Late Notice Disclaimer Letter Ruled Ineffective Against Insureds to Whom It Was Not Specifically Addressed

CGL – INEFFECTIVE DISCLAIMER – INSURANCE LAW § 3420(D)(2)
Maughn v. RLI Ins. Co.
(2nd Dept., decided 12/22/2009)

New York case law is legion, as they say,  that a liability insurer's non-compliance with New York Insurance Law § 3420(d)(2) can excuse the insured's breach of the policy's notice condition.  Add this decision to that legion. 

RLI Insurance Company insured Fay Neiss, Neiss Management Corp., and 91-01 through 91-11 Church Limited Liability, all at the same mailing address.  Within three weeks of receiving late notice of an accident involving the insureds, RLI Insurance Company sent a disclaimer letter to the insureds' mailing address but specifically addressed only to Neiss Management.  The underlying plaintiff brought this action for a judgment declaring that RLI was obligated to defend and indemnify all three insureds in his underlying personal injury action. The insureds moved and RLI cross-moved for summary judgment.  Kings Supreme granted the insureds' motion and denied RLI's cross motion, and RLI appealed.  

In MODIFYING the order appealed from, the Second Department ruled that RLI was not obligated to defend or indemnify Neiss Management, but it was obligated to defend and indemnify the other two insureds because its disclaimer letter had not been specifically addressed to them, even though it was sent to their address:

On their motion for summary judgment, the defendants Fay Neiss and 91-01 through 91-11 Church Limited Liability (hereinafter Church) met their burden of establishing that the defendant RLI Insurance Company (hereinafter RLI) did not properly disclaim coverage as to them by submitting RLI's disclaimer letter, which was not addressed to them specifically (see Matter of Eveready Ins. Co. v Dabach, 176 AD2d 879). In response, RLI failed to raise a triable issue of fact. Athough actual notice of RLI's disclaimer letter may have been sent to the address at which all of the moving defendants were located, the disclaimer was only addressed to the defendant Neiss Management Corp. (hereinafter Management). That disclaimer, therefore, was ineffective as to Fay Neiss and Church, to whom it was not addressed (see Insurance Law § 3420[d][2]), and the Supreme Court properly granted that branch of the motion which was for summary judgment as to those defendants.

However, the Supreme Court erred in granting that branch of the motion which was for summary judgment in favor of Management, and, in effect, denying that branch of RLI's cross motion which was for summary judgment against Management. In support of its cross motion, RLI submitted, inter alia, the disclaimer letter, which was properly addressed and issued to Management, through its building manager, within three weeks of receiving notice of the accident, and established that the notice provided to it by Management was untimely (see DeFreitas v TIG Ins. Co., 16 AD3d 451; Yarar v Children's Museum of Manhattan, 4 AD3d 420, 421; cf. 875 Forest Ave. Corp. v Aetna Cas. & Sur. Co., 30 NY2d 726). Therefore, RLI met its prima facie burden of establishing its entitlement to judgment as a matter of law against Management. In opposition, Management failed to raise a triable issue of fact.

Takeaway Point:   Make sure liability disclaimer and denial letters are specifically addressed to each and every insured to whom or which coverage is being denied, even if all insureds are related and located at the same mailing address. The insertion of a few more characters, spaces and lines into RLI's disclaimer in this case ostensibly would have saved it the cost of defending and potentially indemnifying two of its three insureds in the underlying personal injury action.