Prejudice Not Required for Late Notice of Suit to Employers' Liability Insurer

EMPLOYERS' LIABILITY – LATE NOTICE OF SUIT – PREJUDICE NOT REQUIRED
Liberty Moving & Stor. Co., Inc. v. Westport Ins. Corp.
(3rd Dept., decided 10/16/2008)

New York's no-prejudice rule is on DNR. Come January 17th of next year, liability insurers wishing to disclaim coverage under policies issued, modified or renewed on and after that date will need to demonstrate prejudice from the delay in notification, if less than two years.

If an insured promptly notifies its workers' compensation/employers' liability (WC/EL) insurer of a workers' compensation loss/claim by filing a C-2, must the WC/EL insurer demonstrate prejudice if the insured fails to provide timely notice of a related lawsuit? No, says the Third Department, declining to extend the prejudice requirement for UM/SUM late suit notice cases to employers' liability policies.

On April 5, 2001, Liberty's employee, Christopher Tambini, was injured in the course of his employment while moving a voting booth into a New York City polling place. Four days later, Liberty filed a C-2 with its WC/EL carrier, State Insurance Fund (SIF), which paid compensation benefits for the employee's back injury.

In 2002, Tambini and his wife commenced a personal injury action against the City of New York. In June 2005, the City commenced a third-party action for common law and contractual indemnification and contribution against Liberty, which promptly notified its GL insurer, Westport, but did not notify the SIF. The SIF did not learn about the third-party action until approximately 11 months after Liberty was served, and disclaimed coverage to Liberty based on its late notice of suit (and that Tambini had not sustained a grave injury). Liberty then commenced this DJ action for defense and indemnification coverage from the SIF.

In AFFIRMING Albany Supreme's granting of summary judgment to the SIF, the Third Department held:

The failure to comply with a notice requirement of a liability insurance contract vitiates the contract and, under such circumstances, the carrier is not required to demonstrate actual prejudice from the delay in order to successfully disclaim coverage (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d 742, 743 [2005]; Argo Corp. v Greater N.Y. Mut. Ins. Co., 4 NY3d 332, 339 [2005]; American Home Assur. Co. v International Ins. Co., 90 NY2d 433, 441-443 [1997]). Here, the subject workers' compensation policy requires plaintiff, in relevant part, to report any injury "at once" and to "[p]romptly give [the Fund] all notices, demands and legal papers related to the injury, claim, proceeding or suit." Sworn evidence submitted by the Fund, which plaintiff failed to adequately refute, established that plaintiff did not provide notice of the third-party action until June 2, 2006, nearly 11 months after having been served. No explanation or excuse for this delay has been asserted. Supreme Court ruled that this delay was unreasonable as a matter of law and plaintiff does not take issue with this specific finding on appeal. Rather, plaintiff argues that, because the Fund has neither pleaded nor proved prejudice for any delay in forwarding the pleadings in the third-party action (and the Tambini action), the Fund is obligated to defend it in the Tambini action.

While the Fund received notice of Tambini's accident four days after it occurred by way of the C-2 claim form seeking workers' compensation benefits, this notice did not satisfy plaintiff's separate obligation to provide prompt notice of the third-party lawsuit that had been commenced against it (see T & S Masonry v State Ins. Fund, 290 AD2d 308, 310 [2002]; Thomson v Power Auth. of State of N.Y., 217 AD2d 495, 496 [1995]; 57th St. Mgt. Corp. v Zurich Ins. Co., 208 AD2d 801, 802 [1994]; see generally Sorbara Constr. Corp. v AIU Ins. Co., 41 AD3d 245, 246 [2007]). Moreover, we find that the Fund was not required to demonstrate prejudice in order to successfully disclaim coverage (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., supra; Argo Corp. v Greater N.Y. Mut. Ins. Co., supra; see also Thomson v Power Auth. of State of N.Y., 217 AD2d at 495; 57th St. Mgt. Corp. v Zurich Ins. Co., 208 AD2d at 801). We are unpersuaded that recent departures from the general "no prejudice" rule in the context of supplemental uninsured and underinsured motorists coverage under automobile insurance policies (see e.g. Rekemeyer v State Farm Mut. Auto Ins. Co., 4 NY3d 468 [2005]; Matter of Brandon [Nationwide Mut. Ins. Co.], 97 NY2d 491 [2002]; Matter of Nationwide Mut. Ins. Co. [Mackey], 25 AD3d 905 [2006]) should be extended to the facts of this case.

In footnote #3, the Third Department also found it unnecessary to "tarry" over the disputed issue of whether New York Insurance Law § 1108(c) exempts the SIF from the timely disclaimer requirements of Insurance Law § 3420(d), since the SIF had issued its disclaimer only five days after first learning of the third-party action.