Fourth Department Holds that Additional Insured's Asserted Belief in Nonliability Was an "Insufficient Excuse" to Its Three-Month Late Notice of Suit

CGL – ADDITIONAL INSURED – LATE NOTICE OF SUIT – GOOD FAITH BELIEF IN NONLIABILITY – TIMELY DISCLAIMER
Lehigh Constr. Group, Inc. v. Lexington Ins. Co.
(4th Dept., decided 2/11/2010)

On February 23, 2007, Lehigh Construction Group received suit papers from an employee of a subcontractor who allegedly had been injured on a construction site on which Lehigh had been acting as the general contractor.  Although Lehigh had been named as an additional insured on the subcontractor's CGL policy with Lexington, Lehigh did not notify Lexington of the occurrence until April 17, 2007 and did not forward a copy of the complaint to Lexington until May 8, 2007.  Lexington's policy required notice of an occurrence, claim or suit "as soon as practicable".

By letter dated May 15, 2007, Lexington denied defense and indemnification coverage to Lehigh in relation to the underlying action based upon Lehigh's failure to provide notice of its receipt of the complaint as soon as practicable.  Lehigh commenced this declaratory judgment action, attempting to excuse its delay in forwarding the complaint by arguing that its delay was based upon a reasonable belief in nonliability, namely, because it was only a "pass through" defendant with respect to the underlying action.  Erie County Supreme Court denied Lexington's motion for summary judgment based on its determination that there were issues of fact regarding whether Lehigh's notice to Lexington was timely.

In REVERSING the order appealed from and granting summary judgment to Lexington, the Appellate Division, Fourth Department, held that plaintiff's assumption that other parties would bear the ultimate responsibility for the underlying plaintiff's injuries was an insufficient excuse for failing to provide Lexington with timely notice of the underlying action's commencement.  The appellate court ruled that although an insured's good faith belief in nonliability may excuse that insured's failure to provide timely notice of an occurrence, Lehigh's asserted belief in nonliability was an "insufficient excuse" for its late notice of the lawsuit:

In opposing the motion, plaintiff contended that its delay was based upon a reasonable belief in nonliability because it was only a "pass through" defendant with respect to the underlying action. Although a good faith belief in nonliability may excuse a failure to provide timely notice of an occurrence (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d 742, 743), here there was a failure to provide timely notice of the actual commencement of the underlying action. We thus conclude under these circumstances that, as a matter of law, plaintiff's assumption that other parties would bear the ultimate responsibility for Sherk's injuries is an insufficient excuse for failing to provide Lexington with timely notice of the fact that the underlying action had been commenced (see Philadelphia Indem. Ins. Co. v Genesee Val. Improvement Corp., 41 AD3d 44, 47).  

The Fourth Department further held that Lexington's disclaimer, issued after Lexington's investigation of the matter and within four weeks of its first notice of the accident and underlying action, was timely as a matter of law.

Pay attention.  This appears to be a new rule, at least in the Fourth Department.  An insured's asserted good faith belief in nonliability will not serve to excuse its failure to comply with a liability insurance policy's timely notice of claim or suit condition.  That excuse will only apply to the insured's failure to comply with the policy's notice of accident or occurrence condition.   Remember -- most liability policies contain tandem but distinct notice conditions:  (1) notice of accident or occurrence; and (2) notice of claim or suit.  In the opinion of the Fourth Department, an insured's asserted good faith belief in nonliability applies only to the former condition, not the latter.