Tuesday, July 14, 2009

Motion Court Erred in Requiring a Showing of Prejudice for Late Notice Disclaimer and in Not Conducting In Camera Review of Documents Listed on Insurer's Privilege Log

Sevenson Envtl. Servs., Inc. v. Sirius Am. Ins. Co.
(4th Dept., decided 7/10/2009)

The motion court's rulings against the CGL insurer went 0-3 on this appeal.

Sirius Insurance Company insured Thomas Johnson, Inc. (TJI) under a CGL policy that required TJI to notify Sirius of any accident or occurrence "which may result in a claim" as soon as practicable.  An employee of TJI was injured in a construction accident on October 6, 2003, and TJI learned of the injury within days, but failed to notify Sirius of the accident nearly 15 months later.  Sirius disclaimed coverage based on TJI's late notice 24 days after receiving TJI's notice of claim.

Sevenson Environmental Services, Inc. (Sevenson) and The Goodyear Tire and Rubber Company (Goodyear), commenced this action for a declaration that Sirius was obligated to defend and indemnify them in the underlying personal injury action brought by TJI's employee.  TJI cross-claimed for a declaration that Sirius was obligated to defend and indemnify it also in the underlying action, and moved for summary judgment. Sirius cross-moved for summary judgment with respect to its coverage obligation to TJI.  Plaintiffs also moved to compel Sirius to disclose documents listed in its privilege log.

The motion court granted TJI's motion for summary judgment, finding that Sirius had not been prejudiced by TJI's delayed notice, and that Sirius' disclaimer was untimely and/or defectively unspecific.  The motion court also granted plaintiffs' motion to compel disclosure of documents listed in Sirius' privilege log without first conducting an in camera review of those documents. Sirius appealed, and the Fourth Department unanimously REVERSED all three rulings.

TJI apparently had successfully argued to the motion court that its nearly 15-month delay in notifying Sirius of its employee's accident should be excused because it believed that its employee intended to assert only a workers' compensation claim.  Citing Matter of Travelers Ins. Co. [Delosh], 249 AD2d 924, 925, the Fourth Department held that that excuse was "unreasonable as a matter of law[.]"

With respect to Sirius' disclaimer, the Fourth Department found it to be both timely and sufficiently specific:
We further conclude that Sirius provided TJI with timely written notice of its disclaimer, in accordance with Insurance Law § 3420 (d). Sirius issued its disclaimer letter upon completion of its investigation, 24 days after receiving TJI's notice of the claim (see Dryden Mut. Ins. Co. v Greaser, 269 AD2d 792, 793). Contrary to TJI's contention, the disclaimer letter was valid inasmuch as it " apprise[d] [TJI] with a high degree of specificity of the ground . . . on which the disclaimer [was] predicated' " (Utica Mut. Ins. Co. v Gath, 265 AD2d 805, 806).
 TJI had also apparently convinced the motion court that Sirius' disclaimer was ineffective because it was not prejudiced by TJI's reporting delay.  Correctly noting that the "new" prejudice requirement only applies to liability policies issued on or after January 17, 2009, the Fourth Department reversed the motion court's ruling on this issue, as well, holding:
The court's determination that Sirius was not prejudiced by TJI's late notice of claim is of no moment. As the Court of Appeals wrote, "[w]e have long held, and recently reaffirmed, that an insurer that does not receive timely notice in accordance with a policy provision may disclaim coverage, whether it is prejudiced by the delay or not" (Briggs Ave. LLC v Insurance Corp. of Hannover, 11 NY3d 377, 382).  We note that, in addressing the issue of prejudice, the court erred in relying on amendments to Insurance Law § 3420 that apply only to policies issued on or after January 17, 2009. The policy in question was issued before that effective date, and thus "[t]he common-law no-prejudice rule applies to this case" (id.).
Lastly, the Fourth Department agreed with Sirius that the motion court erred in not first conducting an in camera review of documents listed in Sirius' privilege log before ordering disclosure of those documents to the plaintiffs:
Sirius further contends on appeal that the court erred in granting plaintiffs' motion to compel the disclosure of documents listed in its privilege log without first conducting an in camera review of those documents (see Baliva v State Farm Mut. Auto. Ins. Co., 275 AD2d 1030, 1031). We also agree with that contention. The broad discretion afforded trial courts in supervising discovery is not unlimited (see Hardy v Tops Mkts., Inc., 231 AD2d 879, 880), and here Sirius refused to disclose several documents based upon its contention that they included communications between its attorney and representatives of UTC Risk Management Services, Inc. (UTC), Sirius' third-party claims administrator. Thus, according to Sirius, the documents in question fall within the scope of the attorney-client privilege. As Sirius correctly contends, the attorney-client privilege extends to communications to "one serving as an agent of either attorney or client" (First Am. Commercial Bancorp, Inc. v Saatchi & Saatchi Rowland, Inc., 56 AD3d 1137, 1139 [internal quotation marks omitted]) and, contrary to plaintiff's contention, the record establishes that UTC acted as an agent of Sirius. Significantly, UTC, acting on behalf of Sirius, issued the disclaimer letter to TJI and also sent a similar letter to Goodyear. Moreover, there is no evidence that TJI, Goodyear, or Sevenson questioned UTC's authority to act on behalf of Sirius. The determination whether a particular document is shielded from disclosure by the attorney-client privilege "is necessarily a fact-specific determination . . ., most often requiring an in camera review" (Spectrum Sys. Intl. Corp. v Chemical Bank, 78 NY2d 371, 378). We therefore remit the matter to Supreme Court to determine plaintiffs' motion following an in camera review of the documents in question.  
Notice that in this case, the communications claimed to be privileged were between Sirius' attorneys and its third-party claims administrator, which was acting as Sirius' agent for purposes of investigating and communicating Sirius' coverage position.  Disagreeing with the motion court, the Fourth Department held that such communications may still fall within the disclosure protection of the attorney-client privilege.

How receptive do you think the trial court will be to Sirius' arguments of attorney-client privilege when making the ordered in camera review?  Anyone laying odds on the outcome of the plaintiffs' re-decided motion to compel?

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