plus statutory interest from December 8, 2004 (approximately $490,000) and costs. Having noted that an injured party's delay in providing notice to a tortfeasor's liability insurer is measured less rigidly than the insured's delay (see Appel v. Allstate Ins. Co., 20 AD3d 367, 369 [1st Dept. 2005]), the First Department held:

While, ordinarily, whether plaintiffs acted diligently in ascertaining the identity of Western Beef's insurer or insurers would present an issue of fact, under these circumstances, where Western Beef affirmatively misled plaintiffs as to even the existence, let alone the identity, of its excess insurer and failed to cooperate with its primary insurer, Zurich American, in the latter's attempts to ascertain whether there was any excess coverage, plaintiffs' efforts were sufficient and the notice given by them shortly after they learned of the excess coverage and American National's identity was timely as to them.

The decision does not indicate what evidence supported the First Department's conclusion that Western Beef "affirmatively misled" plaintiffs of the existence and identity of its excess insurer and "failed to cooperate" with its primary insurer in its attempts to ascertain whether there was any excess coverage. Certainly, there must have been more at work than simply an incorrect CPLR § 3101(f) disclosure. Although it does not explicitly say so, however, these decisions imply that an injured plaintiff may do nothing more than rely on the accuracy of a defendant's CPLR § 3101(f) insurance disclosure. Inasmuch as New York courts have held that 3101(f) permits the discovery of the insurance agreements themselves, could a plaintiff's failure to demand insurance agreement materials -- declarations pages, certificates of insurance, policies themselves, etc. -- or subpoena records directly from a defendant's agent or broker present a question of fact as to the plaintiff's diligence in seeking to identify and then notify all liability insurers of the tortfeasor(s)?