Monday, October 12, 2009

The First Department's New "I Didn't Know the Insurance Company Had Moved and My Attorney Didn't Spend Three-Tenths of a Second to Check" Excuse to Late Notice of Suit

American Tr. Ins. Co. v. Brown
(1st Dept., decided 10/8/2009)

This is a troubling decision.  Got to agree with the two dissenting justices that the majority created a new and unwarranted excuse to late notice of suit -- the "I didn't know the insurance company had moved and my attorney didn't spend three-tenths of a second to check" excuse. 

American Transit insured Batista under a personal auto policy.  Batista struck and injured Brown on November 12, 2002.  Brown's attorney promptly notified ATIC of Brown's claim, and ATIC assigned a claim number and acknowledged that claim in a letter to Brown's attorney dated January 28, 2003.  ATIC's address at the time was 275 Seventh Avenue, New York, NY 10001.  ATIC subsequently conducted a property damage appraisal of Brown's vehicle and settled the property damage portion of his claim.

Just shy of the applicable three-year SOL, Brown commenced a personal injury action against Batista on November 9, 2005.  On January 26, 2006, Brown's counsel sent a "courtesy copy" of the summons and complaint to ATIC at its Seventh Avenue address, instructing it to interpose an answer on behalf of its insured.

There was no reply or appearance by ATIC which, in fact, had moved two years earlier in November 2003 to offices on West 34th Street in Manhattan.  Brown's counsel apparently did nothing to determine why ATIC had not responded to his notice of suit, as ATIC had done almost immediately to counsel's first notice of claim.  On June 21, 2007, following an inquest, the court granted a default judgment in favor of Brown for $75,000. Judgment in the total amount of $81,830, including medical liens and interest, was entered against Batista on July 19, 2007.  Now needing to "serve" notice of entry of the judgment on ATIC in order to comply with Insurance Law § 3420(a)(2), Brown's attorney apparently had no trouble identifying ATIC's current West 34th Street address and sent the judgment to ATIC at that address on August 9, 2007.

Upon receipt of the default judgment, ATIC promptly disclaimed coverage on the ground that it was not provided with timely notice of the lawsuit.  ATIC then brought this declaratory judgment action alleging that neither Brown nor Batista had complied with the policy's requirement that ATIC be timely notified of any suit brought against one of its insureds.  ATIC alleged that its first notice of Brown's lawsuit came after judgment was entered against Batista.

New York Supreme denied Brown's motion and ATIC's cross motion for summary judgment on the ground that additional discovery was needed.  The First Department's three-justice majority MODIFIED the order appealed from by granting Brown's motion and declaring that ATIC was obligated to satisfy the $81,830 default judgment  against Batista.

In the three-justice majority's opinion, Brown demonstrated a reasonable and valid excuse for his failure to satisfy the policy's notice of suit requirement:
ATIC asserts that Batista and Brown failed to immediately furnish it with copies of the underlying summons and complaint as required by the policy. ATIC does not cite any relevant policy provision in its brief or the affidavits it submitted below. Nevertheless, in its letter of disclaimer, ATIC quotes and relies upon paragraph 11 of the policy's insuring agreements, which provides, in relevant part, that "[i]f any suit is brought against the Insured to recover such damages the Insured shall immediately forward to the Company every summons or other process served upon him." However, paragraph 11 follows paragraph 9, which provides that "[t]he following provisions . . . shall apply between the Company and the Insured but shall not prejudice the right of any person other than the Insured to recover hereunder." Therefore, under the terms of ATIC's policy, the failure to comply with the notice requirement does not preclude Brown's third-party claim under Batista's policy with ATIC.

In a proper case, the failure to satisfy a notice requirement "may allow an insurer to disclaim its duty to provide coverage" (see American Tr. Ins. Co. v Sartor, 3 NY3d 71, 76 [2004]). In this regard, ATIC asserts that Brown breached the policy's notice requirement by forwarding the summons and complaint to its former address instead of its then current address. A failure to satisfy an insurance policy's notice requirement does not vitiate coverage where there is a valid excuse (cf. Matter of Allcity Ins. Co. [Jimenez], 78 NY2d 1054, 1055 [1991]). Brown has, in any event, demonstrated a valid excuse for forwarding the summons and complaint to ATIC's former address in that he was never notified of its change of address. Prior to the suit, ATIC's last correspondence to Brown set forth the former address. ATIC's allegation that it had "sent out a post card to claimants and attorneys who had filed any claims against us during that time" rings hollow as it does not claim that any specific notification was sent to Brown or his counsel. Equally unavailing is ATIC's assertion that its new address was printed on a check forwarded to Brown's counsel in settlement of an unrelated matter. An address on a check alone does not suffice as notice that it is the address to which notices should be sent (see Kennedy v Mossafa, 100 NY2d 1, 10 [2003]). As noted above, we merely find that Brown has demonstrated a reasonable excuse for his failure to satisfy the policy's notice requirement. We disagree with the dissent's contention that this finding shifts a burden to ATIC.
The two-justice dissent strongly disagreed "because there is no legal obligation for a defendant's insurer to notify a potential plaintiff or plaintiff's counsel of the insurer's change of address."  Dissenting Justice Catterson added that "to put forth the lack of such notice as a valid excuse for the failure to notify the insurer of pending litigation ignores the reality that American Transit's address could have been verified on the Internet in approximately three-tenths of a second."
On appeal, Brown argues that, because he sent the copy of the summons and complaint to ATIC, therefore ATIC must have received it because letters sent through the United States Postal Service are "generally" not destroyed. Brown continues to hypothesize that in cases where a recipient has moved, the post office will return the mail to the sender with the intended recipient's new address. Without citation to any authority whatsoever, Brown then concludes that because he did not receive any such returned mail, there is a "clear presumption" that the mailing was received by ATIC. Wisely, Brown has a fallback position: namely, if ATIC did not receive the letter, it is because Brown sent it to the wrong address because ATIC did not notify him of the change of addresses.

The majority inexplicably accepts this latter position as a valid excuse and so determines that coverage is not vitiated in this case. Thus, without citing to any legal authority, the majority places the burden on the defendant's insurer to notify a potential plaintiff as to the correct address to which to send a copy of a summons and complaint years after it has moved to a different location. Further, the majority rejects ATIC's statements that it sent a mass mailing announcing the change of address at the time of the move, and that it notified the State Insurance Department and the post office of the change of address, and changed its address on its Web site and all phone listings. Instead, the majority makes clear that ATIC should have sent specific notification of the new address to Brown or his counsel.

In my opinion, the majority has placed the burden on the wrong party. There is no legal obligation on ATIC to establish what sufficient efforts it made, if any, to notify a potential plaintiff of a change of address. Certainly, there is no legal authority whatsoever for the majority's demand that ATIC should have sent a specific notification to the counsel of a plaintiff whose property claim had been settled almost a year prior to ATIC's move to a new location.

In the absence of any legal authority for such a position, it appears the majority is willing to accept an attorney's lack of diligence in failing to spend three-tenths of a second to verify an address on the Internet as a valid excuse for the failure to satisfy an insurer's notice requirement. For the foregoing reasons, I believe that the motion court's order should be reversed and ATIC's motion for summary judgment should be granted.
Three-tenths of a second is approximately the amount of time it took Google Regular to return nearly 19 millions results for "American Transit Insurance Company" the first time I ran that search.  Your results may vary.  Oddly, ATIC's home page does not appear on the first page of results, but its domain is discernible from a January 2003 meeting notice, the first search result.

Isn't the reasonableness of an insured's or injured party's late notice excuse ordinarily a question of fact requiring a trial?


Anonymous said...

"However, paragraph 11 follows paragraph 9, which provides that "[t]he following provisions . . . shall apply between the Company and the Insured but shall not prejudice the right of any person other than the Insured to recover hereunder."

What a stupid provision!

Fergus O'Rourke said...

I agree that the majority's decision is not obviously correct. However,I don't see that it is obviously wrong, either.

If insurers want to rely on late notification (with or without prejudice), then changing the notification address is a "no-no" in my humble opinion.

I don't see why claimants should have the onus of checking addresses, whether it takes three seconds or three days.