28-Day Delay in Disclaiming Found to Excuse Insured's Nearly 3-Year Delay in Providing Notice of Occurrence

CGL – LATE NOTICE OF OCCURRENCE – UNTIMELY DISCLAIMER – INSURANCE LAW § 3420(D)
Able Health Care Serv. Inc. v ACE Am. Ins. Co.
(Sup. Ct., Queens Co., decided 7/8/2009)

It's getting crazy out there.  I know that New York liability insurers are now obligated to show prejudice from an insured's late notice of two years or less under a policy issued on or after January 17, 2009, but this is a new low.

In this blog I've reported New York case decisions in which courts have found unexcused delays as short as 30 days (late notice), 45 days (exclusion), 45 days (late notice), 55 days (exclusion), and 62 days (exclusion) in disclaiming coverage to be unreasonable as a matter of law.  But 28 days?

Plaintiff provided home health care and aide services.  On September 13, 2004, plaintiff received a letter from an attorney of one of its customers, advising plaintiff that a personal injury claim was being asserted against it as a result of an incident of July 28, 2004 in which the customer allegedly had been burned when hot soup prepared by plaintiff's employee spilled on her lap.  Plaintiff claimed to have forwarded that letter to its agent on September 30, 2004, but the agent denied having received that letter.  It was not until April 3, 2007, when defendant ACE American Insurance Company received a copy of the customer's summons and complaint via fax from plaintiff's agent that ACE first learned of the incident. Twenty-eight days later, by letter dated May 1, 2007, ACE disclaimed liability coverage to plaintiff  based on late notice.  Plaintiff subsequently commenced this declaratory judgment action for coverage with respect to the underlying personal injury action, and the parties moved and cross-moved for summary judgment.

In granting the plaintiff's cross motion and declaring that ACE was obligated to defend and indemnify plaintiff in the underlying personal injury action Queens County Supreme Court Justice Orin Kitzes held that ACE did not issue its disclaimer "as soon as [] reasonably possible", in violation of then New York Insurance Law § 3420(d):

An insurer’s failure to provide notice of disclaimer as soon as is reasonably possible precludes effective disclaimer, even where the insured’s notice of the incident is untimely (see Tex Dev. Co. v Greenwich Ins. Co., 51 AD3d 775 [2008]). Timeliness of an insurer’s disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer (see id. at 778). An insurer who delays in giving written notice of disclaimer bears the burden of justifying the delay (see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 68-69 [2003]). When, as here, the explanation offered for the delay in disclaiming is an assertion that there was a need to investigate issues that will affect the decision on whether to disclaim, the burden is on the insurance company to establish that the delay was reasonably related to the completion of a necessary, thorough, and diligent investigation (see Quincy Mut. Fire Ins. Co. v Uribe, 45 AD3d 661 [2007]).  Moreover, an insurer’s explanation 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 (see First Fin. Ins. Co., 1 NY3d at 68-69).

Based on the record, ACE failed to establish that its 28-day delay in disclaiming coverage was occasioned by the need to conduct a thorough and diligent investigation of the reasons behind Able’s failure to provide timely notice of the accident (see Schulman v Indian Harbor Ins. Co., 40 AD3d 957 [2007]). In her affidavit, Mary Jo Quatrone, the claims analyst who was assigned the within claim, stated that she received the case file on April 6, 2007, three days after Berger forwarded the notice of claim to ACE on April 3, 2007. The claims documents included the summons and complaint, Able’s incident reports dated July 29, 2004 and July 30, 2004, and the September 10, 2004 letter from Dominique Owens’ attorney advising Able of the potential claim, which was stamped received by Able on September 13, 2004. Before ACE conducted any investigation, an initial review of these documents clearly showed that the accident occurred on July 28, 2004, that Able first learned of the accident the day after it occurred, and that Able had notice of a potential claim since September 2004. Unlike in Ace Packing Co., Inc. v Campbell Solberg Assoc., Inc., 41 AD3d 12 [2007], upon which ACE primarily relies, the first claims materials provided to ACE, on their face, contained sufficient facts to allow the claims analyst to conclude that the insured breached the notice provisions of the insurance policy by reporting the accident to ACE almost three years after learning of the accident and receiving notice of the claim from the claimant’s counsel. For similar reasons, the facts of the instant case can also be distinguished from those in Steinberg v Hermitage Ins. Co., 26 AD3d 426 [2006]. In Steinberg, there was a need for the insurer to investigate into when the insured first received notice of the accident because the insurer initially received from the broker insufficient information from which to make that determination, namely an Accord [sic] Form Notice of Occurrence with an attached summons and complaint (see Steinberg v Hermitage Ins. Co., Sup Ct, Queens County, Oct. 14, 2003, Hart, J., Index No. 27355/98). Only after conducting an investigation did the insurer then discover that the insured first received notice of the accident and claim one month after it occurred via letter from the claimant’s attorney, but failed to forward that letter to its insurer (see id.). In contrast, the primary reason for ACE’s disclaimer was readily apparent upon receipt of notice of the loss and, thus, the 28-day delay in disclaiming coverage was unreasonable as a matter of law (see Allstate Ins. Co. v Cruz, 30 AD3d 511 [2006]; Allstate Ins. Co v Swinton, 27 AD3d 462 [2006]; Gregorio v J.M. Dennis Constr. Co. Corp., 21 AD3d 1056 [2005]; Transcontinental Ins. Co. v Gold, 18 Misc 3d 1135A [Sup Ct, Nassau County 2008]). Under these circumstances, any purported failure on the part of Able to provide ACE with timely notice of the underlying claim did not excuse ACE’s unreasonable delay in disclaiming coverage (see New York City Hous. Auth. v Underwriters at Lloyd’s, London, 61 AD3d 726 [2009]).

Can this decision withstand appellate scrutiny under Appellate Division decisions such as Matter of GMAC Ins. Co. v. Jones, 61 AD3d 1358 (4th Dept., decided 4/24/2009)?  Questionable.  Don't we want liability insurers conducting some investigation into an insured's reason or excuse, if any, for what may appear to be late notice of an occurrence?  Or do we want, as this court apparently does, insurers to make coverage decisions based only on paperwork they receive?  As the Fourth Department said in Matter of GMAC Ins. Co. v. Jones, "[o]nly an investigation of the type ordered by [the insurer] would yield [information that it] needed in order to make a good faith decision regarding disclaimer[.]"  At bare minimum, shouldn't an insurer's 28-day delay in issuing a late notice disclaimer in order to conduct some investigation into the reasons for the insured's delayed reporting present a question of fact?

I've written before on the question of whether liability insurers should investigate coverage issues in New York.  This decision underscores the importance of both doing so as quickly as possible and documenting the reasons for conducting such investigation.