Old Policy, Old Law -- CGL Insurer Not Required to Show Prejudice from Insured's Late Notice

CGL – LATE NOTICE – NO PREJUDICE RULE – GOOD FAITH BELIEF IN NONLIABILITY
Ponok Realty Corp. v. United Natl. Specialty Ins. Co.
(2nd Dept., decided 1/5/2010)

Plaintiff, insured landlord, received notice of its tenant's property damage claim more than one year before it notified its CGL insurer, United National Specialty Insurance Company, of that claim.  UNSIC disclaimed liability coverage based on the plaintiff's late notice, and plaintiff commenced this declaratory judgment action for defense and indemnification coverage, arguing: (1) that UNSIC was required to show that plaintiff's delayed reporting prejudiced UNSIC; and (2) that plaintiff's late notice should be excused because it had a good faith belief in nonliability.  Queens Supreme granted UNSIC's motion for summary judgment and plaintiff appealed.

In affirming Supreme Court's order, the Second Department noted that New York's new "prejudice rule" of New York Insurance Law § 3420(c)(2)(A) applies only to policies issued or delivered in New York State on or after January 17, 2009.  The policy in this case was effective from October 2003 to October 2004:

The plaintiff's argument that the "prejudice" rule articulated in Insurance Law § 3420(c)(2)(A), governs this case is unavailing. A 2008 amendment to Insurance Law § 3420(c)(2)(A) (see L 2008, ch 388, § 4) provides that where "an insurer alleges that it was prejudiced as a result of a failure to provide timely notice, the burden shall be on . . . the insurer to prove that it has been prejudiced" if the notice was provided within two years of the time required under the policy (see Insurance Law § 3420[c][2][A][i]). However, it is clear from section 8 of the act amending Insurance Law § 3420 that the amendments were to "apply to policies issued or delivered in this state on or after [January 17, 2009]" (McKinney's Cons Laws of NY, Book 27, Insurance Law § 3420, 2009 Pocket Part, at 15, Historical and Statutory Notes, L 2008, ch 388, § 8; see generally Matter of Auerbach v Board of Educ. of City School Dist. of City of N.Y., 86 NY2d 198, 204). The insurance policy issued by the defendant to the plaintiff was effective from October 3, 2003, until October 3, 2004. Since the policy was issued before the effective date of the relevant amendment to Insurance Law § 3420, the amended version of that section does not apply to the subject insurance policy.

The Second Department also rejected plaintiff's argument that it gave notice of the tenant's claim to UNSIC "as soon as practicable" and found that although the reasonableness of an insured's asserted good faith belief in nonliability generally is a question of fact for the fact-finder, plaintiff in this case had failed to raise a triable issue of fact as to whether its belief that its tenant would not file a claim was reasonable:

In general, the existence of a good faith belief that the injured party would not seek to hold the insured liable, and the reasonableness of such belief, are questions of fact for the fact-finder (see Genova v Regal Mar. Indus., 309 AD2d at 734; C.C.R. Realty of Dutchess v New York Cent. Mut. Fire Ins. Co., 1 AD3d at 305). The burden of demonstrating the reasonableness of the excuse lies with the insured (see Genova v Regal Mar. Indus., 309 AD2d at 734). Nevertheless, summary judgment may be awarded to the insurer if, construing all inferences in favor of the insured, the evidence establishes, as a matter of law, that the insured's belief in nonliability was unreasonable or in bad faith (see 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Co., 40 AD3d at 721; Genova v Regal Mar. Indus., 309 AD2d at 734).

Here, the defendant established its prima facie entitlement to judgment as a matter of law by demonstrating that it was not notified of the subject property damage claim until more than one year had elapsed since the plaintiff received notice of such claim from its tenant (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d at 743; Sputnik Rest. Corp. v United Natl. Ins. Co., 62 AD3d at 689; 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Co., 40 AD3d at 721; Genova v Regal Mar. Indus., 309 AD2d at 734). In opposition, the plaintiff failed to raise a triable issue of fact as to whether its belief that its tenant would not file a claim was reasonable. In construing all inferences in favor of the insured, the evidence established, as a matter of law, that the plaintiff's belief in nonliability was unreasonable (see 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Co., 40 AD3d at 721; Genova v Regal Mar. Indus., 309 AD2d at 734). Accordingly, the Supreme Court properly granted the defendant's motion for summary judgment.

If I only had a dollar for every time I've seen an appellate court remit a DJ matter back to the motion court for entry of a judgment. Remember folks, declaratory judgment actions end in judgments, not orders.