Endurance Am. Specialty Ins. Co. v. Utica First Ins. Co.
(1st Dept., decided 10/8/2015)
New York Insurance Law § 3420(d)(2), where applicable, requires that written notice of a disclaimer or denial be sent "as soon as is reasonably possible ... to the insured and the injured person or any other claimant."
Since 2012 when the First Department issued its decision in George Campbell Painting, liability insurers doing business in New York have been on notice, and on guard, that a disclaimer or denial which implicates Insurance Law § 3420(d)(2) -- one for bodily injury or death claims based on either the applicability of a policy exclusion or the breach of a policy condition -- should not await the methodical completion of the insurer's coverage investigation where at least one exclusion-based or condition-based ground for disclaiming or denying coverage is already apparent or known. To wait to disclaim or deny until the insurer completes its coverage investigation under such circumstances is to risk having the declination challenged and found to to have not been "as soon as [was] reasonably possible" in violation of § 3420(d)(2).
This case effectively arguably extends or enlarges the preclusive impact or scope of George Campbell Painting, at least in the First Department. New York commercial general liability insurers take note.
Plaintiff Endurance American Specialty Insurance Company insured contractor Adelphia Restoration Corporation. Defendant Utica First Insurance Company insured subcontractor CFC Contractor Group, Inc. The Utica First policy contained a blanket additional insured endorsement providing additional insured coverage to entities for which CFC was required to procure additional insured coverage under a written agreement executed prior to a loss. However, the Utica First policy also contained a broad exclusion for bodily injuries sustained by employees of any insured, or by contractors or employees of contractors "hired or retained by or for any insured."
October 16, 2011 -- employee of CFC allegedly injured on the job
November 16, 2011 -- Utica First receives first notice of accident from Rockville Risk Management, TPA for Endurance (Adelphia)
November 21, 2011 -- Utica denies defense/indemnification overage to CFC; letter copied to Rockville but not to Adelphia
May 10, 2012 -- Rockville tenders Adelphia's defense and indemnity to Utica First, noting that CFC had contracted with Adelphia, but does not provide copy of contract
November 20, 2012 -- Rockville again tenders Adelphia's D&I to Utica First; requests response to tenders
January 25, 2013 -- Rockville sends copy of contract between Adelphia and CFC to Utica First
January 28, 2013 -- Utica First receives copy of contract
January 29, 2013 -- Utica First denies D&I coverage to Adelphia based on employee exclusion
Adelphi conceded that on its face, the employee exclusion in Utica First's policy with CFC precluded coverage to it and to CFC; however, Adelphi contended that the timing of Utica First's disclaimer to it precluded Utica First from denying it coverage. The First Department agreed:
Utica's disclaimer of liability for coverage by letter dated November 21, 2011 to its named insured, defendant CFC, did not constitute notice to additional insured Adelphi under Insurance Law § 3420(d)(2) (see Sierra v 4401 Sunset Park, LLC, 24 NY3d 514 ). Further, although Utica knew by November 21, 2011, at the latest, that the employee exclusion applied to the employee's alleged accident, Utica did not immediately disclaim coverage on that basis; it instead waited to disclaim coverage until January 29, 2013 — one day after it had received the contract that triggered the blanket endorsement. However, Insurance Law § 3420(d) "precludes an insurer from delaying issuance of a disclaimer on a ground that the insurer knows to be valid . . . while investigating other possible grounds for disclaiming" (George Campbell Painting v National Union Fire Ins. Co. of Pittsburgh, PA, 92 AD3d 104 [1st Dept 2012]; see also City of New York v. Northern Ins. Co. of N.Y., 284 AD2d 291 [2d Dept 2001], lv dismissed 97 NY2d 638 ).
If Adelphi was not entitled to coverage because of the employee exclusion, it did not matter one way or the other whether it was an additional insured under the CFC/Utica policy, and Utica therefore did not need to investigate Adelphi's status in order to disclaim coverage under the exclusion (see George Campbell Painting, 92 AD3d at 111-112). Indeed, given its statement that it would not indemnify "our insured or any other party for any judgment awarded," Utica must have known that the employee exclusion was effective not only as to CFC but also as to Adelphi, and therefore, Utica should have immediately disclaimed to Adelphi on that basis. Thus, Utica's investigation as to whether Adelphi was an additional insured was insufficient as a matter of law as the basis for a disclaimer.
Practice Pointer: When it appears a policy exclusion applies broadly to negate coverage to the named insured and all other persons or entities, issue the declination not only to the named insured, but also directly and separately to those persons or entities who may have claims to coverage under the policy, regardless of whether it is known for certain that those persons or entities qualify as insureds or additional insureds.