Disclaimer Issued 44 Days After First Notice Held Timely Given Insurer's Investigation

AUTO – UM – STAY OF ARBITRATION – REASONABLE EXCUSE FOR DELAYED DISCLAIMER
Matter of GMAC Ins. Co. v. Jones
(4th Dept., decided 4/24/2009)

GMAC commenced this special proceeding to stay arbitration of Jones' UM claim.  Jones was injured in a July 3, 2006 motor vehicle accident with Nova Casualty Company's insured, Willoughby.  Nova's first notice of the accident came on January 8, 2008, when it received a letter from Jones's attorney concerning the accident.  On January 14, 2008, Nova sent a letter to Willoughby indicating that there was a "coverage question" based on his "failure to report an accident and cooperate in the investigation." The letter further stated that Nova would continue to handle the claim but that it reserved its right to disclaim coverage.

Thereafter, Nova attempted to locate Willoughby to allow him to explain his failure to notify Nova of the claim. Nova's efforts included sending a letter to Willoughby's last known address, which was returned as undeliverable; calling Willoughby at several of his last known telephone numbers; calling Willoughby's sister, who stated that she had not had contact with Willoughby since April 2007; calling Willoughby's neighbors at Willoughby's known addresses; physically attempting to contact Willoughby at four known addresses; sending letters to Willoughby at his sister's address; attempting to obtain a copy of the police report from the accident; and corresponding with respondent's attorney in an attempt to obtain additional information concerning Willoughby.

Despite those efforts, Nova never received a response from Willoughby, and it disclaimed coverage on February 21, 2008.  Jones then requested UM arbitration with GMAC, contending that Willoughby's vehicle was an "uninsured vehicle" under his policy.

GMAC commenced this special proceeding to stay Jones's UM arbitration, naming Nova as a proposed additional respondent and contending that Willoughby's vehicle was not uninsured because Nova's disclaimer, sent  six weeks after first notice, was untimely.  Erie Supreme denied  GMAC's request for a framed hearing on the timeliness of Nova's disclaimer and denied GMAC's petition.

In AFFIRMING the denial of GMAC's petition, the Fourth Department agreed that Nova had established as a matter of law that its disclaimer of coverage was valid, based on the 18-month delay between the date of the accident and the date on which Nova received notice of that accident.  The appellate court found that Nova was justified in investigating the 18-month late notice before disclaiming:

Contrary to petitioner's further contention, the delay of 44 days between the date on which Nova received notice of the claim and the date on which it notified Willoughby of the disclaimer did not render its disclaimer of coverage untimely. It is well settled that, "[i]n order to effectively disclaim liability or deny coverage . . . under an automobile liability insurance policy, an insurer must give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage' " (Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1029, rearg denied 47 NY2d 951). "[A]n insurer's explanation [for a delay in notifying the insured of a disclaimer] is insufficient as a matter of law where the basis for denying coverage was or should have been readily apparent before the onset of the delay" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 69). "However, an insurer's delay in notifying the insured of a disclaimer may be excused when the insurer conducts an investigation into issues affecting [its] decision whether to disclaim coverage' . . . In that case, the burden is on the insurer to demonstrate that its delay was reasonably related to its completion of a thorough and diligent investigation" (Tully Constr. Co., Inc. v TIG Ins. Co., 43 AD3d 1150, 1152-1153, quoting First Fin. Ins. Co., 1 NY3d at 69). 

We conclude that Nova's efforts constituted an "investigation into issues affecting [Nova's] decision whether to disclaim coverage" (First Fin. Ins. Co., 1 NY3d at 69; see generally Tully Constr. Co., Inc., 43 AD3d at 1153; Sirius Am. Ins. Co. v TGC Constr. Corp., 37 AD3d 818, 819). Nova therefore established a reasonable excuse for the delay as a matter of law, and there was no reason to conduct a "framed issue hearing" with respect to Nova's disclaimer. The fact that Nova knew on January 8, 2008 that the claim involved an accident that occurred on July 3, 2006 "did not make it readily apparent' that it had the right to disclaim coverage" (Ace Packing Co., Inc. v Campbell Solberg Assoc., Inc., 41 AD3d 12, 15). "Only an investigation of the type ordered by [Nova] would yield [information that it] needed in order to make a good faith decision regarding disclaimer" (id.; see Norfolk & Dedham Mut. Fire. Ins. Co. v Petrizzi, 121 AD2d 276, 278, lv denied 68 NY2d 611).