86-Day Delayed Notice of an Approximately $200,000 Claimed Theft Loss Found Inexcusable as a Matter of Law

PROPERTY – RENTERS POLICY – PERSONAL ARTICLES POLICY – THEFT – LATE NOTICE – LATE NOTICE EXCUSES – PREJUDICE
Minasian v. IDS Prop. Cas. Ins. Co. and State Farm Fire & Cas. Co.
(SDNY, decided 12/9/2015)

Plaintiffs Nikolai Minasian and Harutyun Minasian, son and father, respectively, made claims to the defendant insurers for the reported theft on January 1, 2014 of approximately $190,000 in jewelry and $1,150 in cash from their apartment.  Plaintiffs' claims for their cash and "rather remarkably similar" (the court's words, not mine) two watches, two bracelets and two rings were to their two renters insurers: IDS Property Casualty Company under a tenants policy that incepted on September 23, 2013; and State Farm Fire & Casualty Company under a renters policy and a personal articles policy (PAP) that both incepted on October 23. 2013.

The facts of the reported loss and claim are worth reading for anyone who investigates theft claims  Although plaintiffs reported the purported theft to local police within 15 minutes of allegedly discovering it, it took them 86 days to report the burglary and alleged theft to IDS and State Farm.  Why?  They wanted to see whether the police would recover the items.  They were unsophisticated and had no prior experience with reading or understanding insurance policy conditions.  They did not have counsel at the initial claim stage.  Harutyun didn't read or write English.  Besides, State Farm wasn't prejudiced by the delayed loss notice, and it's PAP's notice condition was ambiguous.  Such were the plaintiffs' excuses for their late notice.

Both insurers investigated the plaintiffs' claims, and both insurers denied those claims: IDS based on fraud and failure to give timely notice; and State Farm based on plaintiffs' breach of the policies' notice conditions, plaintiffs' intentional concealment and misrepresentation of material facts or circumstances during the presentation of the claim, the absence of an accidental direct physical loss, the theft exclusion and the fact that the loss involved an intentional act.

Plaintiffs sued IDS and State Farm in federal court alleging claims for breach of contract and violations of New York General Business Law § 349 and New York Insurance Law § 2601.  Defendants answered the complaint and successfully moved to dismiss the GBL § 349 claims.  The insurers then each moved for summary judgment on their late notice defenses.

In GRANTING the insurers' summary judgment motions, District Court Judge Katherine B. Forrest found that the plaintiffs' notice was untimely and their delay was inexcusable as a matter of law.  The decision sets forth an excellent digest of salient New York case law regarding late notice of property claims, the court noting:

Th[e cited] decisions reflect the well-supported justification for a duty of timely notice, which is to allow the insurer an opportunity to promptly investigate so that it may protect itself from fraud, take early control of the direction in which a claim might lead, and provide for an adequate reserve fund. 

As to each of the plaintiffs' excuses for their delayed notice, the court held:

• They wanted to see whether the police would recover the items, and the policies' notice conditions weren't triggered until the plaintiffs' subjectively believed that the police investigation had failed and the jewelry would not be recovered.  

Courts have routinely rejected claims by plaintiffs that notice is triggered by their subjective understanding of the availability of coverage. See Pfeffer v. Harleysville Grp., Inc., 502 F. App'x 28, 30 (2d Cir. 2012) (summary order) ("When the insured indefinitely reserves to itself the determination of whether a particular loss falls within the scope of coverage it does so at its own risk." (quoting Power Auth. v. Westinghouse Elec. Corp., 117 A.D.2d 336, 343 (1st Dep't 1986)). Under New York law, a plaintiff is not excused from timely notice by his belief that the loss will be recovered or otherwise reimbursed elsewhere. 

In light of the applicable standards, the Court easily rejects plaintiffs' interpretation of the notice provisions and their assertion that notice was timely. Plaintiffs do not dispute that they were aware that the Apartment had been burglarized and that the subject property had been stolen as of January 1, 2014. That awareness led plaintiffs to immediately contact the police. Plaintiffs also do not dispute that they were aware that the policies covered losses arising from theft and that the policies pertained to the property (i.e. the six pieces of jewelry and cash) that was stolen. No rational factfinder could find that a reasonable person, armed with that knowledge, would fail to understand that the facts suggested the possibility of claims under all three policies. Under New York law, plaintiffs adopted their "wait and see approach" at their own risk.

• Plaintiffs were unsophisticated and had no prior experience with reading or understanding insurance policy conditions.  

As for plaintiffs' purported mitigating factors (i.e. their lack of sophistication and experience with filing insurance claims), they have failed to provide any authority supporting the proposition that these reasons are sufficient to excuse late notice under the sort of circumstances at issue here.  Even if any of plaintiffs' asserted excuses could be viable as to certain types of insurance policies in certain circumstances, plaintiffs have failed to present a genuine issue of material fact that the circumstances here provided a reasonable excuse for their lengthy delay.  Plaintiffs baldly assert their lack of sophistication and experience, yet the record shows that they were sophisticated enough to obtain appraisals, insurance coverage, safety deposit boxes, and specifically schedule the jewelry for coverage.  If plaintiffs were sophisticated enough to take each of these steps, they were certainly capable of providing timely notice to IDS and State Farm.

• State Farm wasn't prejudiced by the plaintiffs' delayed loss notice.

[E]ven if [the investigating detective] provided [the State Farm producing agent] with information that gave State Farm good reason to begin investigating any potential claim, New York law does not require an insurer to demonstrate prejudice to successfully invoke a late notice defense, see AXA Marine, 84 F.3d at 624-25; Briggs, 11 N.Y.3d at 382, nor is an insurer deemed to have received notice by learning of the occurrence from a third party, Ins. Co. of the State of Pennsylvania v. Argonaut Ins. Co., No. 12 CIV. 6494 DLC, 2013 WL 4005109, at *10 (S.D.N.Y. Aug. 6, 2013); Heydt Contracting, 146 A.D.2d at 499. Plaintiffs fail to cite any authority for the proposition that the lack of prejudice is a mitigating factor that can itself create or support an excuse for late notice, FN9 and the Court does not find it appropriate to create or invoke such a rule on these facts. (Emphasis added.)

FN9   Plaintiffs concede that New York Insurance Law § 3420, which does impose a prejudice requirement, applies only to policies insuring against claims by third parties for bodily injury and property damage, and not to first-party policies insuring against claims by the named insured. N.Y. Ins. Law § 3420(a)(5). 

• The notice condition of the State Farm PAP was ambiguous.  

Plaintiffs next argue that State Farm is not entitled to summary judgment as to the PAP Policy on the ground that the phrase "In case a covered loss occurs" in the duty of notice provision is ambiguous. * * * Here, plaintiffs' reading strains the plain meaning of the PAP Policy and there is nothing ambiguous about the duty of notice provision. As with the IDS Tenants Policy and the State Farm Renter's Policy, the language in the PAP Policy clearly indicates that plaintiffs' duty to notify was triggered as soon as they learned that the jewelry was stolen on January 1, 2014. Use of the term "covered loss" clearly connotes that property which is covered under the policy is no longer in the physical possession of the insured, and use of the phrase "loss . . . which may become a claim" indicates that an insured need not (and should not) wait until the loss has definitively ripened into a meritorious claim for payment. No reasonable person could interpret this language to mean that a known theft of property only becomes a covered loss once the police cease to conduct an active investigation. As discussed above, such an interpretation places no reasonable limit on the time by which an insured must provide notice of loss. Finally, the Court notes that the lost jewelry was the only property covered by the PAP Policy; no reasonable person who has taken out an insurance policy solely to insure specified personal property would believe that the theft of such property would not be a loss covered by that policy. (Emphasis added.)

Lot in here.  'Cept coverage.

Editor's Note ~~ On January 19, 2017 the United States Court of Appeals for the Second Circuit AFFIRMED this decision in a summary order, which you can read here.  Especially useful is the court's recitation of New York cases decisions  on late notice in a first-party property context:

Timely notice is a condition precedent to insurance coverage under New York law, see White v. City of New York, 81 N.Y.2d 955, 957, 598 N.Y.S.2d 759, 760 (1993), and the failure to provide such notice relieves the insurer of its coverage obligation, regardless of prejudice, see Briggs Ave. LLC v. Ins. Corp. of Hannover, 11 N.Y.3d 377, 381-82, 870 N.Y.S.2d 841, 842 (2008). A notice obligation is triggered when "the circumstances known to the insured . . . would have suggested to a reasonable person the possibility of a claim." Sparacino v. Pawtucket Mut. Ins. Co., 50 F.3d 141, 143 (2d Cir. 1995). Where an insurance policy requires notice be given as soon as practicable, "such notice must be accorded the carrier within a reasonable period of time." Great Canal Realty Corp. v. Seneca Ins. Co., 5 N.Y.3d 742, 743, 800 N.Y.S.2d 521, 522 (2005). On numerous occasions, New York courts have held notice delays of less than three months unreasonable as a matter of law and discharged insurers of coverage obligations. See, e.g., Young Israel Co-Op City v. Guideone Mut. Ins. Co., 52 A.D.3d 245, 246, 859 N.Y.S.2d 171, 172 (1st Dep't 2008) (40 days); American Home Assurance Co. v. Republic Ins. Co., 984 F.2d 76, 78 (2d Cir. 1993) (36 days); Power Auth. v. Westinghouse Elec. Corp., 117 A.D.2d 336, 339-40, 502 N.Y.S.2d 420, 421-22 (1st Dep't 1986) (26 days); Government Emps. Ins. Co. v. Elman, 40 A.D.2d 994, 994, 338 N.Y.S. 2d 666, 667 (2d Dep't 1972) (29 days); Deso v. London & Lancashire Indem. Co. of Am., 3 N.Y.2d 127, 130, 164 N.Y.S.2d 689, 692 (1957) (51 days).