Insurer Failed to Establish that Its 62-Day Delay in Disclaiming Liability Coverage Was Reasonably Related to the Completion of a Necessary Investigation

CGL – UNTIMELY DISCLAIMER – NEED TO INVESTIGATE
Crocodile Bar, Inc. v. Dryden Mut. Ins. Co.
(4th Dept., decided 4/24/2009)

Plaintiff brought this declaratory judgment action seeking defense and indemnification coverage for three underlying personal injury actions and moved for summary judgment, contending that Dryden had failed timely to disclaim liability coverage.

Erie Supreme granted plaintiff's motion and the Fourth Department AFFIRMED, finding that Dryden had failed to establish that its 62-day delay in disclaiming coverage based on the policy's liquor liability exclusion was reasonable:

"[A] timely disclaimer [of coverage] pursuant to Insurance Law § 3420(d) is required [where, as here,] a claim falls within the coverage terms but is denied based on a policy exclusion" (Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648-649; see Worcester, 95 NY2d at 188-190; Penn-America Group v Zoobar, Inc., 305 AD2d 1116, 1117, lv denied 100 NY2d 511). "[O]nce the insurer has sufficient knowledge of facts entitling it to disclaim, or knows that it will disclaim coverage, it must notify the policyholder in writing as soon as is reasonably possible" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 66; see Republic Franklin Ins. Co. v Pistilli, 16 AD3d 477, 479; Squires v Robert Marini Bldrs., 293 AD2d 808, 810, lv denied 99 NY2d 502). Here, Dryden's claims adjuster was aware when he received the claim on November 10, 2005 that the claim was excluded from the policy, and Dryden failed to establish that its 62-day delay was "reasonably related to the completion of a necessary, thorough, and diligent investigation" (Quincy Mut. Fire Ins. Co. v Uribe, 45 AD3d 661, 662; see First Fin. Ins. Co., 1 NY3d at 70; Morath v New York Cent. Mut. Fire Ins. Co., 49 AD3d 1245).

Rule:  When an insurer attempts to explain a delay in disclaiming liability coverage by asserting that there was a need to investigate issues that would affect the decision on whether to disclaim, the burden is on the insurer to establish that the delay was reasonably related to the completion of a necessary, thorough, and diligent investigation.