When Just a Reservation of Rights Letter Won't Do

HOMEOWNERS – INTENTIONAL ACT – UNTIMELY DISCLAIMER – INSURANCE LAW § 3420(D)
Encompass Ins. Co. v. Adelis
(Sup. Ct., Nassau Co., decided 11/23/2010)

Immutable Law of New York Insurance Coverage # 47:  Defending a bar fight case under a reservation of rights for two years without disclaiming coverage under a policy that does not define an "occurrence" as an accident will result in being found obligated to indemnify one's pugilistic insured for the injuries he admitted to have intentionally caused.

In January 2006, Encompass's insured James Adelis was involved in an altercation in a bar.  While pleading guilty to the related criminal charge of second degree assault in August 2006, Adelis acknowledged that he had intended to injure the person he hit, Kevin Smith, when he hit him.  In January 2007, Smith sued Adelis and the bar for personal injuries, alternatively alleging intentional tort and negligence causes of action against Adelis.

In February 2007, Encompass notified Adelis by letter that it was reserving its rights to deny liability coverage based on the policy's exclusion for bodily injury or property damage "[i]ntended by, or which may reasonably be expected to result from the intentional or criminal acts or omissions of one or more covered persons."  Encompass then undertook to defend Adelis in Smith's personal injury action for two years before commencing this declaratory judgment action in 2009 and moving for summary judgment.

In DENYING Encompass' motion for summary judgment and instead declaring that Encompass was obligated to defend and indemnify Adelis in the underlying Smith personal injury action, Nassau County Supreme Court Justice Ute Wolff Lally found that Encompass' attempt to deny coverage by commencing this declaratory judgment action after defending Adelis for two years was "woefully late" and precluded by New York Insurance Law § 3420(d): 

A reservation of rights letter does not constitute a disclaimer of coverage, nor does it negate an insurer's obligation to provide a timely rejection. (Painting v National Union Fire Ins. Co. of Pittsburgh, PA, 2009 WL 1370819 (Supreme Court New York County 2009), citing New York Cent. Mut. Fire Ins. Co. v Hildreth,  40 AD3d 602). In fact, "a reservation of rights letter ... has no relevance to the question of timely notice of disclaimer. (NYAT Operating Corp. v GAN National Insurance Company, 46 AD3d 287, 288, lv den., 10 NY3d 715, citing Hartford Ins. Co. v County of Nassau, supra at p. 1029).

*  *  *  *  *

Encompass never disclaimed coverage for James Adelis.  Assuming, arguendo, that its complaint here constituted its disclaimer, it was untimely as a matter of law.  Encompass has been defending James Adelis in the underlying personal injury action for over two year [sic] and that action was commenced over one year after the defendant James Adelis' [sic] pled guilty to assault in the third degree. Thus, Encompass' disclaimer based upon the plaintiff's allegations in the underlying action, the policy exclusion and James Adelis' guilty plea was woefully late: [sic] All of those facts were known to Encompass for virtually the entire time that it defended James Adelis.  Thus, the pivotal question here becomes whether coverage exists under the policy but for the exclusion relied upon by Encompass.  (See Desire v Nationwide Mutual Fire Insurance Company, supra).

The subject policy covers a claim or suit for "personal injury" or "bodily injury" caused by an "occurrence. "  The policy defines an "occurrence" as, inter alia, "(a)n offense including a series of related offenses, committed during the policy period which results in personal injury."  James Adelis' alleged acts for which coverage is sought under the policy fit the description of an "occurrence." Accordingly, coverage for James Adelis' acts exists under the policy's terms, absent the application of an exclusion.  Since Encompass is relegated to rely solely upon the policy's exclusion to defeat James Adelis' claim for coverage, Encompass' failure to timely disclaim results in coverage.

It is important to note that the subject policy did not define an "occurrence", at least with respect to liability coverage for bodily injury and property damage, as an accident.  Had it done so, Encompass may have been able successfully to argue that its failure earlier to disclaim did not violate Insurance Law § 3420(d) because the underlying plaintiff's intentionally caused injuries did not result from a covered "occurrence" in the first instance, regardless of the policy's intentional or criminal acts exclusion. 

It is also important to note that Justice Lally incorrectly quoted the "occurrence" definition for the policy's "personal injury" coverage, which insurance coverage mavens know is defined as and protects against injury arising out of libel, slander, false arrest, wrongful eviction, wrongful detention, wrongful entry, malicious prosecution, false imprisonment, invasion of privacy or defamation of character.  As applicable to bodily injury and property damage coverage, however, the policy defined "occurrence" to mean "[a]n event, or a series of related events resulting from continuous or repeated exposure to the same general conditions, that causes bodily injury or property damage during the policy period[.]"  Thus, without any policy requirement that an "occurrence" be accidental in nature, Adelis' act of intentionally punching Smith qualified as an "occurrence" under the policy because it was an "event ... that cause[d] bodily injury[.]"

An Insurer Is Not Required to Deny Coverage Where None Exists

CGL – INSURANCE LAW § 3420(D) – TIMELY DISCLAIMER REQUIREMENT
York Restoration Corp. v. Solty's Constr., Inc.
(2nd Dept., decided 12/14/2010)

If a party seeking coverage is neither an insured nor an additional insured under the policy, does New York Insurance Law § 3420(d) apply to require a prompt disclaimer of coverage?  No, reminds the Second Department.

Although Sirius initially disclaimed coverage to York Restoration Corp. based on late notice, in this action Sirius cross-moved for summary judgment on the ground that York was not an additional insured on the date of the accident.  Supreme Court denied Sirius' cross motion and granted summary judgment to York.

In REVERSING the order appealed from, the Appellate Division, Second Department, held:

Sirius correctly contends that York is not entitled to defense and indemnification because it was not a named insured on the date of the accident. The party claiming insurance coverage bears the burden of proving entitlement (see National Abatement Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 AD3d 570; Tribeca Broadway Assoc. v Mount Vernon Fire Ins. Co., 5 AD3d 198). A party is not entitled to coverage if it is not named as an insured or additional insured on the face of the policy as of the date of the accident for which coverage is sought (see Essex Ins. Co. v Michael Cunningham Carpentry, 74 AD3d 733; Majawalla v Utica First Ins. Co., 71 AD3d 958; National Abatement Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 AD3d at 571; Tribeca Broadway Assoc. v Mount Vernon Fire Ins. Co., 5 AD3d at 200). 

Here, York was not named as an additional insured under the policy until approximately five weeks after the underlying accident. The accident occurred on October 29, 2004, but the subsequently issued policy change endorsement, naming York as an additional insured, was not effective until December 6, 2004. Therefore, Sirius had no duty to defend and indemnify York (see ADF Constr. Corp. v Home Insulation & Supply, 237 AD2d 915, 916; Tower Ins. Co. of N.Y. v Joselyn Grocery Corp., 2008 NY Slip Op 31745[U]; see also Travelers Ins. Co. v Utica Mut. Ins. Co., 27 AD3d 456).

York's contention that Sirius may not assert that York is not an insured under the policy because Sirius failed to disclaim on that ground is without merit. A disclaimer pursuant to Insurance Law 3420(d) is unnecessary when a claim does not fall within the coverage terms of an insurance policy (see Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648; Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188; Siragusa v Granite State Ins. Co., 65 AD3d 1216, 1217). An insurer is not required to deny coverage where none exists (see Hargob Realty Assoc., Inc. v Fireman's Fund Ins. Co., 73 AD3d 856, 858).  Therefore, when a claim is denied because the claimant is not an insured under the policy, there is no statutory obligation to provide prompt notice of the disclaimer (see Hargob Realty Assoc., Inc. v Fireman's Fund Ins. Co., 73 AD3d at 858; Siragusa v Granite State Ins. Co., 65 AD3d at 1217; Matter of Nationwide Ins. Co. v Smaller, 271 AD2d 537, 537-538; Matter of Fireman's Fund Ins. Co. v Freda, 156 AD2d 364, 366). Under the circumstances, the Sirius policy did not provide coverage to York as of the date of the accident. Requiring payment of a claim upon a failure to timely disclaim would create coverage where it never existed (see Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d at 188).

Insured's 8 1/2-Month Late Notice Excused by Insurer's 56-Day Delay in Disclaiming

CGL – UNTIMELY DISCLAIMER – INSURANCE LAW § 3420(D)
Salvatore Bellavia & Franchised Distribs., Inc. v. Seneca Ins. Co., Inc.
(2nd Dept., decided 11/30/2010)

If the million reasons given in Burlington Ins. Co. v. Galindo & Ferreira Corp. were not convincing enough, this case again demonstrates the coverage-fatal consequence of a liability insurer not complying with New York Insurance Law § 3420(d).

On April 26, 2005, plaintiffs provided first notice to their insurer, Seneca Insurance Company, of a personal injury claim that stemmed from an accident that had occurred on August 10, 2004. Fifty six days later, on June 21, 2005, Seneca disclaimed coverage on the ground that the plaintiffs had not notified it of the occurrence as soon as practicable.

In AFFIRMING the lower court's grant of summary judgment to the insureds, the Second Department, Appellate Division, agreed that Seneca had failed to issue a timely disclaimer:

Insurance Law § 3420(d) requires an insurer to provide a written disclaimer of coverage "as soon as is reasonably possible" (Insurance Law § 3420[d][2]).  An insurer's failure to provide notice of disclaimer as soon as is reasonably possible precludes it from disclaiming coverage, even where the insured's own notice of the incident is untimely (see Matter of New York Cent. Mut. Fire Ins. Co. v Aguirre, 7 NY3d 772, 774; First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 67).  "The timeliness of an insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage" (Tex Dev. Co., LLC v Greenwich Ins. Co., 51 AD3d 775, 778; see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d at 68-69; Matter of New York Cent. Mut. Fire Ins. Co. v Steiert, 68 AD3d 1120, 1121).

Here, the plaintiffs made a prima facie showing of their entitlement to judgment as a matter of law declaring that the defendant is obligated to defend and indemnify them in the underlying action by establishing that, under the circumstances, the defendant did not provide a written disclaimer of coverage as soon as reasonably possible (see Insurance Law § 3420[d][2]; Mid City Constr. Co., Inc. v Sirius Am. Ins. Co., 70 AD3d 789, 789-790; Tex Dev. Co., LLC v Greenwich Ins. Co., 51 AD3d at 778). In opposition, the defendant, which had the burden of justifying its delay in providing the written notice of disclaimer (see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d at 69), failed to raise a triable issue of fact.

The Eight-Month Million Dollar Delay -- CGL Insurer's Delayed Disclaimer Results in Finding of Coverage Up to $1M Policy Limit

CGL – UNTIMELY DISCLAIMER – INSURANCE LAW § 3420(D)
Burlington Ins. Co. v. Galindo & Ferreira Corp.
(2nd Dept., decided 11/30/2010)

New York Insurance Law § 3420(d)(2) provides:

If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.  (Bold added.)

Liability insurers doing business in New York should know that the consequence of not issuing a disclaimer or denial that is governed by 3420(d)(2) as soon as is reasonably possible is the invalidation of what otherwise would be valid exclusion-based and condition-based coverage declinations.

On October 7, 2006, a construction accident occurred at the defendant insured's Queens, New York premises, killing one worker and injuring two others.  The insured provided notice of that accident to its surplus lines CGL insurer, Burlington Insurance Company, three days later on October 10, 2006.   The accident eventually gave rise to two lawsuits, one for personal injury and one for wrongful death.  On December 29, 2006, an attorney for the insured sent a claims representative working for Burlington a copy of the summons and complaint in the personal injury action.  On January 3, 2007, Burlington informed the insured that it had assigned the insured's defense in the personal injury action to a law firm, and and also informed the insured that Burlington’s coverage limits for the policy were $1,000,000 for all claims arising out of the accident.  There was no reservation of rights to disclaim or limit any insurance coverage relating to any claim or action arising out of or related to the alleged accident.

Approximately eight months after receiving first notice of the accident, by letter dated June 5, 2007, Burlington, through its counsel, disclaimed any coverage for any claims brought in an action yet to be commenced by the deceased worker's estate, and also announced its intention to limit coverage for all claims arising out of the accident, including claims in the pending personal injury action, to $50,000 from $1,000,000.  Burlington's disclaimer letter cited exclusions and limitations found in the policy's Independent Contractor’s Employees Endorsement, Real Estate Operations Endorsement, and Amendment of Coverage Endorsement.  On November 5, 2007, Burlington commenced this action, seeking a declaration that it was not obligated to defend or indemnify the insured in the yet-to-be-commenced wrongful death action and that the coverage limit available to the insured in the pending personal injury action, which Burlington continued to defend, was only $50,000.

On the parties' motions and cross motions for summary judgment, Queens County Supreme Court (Augustus C. Agate, J.) rejected Burlington's argument that it was not obligated to disclaim coverage for the wrongful death action until that action was commenced.  The trial court instead found that Burlington did not timely disclaim or limit coverage to the insured and, consequently, was obligated to defend and indemnify the insured in both actions up to the policy's $1,000,000 per occurrence limit:

An insurer’s time to disclaim based on a policy exclusion begins to run when the insurer becomes aware of facts sufficient to issue the disclaimer (see Fireman’s Fund Ins. Co. v Farrell, 57 AD3d 721 [2008]; Delphi Restoration Corp. v Sunshine Restoration Corp., 43 AD3d 851 [2007]; Schulman v Indian Harbor Ins. Co., 40 AD3d 957 [2007]).  Under Insurance Law § 3420(d), a written disclaimer is required as soon as reasonably possible after first learning of the grounds for the disclaimer of liability or the denial of coverage, and failure to comply renders any disclaimer ineffective (see Sirius Am. Ins. Co. v Vigo Constr. Corp., 48 AD3d 450 [2008]; N. Country Ins. Co. v Tucker, 273 AD2d 683 [2000]).  Here, Burlington’s claim notes indicate that Burlington became aware of the facts that support the first reason for the disclaimer, the Independent Contractor’s Employees Endorsement, as early as 10 days after the accident.  The facts also establish that the second reason for a disclaimer, based on the Real Estate Operations Endorsement of the policy, was known to Burlington as early as 10 days after the accident.  Additionally, while there is no indication of when the plaintiff became aware of the third reason for the disclaimer, the Amendment of Coverage Endorsement, the evidence established that the plaintiff should have known that insurance coverage was denied for Galindo Construction by the end of October 2006 or shortly thereafter at the latest.  The plaintiff, however, waited until its letter dated June 5, 2007, which was sent almost eight months after the accident, before disclaiming coverage and reducing the coverage limits.  The plaintiff also has not offered an excuse for the delay. Therefore, the delay in disclaiming coverage and reducing the coverage limits from $1,000,000 to $50,000 is unreasonable as a matter of law (see Delphi Restoration Corp., 43 AD3d at 852).  Additionally, inasmuch as the plaintiff in its letter dated January 3, 2007, assumed control of the defense and did not reserve the right to decrease the coverage from the $1,000,000 per occurrence, it is estopped from denying coverage or reducing the coverage amounts based upon a policy exclusion (seeFireman’s Fund Ins. Co. v Zurich Am. Ins. Co. , 37 AD3d 521 [2007]; Wise v McCalla, 24 AD3d 435 [2005]; Utica Mut. Ins. Co. v 215 W. 91st St. Corp., 283 AD2d 421 [2001]).

The opponent of a summary judgment motion must present admissible evidence that is sufficient to raise an issue of fact (see Zuckerman v City of New York, 49 NY2d 557 [1980]).  In opposition, the plaintiff failed to raise an issue of fact that would warrant the denial of the summary judgment motion.  The reasonableness of any delay must be judged from the time the insurer is aware of the facts to disclaim.  Here, given the evidence that established that the plaintiff became aware of the reason to disclaim within a few weeks of the accident, the fact that a lawsuit had yet to have been filed does not constitute a reasonable reason for the delay in disclaiming (see N. Country Ins. Co., 273 AD2d at 685).  In fact, the plaintiff was aware of the reason for the disclaimer and sent a letter attempting to disclaim coverage in the Guerrero Action before the Guerrero Action was commenced.

Burlington appealed, and in AFFIRMING the lower court's grant of summary judgment to the insured, the Second Department, Appellate Division, succinctly held: 

The defendant Galindo & Ferreira Corp. (hereinafter Galindo) established its prima facie entitlement to judgment as a matter of law declaring that the plaintiff was obligated to defend and indemnify it up to coverage limits of $1,000,000 in both underlying actions at issue by showing that, under the circumstances, the plaintiff insurer failed to provide a disclaimer of coverage as soon as reasonably possible (see Insurance Law § 3420[d]; Mid City Constr. Co., Inc. v Sirius Am. Ins. Co., 70 AD3d 789; Tex Dev. Co., LLC v Greenwich Ins. Co., 51 AD3d 775; cf. Matter of New York Cent. Mut. Fine Ins. Co. v Steiert, 68 AD3d 1120).  In response, the plaintiff, which had the burden of explaining its delay in providing the notice of disclaimer (see Tex Dev. Co., LLC v Greenwich Ins. Co., 51 AD3d 775), failed to raise a triable issue of fact (id.; see Mid City Constr. Co., Inc. v Sirius Am. Ins. Co., 70 AD3d 789).

If New York Insurance Law § 3420(d) applies -- i.e., there is a bodily injury or death claim arising from an accident submitted under a liability policy issued or delivered in this state for which there is no or limited coverage by operation of either one or more policy exclusions or conditions -- insurers must complete their investigations as soon as they can and issue written disclaimers or denials "as soon as is reasonably possible."  The consequence of not doing so is paying defense and indemnification dollars for a potentially uncovered claim, as in this case.

Why Does New York's Timely Disclaimer Statute -- Insurance Law § 3420(D)(2) -- Apply To SUM Claims?

A client recently asked why New York Insurance Law § 3420(d)(2) -- which requires insurers wishing to disclaim liability or deny coverage under liability policies for death or bodily injury arising out an accident occurring within this state to do so "as soon as is reasonably possible" -- applies to SUM (supplementary uninsured motorists) or underinsurance claims.

The reason, I told him, is because SUM coverage, like UM coverage, insures against inadequate or non-existent liability coverage of the tortfeasor, leading the New York courts to hold that Insurance Law § 3420(d)(2) applies to require timely disclaimers and denials of SUM coverage when such coverage declinations are based on either policy exclusions or conditions. See, e.g., Hess v. Nationwide Mut. Ins. Co., 273 AD 2d 689 (3d Dept. 2000) (condition requiring claimant to notify SUM insurer of underlying personal injury action).  Declinations of SUM coverage based on lack of inclusionary grounds – claimant is not an “insured”; injury-causing incident was not an accident; offending vehicle not an “uninsured motor vehicle”; etc. – are not subject to 3420(d)(2). See, e.g., Matter of Nationwide Ins. Co. v. Smaller, 271 AD 2d 537 (2d Dept. 2000) (claimant not a resident relative of named insured’s household).

Perhaps that's also why our state's Insurance Law § 3420, which is entitled "Liability insurance; standard provisions; right of injured person", includes subsections for UM (3420[f][1]) and SUM (3420[f][1]) coverage requirements.

My client's core question related to whether his company would have "enough time" to conduct an EUO of the claimant before deciding whether to accept or deny the SUM claim.  I explained there is plenty of New York case law holding that an insurer should be given sufficient time to investigate coverage, and that the timely disclaimer/denial requirement imposed by Insurance Law § 3420(d)(2) accrues, if you will, only from when the insurer possesses sufficient information with which to make a coverage decision.  If an EUO is required to ascertain facts and information needed to make the SUM coverage decision, and the potential non-coverage ground is exclusion or condition based, then 3420(d)(2) should not apply to invalidate a declination sent as soon after the EUO’s completion as possible.  If the potential non-coverage ground is non-inclusionary based, 3420(d)(2) shouldn’t apply at all.

Remember the light switch.  And if you don't know what that is, you haven't been to one of my firm's annual coverage seminars.   On, off, and the power/power cord. 

No Coverage for a Non-Non-Owned Car

PERSONAL AUTO – NON-OWNED CAR – HOUSEHOLD RESIDENT RELATIVE – TIMELY DISCLAIMER – INSURANCE LAW § 3420(D)(2)
Konstantinou v. Phoenix Ins. Co.
(4th Dept., decided 6/11/2010)

David Thurston was operating his sister Tynette Thurston's Chevy Celebrity when he crashed into the plaintiff's vehicle, killing that vehicle's passenger and seriously injuring its driver.  Plaintiff sued the Thurston siblings and their mother, Brenda Henderson, with whom they allegedly resided.  After obtaining a judgment against the Thurston siblings, plaintiff commenced this action pursuant to New York Insurance Law § 3420(a)(2) and (b)(1) against Henderson's personal auto insurer, Phoenix Insurance Company, for liability coverage under Henderson's policy with Phoenix.  Wayne County Supreme Court (Kehoe, J.) granted Phoenix's motion for summary judgment, dismissing the complaint, and plaintiff appealed.

Henderson's personal auto policy with Phoenix provided:

We will pay damages for which the insured becomes legally responsible because of bodily injury or property damage caused by accident and arising out of the ownership, maintenance or use of your car or any non-owned car.

The policy listed Henderson as the only named insured and a Chevrolet Lumina as the only covered vehicle. The policy defined "your car" as, among other things, "any vehicle described on the declarations page of [the] policy." Because the Celebrity was not listed on the declarations page, it was not covered under the "your car" category.

The policy also defined a "non-owned car" as

a land motor vehicle with at least four wheels designed to be used mainly on public roads, or a trailer. However, it must not be owned by or furnished or available for the regular use of you or a relative.

 The policy further explained that "You and your mean the person [listed as the named insured on the declarations page, i.e., Henderson, and that] . . . Relative means your relative, residing in your household."

In AFFIRMING the order granting summary judgment to Phoenix, the Fourth Department concluded that the Celebrity did not qualify as a "non-owned car" under Henderson's policy with Phoenix because it was owned by Tynette Thurston, Henderson's daughter and resident of Henderson's household, and was available for the regular use of David Thurston, Henderson's son and also resident of Henderson's household.  The appellate court also held that the timely disclaimer requirement of New York Insurance Law § 3420(d) did not apply because the Celebrity did not qualify as a covered vehicle under the Phoenix policy, and plaintiff's claim fell outside the scope of coverage of that policy:

Contrary to plaintiff's contention, the court properly determined that the Thurston siblings were relatives of Henderson who resided in her household and that the Celebrity therefore was not a "non-owned car" for which defendant would be required to provide coverage with respect to the accident in question. A person is a resident of a household for insurance purposes if he or she " lives in the household with a certain degree of permanency and intention to remain' " (Matter of State Farm Mut. Auto. Ins. Cos. v Jackson, 31 AD3d 1171, 1171). Although Tynette Thurston lived at college at the time of the accident, defendant submitted evidence in support of the motion establishing that she was a resident of the household inasmuch as she lived with Henderson during the summers, received mail at Henderson's house, stayed there every other weekend, and listed that address on the Celebrity's title and insurance (see Dutkanych v United States Fid. & Guar. Co., 252 AD2d 537, 538; see also Matter of Prudential Prop. & Cas. Ins. Co. [Galioto], 266 AD2d 926). Thus, because the Celebrity was owned by a relative of Henderson who was a resident of her household, it was not a "non-owned car" under the terms of the policy entitled to coverage by defendant. 

Moreover, it was undisputed that David Thurston was a relative of Henderson who was a resident of her household, and defendant submitted evidence in support of the motion establishing that the Celebrity was available for his regular use inasmuch as he had unrestricted access to the Celebrity while Tynette Thurston was at college and had used it several times prior to the accident (see generally Newman v New York Cent. Mut. Fire Ins. Co., 8 AD3d 1059, 1060). Thus, the Celebrity also was not a "non-owned car" within the meaning of the policy because it was available for the regular use of a relative of Henderson who was a resident of her household. 

Contrary to plaintiff's further contention, the Celebrity is not entitled to coverage under Henderson's policy with defendant on the ground that defendant failed to disclaim coverage in a timely manner. It is well established that "[d]isclaimer pursuant to [Insurance Law § ] 3420 (d) is unnecessary when a claim falls outside the scope of the policy's coverage portion. Under those circumstances, the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed" (Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188; see State Farm Fire & Cas. Co. v Whiting, 53 AD3d 1033, 1035; see generally Zappone v Home Ins. Co., 55 NY2d 131, 137-139).

Question of Fact Found on Whether Insurer's Disclaimer Was Unreasonably Delayed

LIABILITY – TIMELINESS OF INSURER'S DISCLAIMER – INSURANCE LAW § 3420(D)
Felice v. Chubb & Son, Inc.
(2d Dept., decided 11/17/2009)

In this declaratory judgment action for liability coverage in relation to an underlying wrongful death action, Kings Supreme denied Chubb's motion and plaintiff's cross motion for summary judgment.

In AFFIRMING the lower court's denial of both motions, the Second Department reiterated some well-established rules regarding the timeliness of a liability insurer's disclaimer:

An insurance carrier must give timely notice of a disclaimer "as soon as is reasonably possible" after it first learns of the accident or grounds for disclaimer of liability (Insurance Law § 3420[d][2]; see Pawley Interior Contr., Inc. v Harleysville Ins. Cos., 11 AD3d 595, 595; Mount Vernon Hous. Auth. v Public Serv. Mut. Ins. Co., 267 AD2d 285, 285-286). It is the insurance carrier's burden to explain the delay in notifying the insured or injured party of its disclaimer, and the reasonableness of any such delay must be determined from the time the insurance carrier was aware of sufficient facts to disclaim coverage (see Pawley Interior Contr., Inc. v Harleysville Ins. Cos., 11 AD3d at 595; Prudential Prop. & Cas. Ins. v Persaud, 256 AD2d 502, 504). Further, the issue of whether a disclaimer was unreasonably delayed is generally a question of fact, requiring an assessment of all relevant circumstances surrounding a particular disclaimer (see Continental Cas. Co. v Stradford, 11 NY3d 443, 449; First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 69; Mount Vernon Hous. Auth. v Public Serv. Mut. Ins. Co., 267 AD2d at 286). Cases in which the reasonableness of an insurer's delay may be decided as a matter of law are exceptional and present extreme circumstances (see Continental Cas. Co. v Stradford, 11 NY3d at 449; Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1030; Allstate Ins. Co. v Gross, 27 NY2d 263, 270). We agree with the Supreme Court that there is a question of fact as to whether the defendants' disclaimer was unreasonably delayed (see Pawley Interior Contr., Inc. v Harleysville Ins. Cos., 11 AD3d at 596; Mount Vernon Hous. Auth. v Public Serv. Mut. Ins. Co., 267 AD2d at 286).

First Department Upholds Primary Insurer's Coverage Denial Based on Designated Ongoing Operations/Construction Exclusion

CGL – COINSURANCE – EXCESS VS. PRIMARY – CONSTRUCTION EXCLUSION – INSURANCE LAW § 3420(D)
American Guar. & Liab. Ins. Co. v. State Natl. Ins. Co., Inc.
(1st Dept., decided 11/12/2009)

State National Insurance Company insured S&W Realty, LLC, under a $1 million per occurrence CGL policy, which contained this Designated Ongoing Operations/Construction Exclusion:

Description of Designated Ongoing Operation(s):

Construction Exclusion:  Construction of buildings or structures including, but not limited to, erection ... painting, leaning or pointing, and all work or activity in connection with the foregoing.  This exclusion does not apply to incidental repair and maintenance performed by the named insured on buildings owned and operated by the named insured.

This insurance does not apply to “bodily injury” or “property damage” arising out of the ongoing operations described in the Schedule of this endorsement, regardless of whether such operations are conducted by you or on your behalf or wliether the operations are conducted for yourself or for others.

S&W was also insured under a $50 million purchasing group commercial umbrella liability policy issued by American Guarantee & Liability Insurance Company. 

On March 30, 2004, a contractor's employee fell from a scaffold and was injured while doing pointing work on an apartment building owned by S&W.  Within days of the accident, both State and American were notified of the employee's fall and injuries.  Weeks later, the employee commenced a personal injury action against S&W, alleging causes of action sounding in common law negligence and violations of New York Law Law §§ 200, 240(1) and 241(6).

Presumably based on the possibility that the employee's injuries had arisen from incidental repair and maintenance of the insured's building, defendant Tower Risk Management Company, acting as State's general managing agent, issued a reservation of rights letter and retained defense counsel to defend S&W in early May.  On May 21, 2004, Tower received a letter from S&W's managing agent which indicated that S&W and the injured party's employer did not have a written contract for the job “as it was a minor building repair, a leak into two apartments[.]"

In a November 2004 bill of particulars report letter, S&W's retained defense counsel advised Tower that it appeared "likely" that the injured employee would be able to sustain a Labor Law § 240(1) cause of action.  By letter dated November 6, 2006, defense counsel advised Tower that the court had granted partial summary judgment to the underlying plaintiff on his Labor Law § 240(1) claim, and that it had been determined "that the job was much larger and [they] did 'pointing work' on the entire front facade of the building."

By letter dated January 30, 2007, Tower disclaimed coverage on State’s behalf to S&W based on the policy's construction exclusion.  American subsequently sent a letter to Tower on behalf of S&W, requesting that State withdraw its coverage disclaimer based on what American asserted was the inapplicability of the construction exclusion and untimeliness of State's coverage denial in violation of Insurance Law § 3420(d).

In May 2007, the matter went to mediation and settled, without State's participation,  for $2.1 million.  American funded the entire settlement and commenced this action to recover State's $1 million in primary coverage, plus interest.

On the parties' motion and cross motion, New York County Supreme Court Justice Michael Stallman granted summary judgment to State and Tower, dismissing the complaint.  Justice Stallman rejected American's arguments that the construction exclusion was ambiguous, and that State had failed to issue a disclaimer in a timely fashion, in violation of Insurance Law § 3420(d).  American appealed.

In AFFIRMING the award of summary judgment to State and Tower, the First Department  held:

Plaintiff, the excess insurance carrier, sought a declaration that the coverage disclaimer by defendant State National, the primary insurer, for reimbursement of funds advanced by the excess insurer on the insured's behalf to settle the underlying personal injury action, was untimely as a matter of law, and that the primary insurer's policy exclusion was inapplicable and ambiguous. The court properly found that the primary insurer's "construction" exclusion was unambiguous and applied to the activities being performed by the injured party at the time of his accident. The exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case (see Continental Cas. Co. v Rapid-Am. Corp., 80 NY2d 640, 652 [1993]). The court also properly found that the protections of Insurance Law § 3420[d] were inapplicable to one insurer's claim for reimbursement from another insurer (see Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 91-92 [2005]).

It apparently did not matter to either the motion court or the First Department that, unlike in Bovis Lend Lease LMB, the mutual insured was a nominal party in this coinsurance recovery action, settlement monies had already been paid on behalf of the mutual insured, and American was proceeding against State, in part, as the mutual insured's subrogee.  Thus, the Insurance Law § 3420(d) argument of untimeliness American was making against State was being made as much on behalf of S&W as for itself.

Contrast this decision with the First Department's ruling in JT Magen v. Hartford Fire Ins. Co., 64 AD3d 266 (1st Dept., 5/14/2009), in which the court clarified its holding in Bovis Lend Lease LMB and held that a tender letter which one insurer sends to another insurer — asking that their mutual insureds be provided with a defense and indemnity as additional insureds under the latter insurer's policy — fulfills that policy's notice-of-claim requirements so as to trigger that insurer's obligation to issue a timely disclaimer pursuant to Insurance Law § 3420(d).  The First Department made no mention of its JT Magen decision in this case presumably because both State and American became aware of the underlying accident and injuries at the same time, there was no tender from American to State (American being the excess/umbrella rather than a co-primary insurer), and State assumed S&W's defense in the underlying personal injury action.

New York State Insurance Department Office of General Counsel Opinions for May, June, July & August 2009

Got some catching up to do.  From the NYS Insurance Department's website come these eight Office of General Counsel Opinions from May, June, July and August 2009 relevant to property and casualty insurers doing business in New York.  See each opinion letter for its analysis.  

Limit on Charges by Providers of Health Services Under the No-Fault Law 
OGC Op. No. 09-05-01 (May 15, 2009)

Questions Presented:

1.  May a provider of health services bill a patient and/or the patient’s health insurer for treatment of injuries arising out of the use of a motor vehicle at the provider’s standard rates when the patient’s no-fault insurer has denied the medical provider’s claim because available coverage for basic economic loss has been exhausted?

2.  May a provider of health services bill a patient and/or the patient’s health insurer for treatment of injuries arising out of the use of a motor vehicle at the provider’s standard rates when the patient’s no-fault insurer has denied the medical provider’s claim because of a policy exclusion, including driving while intoxicated?

Conclusion:

1.  No.  Pursuant to N.Y. Insurance Law § 5108(a) (McKinney 2000), a provider of health services may not bill a patient and/or the patient’s health insurer for treatment of injuries arising out of the use of a motor vehicle at the provider’s standard rates when the patient’s no-fault insurer has denied the medical provider’s claim because available coverage for basic economic loss has been exhausted.

2.  No.  A medical provider may not bill a patient and/or the patient’s health insurer treatment of injuries arising out of the use of a motor vehicle at the provider’s standard rates when the patient’s no-fault insurer has denied the medical provider’s claim because of a policy exclusion, such as driving while intoxicated. The provider of health services is limited to billing at the no-fault rates established pursuant to Insurance Law § 5108 for any treatment of injuries arising out of the automobile accident which are covered under the no-fault law.

No-Fault Lost Wage Claim  
OGC Op. No. 09-05-04 (May 14, 2009)

Question Presented:

Is an insured person entitled to reimbursement for no-fault lost wage claims after being medically cleared to return to work when such person was employed at the time of the accident giving rise to the claim, was unable to return to work due to her injuries, and her vacant position was subsequently filled due to her inability to return to work, so that she could not resume her employment at such time when she was medically cleared to return to work?

Conclusion:

Yes.  Pursuant to N.Y. Ins. Law § 5102(a)(2), an eligible injured person is entitled to lost earnings from “work which the person would have performed had he not been injured.” When an injured insured is unable to return to work due to injuries arising from an automobile accident and the insured’s employer hires another person to fill the insured’s vacant position during the insured’s period of disability, so that the insured cannot immediately resume her employment when she is medically cleared to return to work, the insured may recover lost wages for the period after she is medically cleared but before she actually resumes work.

Fire Insurance Fee and Businessowners Policies 
OGC Op. No. 09-06-06 (June 15, 2009)

Questions Presented:

1.  What is the method for calculating the fire insurance fee for a businessowners policy that has separate, divisible premiums for property and liability coverages?

2.  Should the fire insurance fee be levied on the whole property premium, when there are portions of the premium that do not include the peril of fire?

3.  If inland marine coverage is included in a businessowners policy, is it subject to the fire insurance fee?

Conclusions:

1.  The method for calculating the fire insurance fee for a businessowners policy that has separate, divisible premiums for the property and liability coverages, as set forth in N.Y. Ins. Law § 9101(b) (McKinney 2000), is to multiply 100% of the property premium by 1.25%, subject to the exceptions discussed below.

2.  It depends. If the premium property is divisible and there are portions that do not include the peril of fire, then the fire insurance fee is not levied on that portion of the property premium. However, if the property premium is not divisible, then the fire insurance fee is levied on the whole property premium.

3.  No, if inland marine coverage is included in a businessowners policy and the premium is divisible, it is not subject to the fire insurance fee.

Interpreting the Amendments to Insurance Law § 3420 
OGC Op. No. 09-06-08 (June 23, 2009)

Questions Presented:

1.  Do the Chapter 388 amendments to Insurance Law § 3420, which apply to any “liability policy issued or delivered in this state,” include policies issued in New York but delivered outside of the state?

2.  Does the prejudice rule set forth in Insurance Law § 3420 only apply to liability policies?

3.  Does Insurance Law § 3420 apply to claims-made policies?

4.  May a third party bring a direct cause of action against a New York insurer in a foreign jurisdiction subsequent to a denial for late notice if the policy was delivered in a foreign jurisdiction that requires a judgment against, or settlement with, the insured prior to the initiation of such cause of action?

Conclusions:

1.  Yes.  The term “issued or delivered in this state” includes policies issued in New York but delivered outside of the state.

2.  Insurance Law § 3420 sets forth minimum requirements for liability policies, which includes the prejudice rule. However, insurers may provide more liberal provisions in their policies to benefit their insureds, and thus may include a prejudice rule in other kinds of policies, too.

3.  Yes, Insurance Law § 3420 applies to claims-made policies. However, Chapter 388 recognizes the distinctive nature of claims-made policies and does not allow for duplicate claims under multiple policy periods, or a late claim under a prior policy period. 

4.  No.  Insurance Law § 3104(b) allows a New York insurer to include in any policy of insurance issued for delivery in another jurisdiction any provision required by the laws of such other jurisdiction applicable to such policy.

Examinations Under Oath of Assignees 
OGC Op. No. 09-06-10 (June 24, 2009)

Question Presented:

May an insurer, when requesting verification in the form of an examination under oath of an assignee of no-fault personal injury protection (“PIP”) benefits, require a corporate assignee to designate a specific person to be examined?

Conclusion:

No.  Neither the Insurance Law nor the regulations promulgated thereunder permit an insurer to require that a corporate assignee of no-fault benefits designate a specific person of the insurer’s choice to submit to an examination under oath.

Insurer In-House Counsel 
OGC Op. No. 09-08-01 (August 4, 2009)

Question Presented:

Do the New York Insurance Law and regulations promulgated thereunder require Insurance Department approval for the creation of an insurer in-house law firm?

Answer:

No.  Neither the Insurance Law nor the regulations promulgated thereunder require Insurance Department approval for the creation of an insurer in-house law firm.

Acceptance of Third-Party Subpoena by the Superintendent 
OGC Op No 09-08-02 (August 5, 2009)

Question Presented:

May the Superintendent accept service of a subpoena on an authorized insurer when the insurer is not a defendant in the underlying legal action (“a third-party subpoena”)?

Conclusion:

No.  The Superintendent is not authorized to accept such a subpoena, because N.Y. Ins. Law § 1212 only requires an insurer to appoint the Superintendent to accept lawful process on its behalf when such process is associated with an action against the insurer.

Electronic Delivery of Insurance Policies 
OGC Op No 09-08-04 (August 7, 2009)

Questions Presented:

1.  Does Office of General Counsel (“OGC”) Opinion 09-01-01 (January 6, 2009) apply to commercial lines insurance policies?

2.  May an insurer electronically send an insurance policy to an insured without first obtaining the insured’s consent to engage in an electronic transaction, if the insurer also offers the insured the option to insist upon being sent a paper copy of the policy?

3.  Is the insurer or the insurance producer responsible for delivery of the insurance policy to the insured?

4.  If an insurance policy is issued electronically by an insurer to an insurance producer, may the producer electronically send the policy to the insured without first obtaining the insured’s consent to electronically receive the insurance policy?

Conclusions:

1.  Yes. OGC Opinion 09-01-01 (January 6, 2009) applies to commercial lines insurance policies.

2.  No. An insurer may not electronically send an insurance policy to an insured unless the insured has first consented to engage in an electronic transaction, even if the insurer provides the insured with an option to insist upon receiving a paper copy of the policy.

3.  Yes. An insurer is responsible for delivery of the insurance policy to the insured or such person that the insured designates, but the insurer may delegate such task to either its insurance agent or the insurance broker.

4.  No. Even if the insurer electronically sends the insurance policy to the insurance producer, the insurance producer may not electronically forward the policy to the insured unless the insured has consented to engage in an electronic transaction.

28-Day Delay in Disclaiming Found to Excuse Insured's Nearly 3-Year Delay in Providing Notice of Occurrence

CGL – LATE NOTICE OF OCCURRENCE – UNTIMELY DISCLAIMER – INSURANCE LAW § 3420(D)
Able Health Care Serv. Inc. v ACE Am. Ins. Co.
(Sup. Ct., Queens Co., decided 7/8/2009)

It's getting crazy out there.  I know that New York liability insurers are now obligated to show prejudice from an insured's late notice of two years or less under a policy issued on or after January 17, 2009, but this is a new low.

In this blog I've reported New York case decisions in which courts have found unexcused delays as short as 30 days (late notice), 45 days (exclusion), 45 days (late notice), 55 days (exclusion), and 62 days (exclusion) in disclaiming coverage to be unreasonable as a matter of law.  But 28 days?

Plaintiff provided home health care and aide services.  On September 13, 2004, plaintiff received a letter from an attorney of one of its customers, advising plaintiff that a personal injury claim was being asserted against it as a result of an incident of July 28, 2004 in which the customer allegedly had been burned when hot soup prepared by plaintiff's employee spilled on her lap.  Plaintiff claimed to have forwarded that letter to its agent on September 30, 2004, but the agent denied having received that letter.  It was not until April 3, 2007, when defendant ACE American Insurance Company received a copy of the customer's summons and complaint via fax from plaintiff's agent that ACE first learned of the incident. Twenty-eight days later, by letter dated May 1, 2007, ACE disclaimed liability coverage to plaintiff  based on late notice.  Plaintiff subsequently commenced this declaratory judgment action for coverage with respect to the underlying personal injury action, and the parties moved and cross-moved for summary judgment.

In granting the plaintiff's cross motion and declaring that ACE was obligated to defend and indemnify plaintiff in the underlying personal injury action Queens County Supreme Court Justice Orin Kitzes held that ACE did not issue its disclaimer "as soon as [] reasonably possible", in violation of then New York Insurance Law § 3420(d):

An insurer’s failure to provide notice of disclaimer as soon as is reasonably possible precludes effective disclaimer, even where the insured’s notice of the incident is untimely (see Tex Dev. Co. v Greenwich Ins. Co., 51 AD3d 775 [2008]). Timeliness of an insurer’s disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer (see id. at 778). An insurer who delays in giving written notice of disclaimer bears the burden of justifying the delay (see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 68-69 [2003]). When, as here, the explanation offered for the delay in disclaiming is an assertion that there was a need to investigate issues that will affect the decision on whether to disclaim, the burden is on the insurance company to establish that the delay was reasonably related to the completion of a necessary, thorough, and diligent investigation (see Quincy Mut. Fire Ins. Co. v Uribe, 45 AD3d 661 [2007]).  Moreover, an insurer’s explanation is insufficient as a matter of law where the basis for denying coverage was or should have been readily apparent before the onset of the delay (see First Fin. Ins. Co., 1 NY3d at 68-69).

Based on the record, ACE failed to establish that its 28-day delay in disclaiming coverage was occasioned by the need to conduct a thorough and diligent investigation of the reasons behind Able’s failure to provide timely notice of the accident (see Schulman v Indian Harbor Ins. Co., 40 AD3d 957 [2007]). In her affidavit, Mary Jo Quatrone, the claims analyst who was assigned the within claim, stated that she received the case file on April 6, 2007, three days after Berger forwarded the notice of claim to ACE on April 3, 2007. The claims documents included the summons and complaint, Able’s incident reports dated July 29, 2004 and July 30, 2004, and the September 10, 2004 letter from Dominique Owens’ attorney advising Able of the potential claim, which was stamped received by Able on September 13, 2004. Before ACE conducted any investigation, an initial review of these documents clearly showed that the accident occurred on July 28, 2004, that Able first learned of the accident the day after it occurred, and that Able had notice of a potential claim since September 2004. Unlike in Ace Packing Co., Inc. v Campbell Solberg Assoc., Inc., 41 AD3d 12 [2007], upon which ACE primarily relies, the first claims materials provided to ACE, on their face, contained sufficient facts to allow the claims analyst to conclude that the insured breached the notice provisions of the insurance policy by reporting the accident to ACE almost three years after learning of the accident and receiving notice of the claim from the claimant’s counsel. For similar reasons, the facts of the instant case can also be distinguished from those in Steinberg v Hermitage Ins. Co., 26 AD3d 426 [2006]. In Steinberg, there was a need for the insurer to investigate into when the insured first received notice of the accident because the insurer initially received from the broker insufficient information from which to make that determination, namely an Accord [sic] Form Notice of Occurrence with an attached summons and complaint (see Steinberg v Hermitage Ins. Co., Sup Ct, Queens County, Oct. 14, 2003, Hart, J., Index No. 27355/98). Only after conducting an investigation did the insurer then discover that the insured first received notice of the accident and claim one month after it occurred via letter from the claimant’s attorney, but failed to forward that letter to its insurer (see id.). In contrast, the primary reason for ACE’s disclaimer was readily apparent upon receipt of notice of the loss and, thus, the 28-day delay in disclaiming coverage was unreasonable as a matter of law (see Allstate Ins. Co. v Cruz, 30 AD3d 511 [2006]; Allstate Ins. Co v Swinton, 27 AD3d 462 [2006]; Gregorio v J.M. Dennis Constr. Co. Corp., 21 AD3d 1056 [2005]; Transcontinental Ins. Co. v Gold, 18 Misc 3d 1135A [Sup Ct, Nassau County 2008]). Under these circumstances, any purported failure on the part of Able to provide ACE with timely notice of the underlying claim did not excuse ACE’s unreasonable delay in disclaiming coverage (see New York City Hous. Auth. v Underwriters at Lloyd’s, London, 61 AD3d 726 [2009]).

Can this decision withstand appellate scrutiny under Appellate Division decisions such as Matter of GMAC Ins. Co. v. Jones, 61 AD3d 1358 (4th Dept., decided 4/24/2009)?  Questionable.  Don't we want liability insurers conducting some investigation into an insured's reason or excuse, if any, for what may appear to be late notice of an occurrence?  Or do we want, as this court apparently does, insurers to make coverage decisions based only on paperwork they receive?  As the Fourth Department said in Matter of GMAC Ins. Co. v. Jones, "[o]nly an investigation of the type ordered by [the insurer] would yield [information that it] needed in order to make a good faith decision regarding disclaimer[.]"  At bare minimum, shouldn't an insurer's 28-day delay in issuing a late notice disclaimer in order to conduct some investigation into the reasons for the insured's delayed reporting present a question of fact?

I've written before on the question of whether liability insurers should investigate coverage issues in New York.  This decision underscores the importance of both doing so as quickly as possible and documenting the reasons for conducting such investigation.

CGL and Garage Insurers Found to Owe Policy Limit Coinsurance to Employers' Liability Insurer

CGL – GARAGE POLICY – EMPLOYER'S LIABILITY POLICY – COINSURANCE CONTRIBUTION – UNTIMELY DISCLAIMER
State Ins. Fund v. American Hardware Mut. Ins. Co.
(2nd Dept., decided 7/7/2009)

Question:  In New York, when does a CGL or a garage policy apply to cover a garage employee's injuries sustained during employment?  Answer:  When  the insurers wait more than four months to disclaim coverage based on those policies' employee injury exclusions, that's when. 

The parties in this coinsurance contribution action insured World of Hitches N Rentals in North Bellmore, New York -- the State Fund (SIF) under a WC/EL policy; and American Hardware under a $300K CGL policy and a $300K garage policy.  An employee of the insured was burned when a container he was filling with kerosene exploded.  He sued various defendants, three of which impleaded the insured, World of Hitches, in a third-party action.  Although both insurers initially assumed World of Hitches' defense, SIF took over that defense after American Hardware disclaimed coverage under both policies more than four months after receiving notice of the third-party action, based on the policies' employee injury exclusion.

Then underlying action eventually settled for $1,475,000, with SIF contributing $750,000 and agreeing to waive its $225,000 WC lien in the amount of $225,000. SIF then brought this action for a proportionate coinsurance contribution towards its defense and indemnification costs relative to the underlying action and successfully moved for summary judgment, the trial court awarding SIF $650,000 in principal, representing approximately two-thirds of its combined indemnity contribution of $975,000, and two-thirds of its defense costs in the underlying personal injury action.

On appeal, the Second Department agreed with the trial court's determinations that "[s]ince the disclaimer was based on policy exclusions, the defendants were required to provide World of Hitches with timely notice of its disclaimer under Insurance Law § 3420(d)", and American Hardware's disclaimer,  issued more than four months after receiving notification of the third-party action, was untimely as a matter of law.  The Second Department rejected the defendants' contention that SIF was obligated to demonstrate prejudice from their delay in disclaiming.

The Second Department also rejected the defendants' argument that that even if the disclaimer was untimely, no coverage was provided under the garage policy because the employee was not injured while engaged in garage operations:

The record establishes that the employee's actions were taken in furtherance of the garage business (compare Lancer Ins. Co. v Whitfield,AD3d, 2009 NY Slip Op 02975 [2d Dept 2009]; Singh v Allcity Ins. Co., 1 AD3d 501; Minerva v Merchants Mut. Ins. Co., 117 AD2d 720).

The Second Department did, however, MODIFY the trial court's ruling to reduce the indemnification coinsurance award from $650,000 down to $300,000, holding:

Although the defendants were obligated to defend and indemnify World of Hitches in the underlying action (see Moore v Ewing, 9 AD3d 484), and thus must pay their proportionate share of the settlement (see Hawthorne v. South Bronx Community Corp., 78 NY2d 433) and defense costs incurred in the underlying action, their contribution may not exceed the limits of the policies. Here, both policy limits were $300,000 per accident. Moreover, the garage policy provided that all of the defendants' policies were mutually exclusive in that if more than one policy applied to the same accident, the maximum limit of liability under all the policies would not exceed the highest applicable limit under one policy. Thus, the maximum amount the defendants were required to contribute to the settlement was $300,000, and the judgment must be modified accordingly. 

This aspect of the Second Department's decision is noteworthy in standing for two propositions:  that an untimely disclaimer under Insurance Law § 3420(d) does not: (1) increase the disclaiming insurer's coinsurance obligation above policy limits; or (2) preclude the disclaiming insurer from later relying on policy conditions that limit such coinsurance contributions.

Motion Court Erred in Requiring a Showing of Prejudice for Late Notice Disclaimer and in Not Conducting In Camera Review of Documents Listed on Insurer's Privilege Log

CLG – LATE NOTICE – TIMELY DISCLAIMER – PREJUDICE – DISCOVERY – ATTORNEY-CLIENT PRIVILEGE
Sevenson Envtl. Servs., Inc. v. Sirius Am. Ins. Co.
(4th Dept., decided 7/10/2009)

The motion court's rulings against the CGL insurer went 0-3 on this appeal.

Sirius Insurance Company insured Thomas Johnson, Inc. (TJI) under a CGL policy that required TJI to notify Sirius of any accident or occurrence "which may result in a claim" as soon as practicable.  An employee of TJI was injured in a construction accident on October 6, 2003, and TJI learned of the injury within days, but failed to notify Sirius of the accident nearly 15 months later.  Sirius disclaimed coverage based on TJI's late notice 24 days after receiving TJI's notice of claim.

Sevenson Environmental Services, Inc. (Sevenson) and The Goodyear Tire and Rubber Company (Goodyear), commenced this action for a declaration that Sirius was obligated to defend and indemnify them in the underlying personal injury action brought by TJI's employee.  TJI cross-claimed for a declaration that Sirius was obligated to defend and indemnify it also in the underlying action, and moved for summary judgment. Sirius cross-moved for summary judgment with respect to its coverage obligation to TJI.  Plaintiffs also moved to compel Sirius to disclose documents listed in its privilege log.

The motion court granted TJI's motion for summary judgment, finding that Sirius had not been prejudiced by TJI's delayed notice, and that Sirius' disclaimer was untimely and/or defectively unspecific.  The motion court also granted plaintiffs' motion to compel disclosure of documents listed in Sirius' privilege log without first conducting an in camera review of those documents. Sirius appealed, and the Fourth Department unanimously REVERSED all three rulings.

TJI apparently had successfully argued to the motion court that its nearly 15-month delay in notifying Sirius of its employee's accident should be excused because it believed that its employee intended to assert only a workers' compensation claim.  Citing Matter of Travelers Ins. Co. [Delosh], 249 AD2d 924, 925, the Fourth Department held that that excuse was "unreasonable as a matter of law[.]"

With respect to Sirius' disclaimer, the Fourth Department found it to be both timely and sufficiently specific:

We further conclude that Sirius provided TJI with timely written notice of its disclaimer, in accordance with Insurance Law § 3420 (d). Sirius issued its disclaimer letter upon completion of its investigation, 24 days after receiving TJI's notice of the claim (see Dryden Mut. Ins. Co. v Greaser, 269 AD2d 792, 793). Contrary to TJI's contention, the disclaimer letter was valid inasmuch as it " apprise[d] [TJI] with a high degree of specificity of the ground . . . on which the disclaimer [was] predicated' " (Utica Mut. Ins. Co. v Gath, 265 AD2d 805, 806).

 TJI had also apparently convinced the motion court that Sirius' disclaimer was ineffective because it was not prejudiced by TJI's reporting delay.  Correctly noting that the "new" prejudice requirement only applies to liability policies issued on or after January 17, 2009, the Fourth Department reversed the motion court's ruling on this issue, as well, holding:

The court's determination that Sirius was not prejudiced by TJI's late notice of claim is of no moment. As the Court of Appeals wrote, "[w]e have long held, and recently reaffirmed, that an insurer that does not receive timely notice in accordance with a policy provision may disclaim coverage, whether it is prejudiced by the delay or not" (Briggs Ave. LLC v Insurance Corp. of Hannover, 11 NY3d 377, 382).  We note that, in addressing the issue of prejudice, the court erred in relying on amendments to Insurance Law § 3420 that apply only to policies issued on or after January 17, 2009. The policy in question was issued before that effective date, and thus "[t]he common-law no-prejudice rule applies to this case" (id.).

Lastly, the Fourth Department agreed with Sirius that the motion court erred in not first conducting an in camera review of documents listed in Sirius' privilege log before ordering disclosure of those documents to the plaintiffs:

Sirius further contends on appeal that the court erred in granting plaintiffs' motion to compel the disclosure of documents listed in its privilege log without first conducting an in camera review of those documents (see Baliva v State Farm Mut. Auto. Ins. Co., 275 AD2d 1030, 1031). We also agree with that contention. The broad discretion afforded trial courts in supervising discovery is not unlimited (see Hardy v Tops Mkts., Inc., 231 AD2d 879, 880), and here Sirius refused to disclose several documents based upon its contention that they included communications between its attorney and representatives of UTC Risk Management Services, Inc. (UTC), Sirius' third-party claims administrator. Thus, according to Sirius, the documents in question fall within the scope of the attorney-client privilege. As Sirius correctly contends, the attorney-client privilege extends to communications to "one serving as an agent of either attorney or client" (First Am. Commercial Bancorp, Inc. v Saatchi & Saatchi Rowland, Inc., 56 AD3d 1137, 1139 [internal quotation marks omitted]) and, contrary to plaintiff's contention, the record establishes that UTC acted as an agent of Sirius. Significantly, UTC, acting on behalf of Sirius, issued the disclaimer letter to TJI and also sent a similar letter to Goodyear. Moreover, there is no evidence that TJI, Goodyear, or Sevenson questioned UTC's authority to act on behalf of Sirius. The determination whether a particular document is shielded from disclosure by the attorney-client privilege "is necessarily a fact-specific determination . . ., most often requiring an in camera review" (Spectrum Sys. Intl. Corp. v Chemical Bank, 78 NY2d 371, 378). We therefore remit the matter to Supreme Court to determine plaintiffs' motion following an in camera review of the documents in question.  

Notice that in this case, the communications claimed to be privileged were between Sirius' attorneys and its third-party claims administrator, which was acting as Sirius' agent for purposes of investigating and communicating Sirius' coverage position.  Disagreeing with the motion court, the Fourth Department held that such communications may still fall within the disclosure protection of the attorney-client privilege.

How receptive do you think the trial court will be to Sirius' arguments of attorney-client privilege when making the ordered in camera review?  Anyone laying odds on the outcome of the plaintiffs' re-decided motion to compel?

Turnabout Is Fair Play -- Court Finds Disclaimer Ineffective Against Injured Party

AUTO – UM – INEFFECTIVE DISCLAIMER – CIRUCCI DEFECT
Tri-State Ins. Co. v. Salguero
(Sup. Ct., Queens Co., decided 5/26/2009)

Salguero was injured in an 2004 auto accident with Frempong. Tri-City insured Salguero; State Farm insured Frempong. When negotiations with State Farm became unsuccessful, Salguero's attorney commenced a personal injury action against Frempong but did not notify State Farm of either the action or Frempong's default in that action. After obtaining a $33,173.98 default judgment against Frempong in 2007, Salguero commenced an Insurance Law § 3420(b)(1) action against State Farm in January 2008.

In response to the 3420(b)(1) action, State Farm issued a disclaimer letter to Frempong, its insured, advising her that "[y]our failure to send us copies of any notices or legal papers received is in violation of your policy's provision regarding the reported claims. As such State Farm Mutual Automobile Insurance Company disclaims coverage for any and all claims resulting from this loss". A copy of that letter went to Salguero's attorney. On the same day, State Farm send a separate letter to Salguero's attorney, advising him that "[o]ur Insured failed to forward the Summons & Complaint for the law suit filed against her to State Farm Insurance. This is in violation of our insured's policy provision regarding the duties after an accident or loss. You received an order of judgment entered on September 5, 2007 that allegedly was served on the insured, Sherina Frempong. Again our insured has not forwarded us the court's order of default. Accordingly, we decline to afford coverage for the above date of loss due to our insured's failure to forward suit papers."

Based on State Farm's disclaimer, Salguero then filed and demanded arbitration of a uninsured motorists (UM) coverage claim made to Tri-City. Tri-City then commenced this special proceeding pursuant to CPLR 7503 to stay arbitration of Salguero's UM claim, and the court added Frempong and State Farm as respondents and directed a hearing on the issue of whether coverage for the accident was available from State Farm. The parties agreed that the sole question for determination was whether State Farm's disclaimer letters -- to Frempong and Salguero's attorney -- were ineffective as to Salguero for having not disclaimed coverage on the separate ground that Salguero had also failed to provide timely notice of his underlying personal injury to State Farm.

In finding in favor of Tri-City and declaring that State Farm was obligated to defend and indemnify Frempong for her accident with Salguero, Queens County Supreme Court Justice Jaime Rios rejected State Farm's reliance on a First Department decision, holding that Second Department case law controlled and required the finding that State Farm's disclaimers were ineffective as against Salguero for having said nothing about Salguero's late notification of the underlying personal injury action:

In support, State Farm relies on the holding in Schlott v Transcon. Ins. Co., Inc., (41 AD3d 339 [2007]), wherein the Appellate Division, First Department determined that the insurer complied with the mandates of Insurance Law § 3420(d) when it gave notice of disclaimer to the insured and sent a copy to the injured party, despite its omission of any specific reference to the injured party's failure to timely notify it of the accident.

Salguero maintains that State Farms's disclaimers are not effective against him, since they failed to include his alleged failure to timely notify State Farm of the lawsuit as a basis for disclaiming and only referred to its insured's failure. /div>

Insurance Law §3420(d) provides that an insurer shall give written notice of a disclaimer of liability or denial of coverage to the insured and injured party or any other claimant as soon as is reasonably possible (see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64 [2003]; Hereford Ins. Co. v Mohammod, 7 AD3d 490 [2004]; State Farm Ins. Co. v Cooper, 303 AD2d 414 [2003]).

The notice of disclaimer must address with a high degree of specificity the grounds upon which it is based (see General Acc. Ins. Group v Cirucci, 46 NY2d 862 [1979]; State Farm Mut. Auto. Ins. Co. v Cooper, 303 AD2d 414, supra; State Farm Mut. Auto. Ins. Co. v Joseph, 287 AD2d 724 [2001]). An insurer's justification for denying coverage is limited to the ground(s) stated in the disclaimer and waives any ground for denying coverage that is not specifically asserted in its disclaimer, regardless of merit (see General Acc. Ins. Group v Cirucci, 46 NY2d 862, supra; Adames v Nationwide Mut. Fire Ins. Co., 55 AD3d 513 [2008]; Vacca v State Farm Ins. Co., 15 AD3d 473 [2005]).

Additionally, contrary to the holding in Schlott v Transcon. Ins. Co., Inc., (41 AD3d 339, supra), the Second Department has consistently held that in order for a disclaimer to be valid against an injured party, the notice of disclaimer must advise the claimant that his or her notice was not timely (see State Farm Mut. Auto. Ins. Co. v Cooper, 303 AD2d 414, supra; State Farm Mut. Auto. Ins. Co. v Joseph, 287 AD2d 724, supra).

Here, the sole basis of State Farm's disclaimer notices was Frempong's failure to notify it of the lawsuit. The disclaimer notices are thus, ineffective against Salguero, despite his failure to provide State Farm with notice of the lawsuit. As such, State Farm is estopped from raising his failure as a ground to disclaim coverage, despite the questionable practices of respondent's attorney (see Vacca v State Farm Ins. Co., 15 AD3d 473, supra; Gov. Empl. Ins. Co. v Jones, 6 AD3d 534 [2004]; Hazen v Otsego Mut. Fire. Ins. Co., 286 AD2d 708 [2001]; Legion Ins. Co. v Weiss, 282 AD2d 576 [2001]; Eagle Ins. Co. v Ortega, 251 AD2d 282 [1998]).

In State Farm v. Cooper, a CPLR 7503 proceeding to stay a UM claim, State Farm had made precisely the same argument against Zurich -- that Zurich's disclaimer was ineffective vis-à-vis Cooper, State Farm's insured (the UM claimant) because Zurich's disclaimer had said nothing about Cooper's failure to give timely notice to Zurich of the underlying lawsuit. Both Nassau Supreme and the Second Department agreed, staying Cooper's UM claim against State Farm. The other Second Department decision Justice Rios cited and relied upon -- State Farm v. Joseph -- involved an insured's late notice of the accident, not of the subsequent personal injury lawsuit.

Liability coverage disclaimers and denials can both be untimely and defective. What is sometimes called a "Cirucci defect", based on the New York Court of Appeals' 1979 decision in General Acc. Ins. Group v. Cirucci, 46 NY2d 862, relates to a disclaimer letter's omission of any reference to an injured party's late notice as a separate ground for denying coverage.

Although Justice Rios properly followed the binding precedent of State Farm v. Cooper, since Queens County falls within the Second Judicial Department, the Second Department erroneously decided that case. Cirucci and its progeny apply only to the defense of an insured's or injured party's late notice of an accident, not late notice of the subsequent personal injury lawsuit:

The only other ground stated in the insurance company's notice of disclaimer, the "insured's failure to report this accident to us", was likewise not effective against the third-party claimants. As noted by the Appellate Division, an injured third party may seek recovery from an insured's carrier despite the failure of the insured to provide timely notice of the accident ( Lauritan v American Fid. Fire Ins. Co., 3 AD2d 564, affd 4 NY2d 1028). Although, under the facts of this case a disclaimer might have been premised on the late notice furnished by the third parties themselves to the insurer, since this ground was not raised in the letter of disclaimer, it may not be asserted now. General Acc. Ins. Group v. Cirucci, 46 NY2d 862, 863.

The First Department's 2007 decision in Schlott v Transcon. Ins. Co., Inc. states what I believe is the correct interpretation of Insurance Law §§ 3420(a)(3) and 3420(d) with respect to late notice of lawsuits: "The fact that defendant [insurer] omitted from that notice any specific reference to the injured party's own failure to afford the insurer timely notice [of the underlying lawsuit] did not prejudice plaintiffs." Absent prejudice to the injured party from such an omission -- which in Salguero's case could not have existed or even been argued given his attorney's "questionable practices" of suing and taking a default judment against State Farm's insured without having notified State Farm, which whom that attorney had been negotiating -- a Cirucci defect is immaterial provided the injured party received a copy of the disclaimer letter.

With "only" $33,000 and change at stake, it remains to be seen whether State Farm will appeal this decision to the Second Department (which it likely will lose) and then put the conflict between the First and Second Departments before the Court of Appeals for determination.

Tender Letter from One Coinsurer to Another Coinsurer on Behalf of Mutual Insureds Held to Trigger the Timely Disclaimer Requirement of New York Insurance Law § 3420(d)

CGL – ADDITIONAL INSURED – LATE NOTICE – UNTIMELY DISCLAIMER – INSURANCE LAW § 3420(D)
JT Magen v. Hartford Fire Ins. Co.
(1st Dept., decided 5/14/2009)

New York Insurance Law § 3420(d) requires timely disclaimers and denials of liability coverage for death or bodily injury arising out of an accident occurring in New York.  In Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co. (27 AD3d 84 [2005]), the First Department held, in part, that 3420(d) does not apply to claims for contribution or full coverage by one coinsurer against another.

The issue before the First Department in this case was whether the prompt disclaimer requirement of 3420(d) is triggered when an insurance carrier receives the notice of claim from another insurance carrier on behalf of a mutual insured asking that the insured be provided a defense and indemnity.  The First Department held that a tender letter one insurer sends to another insurer — asking that their mutual insureds be provided with a defense and indemnity as additional insureds under the latter insurer's policy — fulfills that policy's notice-of-claim requirements so as to trigger that insurer's obligation to issue a timely disclaimer pursuant to Insurance Law § 3420(d).

Travelers insured plaintiff, the manager of a construction site.  Hartford insured a subcontractor and named the construction manager and the site's two owners as additional insureds.  An employee of the subcontractor was injured on the job and sued the owners and construction manager.  Travelers notified Hartford of the underlying action and requested that Hartford defend and indemnify the construction manager and site's two owners as additional insureds.  Fifty-one days after Travelers re-sent a copy of the underlying summons and complaint to Hartford, Hartford informed Travelers that it was disclaiming coverage on the ground that the additional insureds had failed to comply with the policy requirement that they provide notice "as soon as practical" of any "occurrence" that might result in damages covered under the policy, even if no demand has been made against them. A copy of the disclaimer letter was also sent to the additional insureds. 

In AFFIRMING New York Supreme's order which granted plaintiff's cross motion for summary judgment declaring that Hartford's policy was primary to any other policy covering plaintiff, thus obligating Hartford to defend and indemnify plaintiff and the nonparty site owners in the underlying personal injury action, the First Department noted:

Finally, defendant Hartford has not made any attempt to justify its 45-to 50-day delay in disclaiming coverage of the underlying accident. Indeed, it has not even suggested that the letter tendering notice of the claim against plaintiff, IDA and the Yeshiva did not provide it with sufficient facts to disclaim coverage on any basis. Rather, misinterpreting the import of Bovis, Hartford argues that Insurance Law § 3420(d) is inapplicable since the tender letter was from an insurer and the statute does not require a prompt response to claims asserted by other insurers. We thus conclude that Hartford's disclaimer letter was untimely as a matter of law (see e.g. West 16th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 AD2d 278 [2002], lv denied 98 NY2d 605 [2002] [30 days unreasonable as a matter of law where sole ground on which coverage was disclaimed was insured's delay in notifying insurer of occurrence]), and that as a result, Hartford is precluded under § 3420(d) from disclaiming coverage.

 Rule:   a tender letter from one coinsurer to another coinsurer on behalf of a mutual insured may trigger the prompt disclaimer requirement of Insurance Law § 3420(d).

Should Liability Insurers Investigate Coverage Issues in New York?

You've just received first notice of a claim for coverage under a liability insurance policy in New York. The scant paperwork you've received doesn't tell you much. The loss date is months or years ago, but, in good faith, your instinct is to contact your insured and investigate potential coverage issues, including late notice. You know that there is a time imperative in New York to disclaim or deny coverage as soon after first notice as possible. You've heard that delays as short as 30 days in disclaiming have been found to invalidate an otherwise appropriate coverage declination. But you've also heard that what's not in a declination letter cannot later be asserted as a coverage defense in a declaratory judgment action, so, if a coverage declination is warranted, you want to be careful to include all applicable noncoverage grounds, and some amount of investigation seems to be needed in order to to make a conscientious coverage determination. What do you do?

New York's "timely disclaimer statute", Insurance Law § 3420(d)(2) provides:

(d)(2) If under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.

For this statute to apply there must be four things:

1. coverage sought under a liability policy
2. delivered or issued for delivery in New York State
3. for a death or bodily injury claim
4. that arose out of a accident that occurred in New York State.

If implicated, this timely disclaimer requirement applies only to exclusion-based or breach-of-condition-based disclaimers or denials. Technically it does not apply to apply to coverage declinations based on lack of coverage (inapplicability of inclusionary terms).

One need only to click the "untimely disclaimer" label of this blog to see that New York courts can be unforgiving of unexcused delays as short as 45 days (exclusion), 45 days (late notice), 55 days (exclusion), and 62 days (exclusion) in disclaiming coverage. Even a 30-day delay (late notice) has been held to be unreasonable as a matter of law. Holy cow. Understand the angst now?

Last Friday, the Appellate Division, Fourth Department, issued two decisions with two opposite results: timely disclaimer (44 days); untimely disclaimer (62 days). Was it just the length of the insurers' delays that determined the outcomes? No. It was the court's acceptance or rejection of each insurer's contention that an investigation of coverage was necessary to reach a coverage determination.

In Matter of GMAC Ins. Co. v. Jones the Fourth Department ruled that Nova Casualty Company's 44-day delay in disclaiming personal auto liability coverage based on late notice was justified given its investigation into the 18-month late notice situation. The court found that the fact that Nova knew of the 18-month late notice upon receipt of the claim did not make it readily apparent that it had the right to disclaim coverage. "Only an investigation of the type ordered by [Nova] would yield [information that it] needed in order to make a good faith decision regarding disclaimer", said the court.

Contrast that outcome with the ruling in Crocodile Bar, Inc. v. Dryden Mut. Ins. Co. in which the court found Dryden Mutual's 62-day delay in disclaiming coverage based on a policy exclusion to be unreasonable as a matter of law, even though Dryden Mutual also argued that it needed time to investigate coverage.  Pivotal to the outcome was the court's observation that "Dryden's claims adjuster was aware when he received the claim ... that the claim was excluded from the policy[.]"

Although some might attribute the different rulings to the fact that UM coverage was still available to the claimant in the GMAC v. Jones case whereas no coverage ostensibly would have been available to the injured underlying plaintiffs had the court sustained Dryden Mutual's disclaimer in the Crocodile Bar case, the Dryden Mutual case underscores an important rule:  when a liability insurer either (1) has sufficient knowledge of facts entitling it to disclaim, or (2) knows that it will be disclaiming coverage, it must do so as soon as reasonably possible or risk invalidation of an exclusion- or condition-based disclaimer as untimely under New York Insurance Law § 3420(d).

Some might say or think that there is an inherent tension between this rule and an insurer's good faith obligation to investigate and evaluate claims for liability coverage. If you say or think that, you're right. There is such a tension. Couple that with the "one bite of the apple" rule that has been applied to preclude liability insurers from asserting in subsequent litigation certain noncoverage defenses not raised in their original coverage disclaimer or denial letters.

The "should we investigate?" question is a good and valid one. Claims professionals and coverage practitioners have seen plenty of cases in which New York courts have been unforgiving of pretty much any delay in disclaiming when, in the opinion of the courts, one or more grounds for disclaiming coverage were "readily apparent" or "obvious" almost immediately upon or after the insurer's receipt of first notice and "before the onset of the delay". How, then, can an insurer know when an investigation of coverage will be deemed necessary and excuse a delay in issuing a disclaimer?

Before answering that question, it is important to bear in mind that when an insurer attempts to explain a delay in disclaiming liability coverage by asserting that there was a need to investigate issues that would affect its decision on whether to disclaim, the burden will be on the insurer to establish that the delay was reasonably related to the completion of a necessary, thorough, and diligent investigation. Necessary, thorough, and diligent.

In the GMAC v. Jones matter, Nova presumably was attempting to determine why its insured never provided notice of the accident. Late notice, although ultimately the ground upon which Nova disclaimed liability coverage to its insured may be excused, and Nova no doubt wanted and needed to know whether its insured had an excuse for not having notified it of the accident 18 months earlier. Necessary, thorough and diligent.

Dryden Mutual, on the other hand, presumably had all the information it needed to disclaim immediately upon receipt of its insured's notice of the three underlying personal injury action, viz, that they sought to impose liability on the insured for alleged violations of New York's Dram Shop laws, a clearly excluded theory of liability. That the insured may have delayed reporting the occurrences or lawsuits to Dryden was inconsequential to the motion and appellate courts because non-compliance with New York's timely disclaimer statute -- Insurance Law § 3420(d) -- in effect excuses late notice. There is no such thing as an excuse to an exclusion, however, and, in the court's opinion, no amount of investigation was necessary to determine whether the policy's liquor liability exclusion applied to negate coverage.

It appears New York courts are less forgiving and tolerant of investigation caused delays where the applicability of a exclusion to deny coverage is "readily apparent" before any investigation is undertaken. Of course, late notice may also be a potential noncoverage ground, but the insurer should be mindful of the invalidating impact of Insurance Law § 3420(d) on any disclaimer found to be unreasonably or unnecessarily delayed. In two cases, courts found as unreasonable only 30-day delays in disclaiming coverage based on late notice that was, in the courts' opinions, "obvious" or "readily apparent" from the notices and pleadings the insurers initially received. W.16th St. Tenants Corp. v. Public Service Mut. Ins. Co., 290 AD2d 278 (1st Dept. 2002); Transcontinental Ins. Co. v. Gold, 18 Misc 3d 1135(A) (Sup.Ct., Nassau Co., 2008). In both cases, the courts held that there no need under such circumstances to conduct a coverage investigation.

With the recent reminder from Kings Supreme in Grinshpun v. Travelers Cas. Co. of Conn. that legal fees and costs can be recovered in actions seeking coverage where it is alleged and proven that this insurer's disclaimer or denial was made in "bad faith", the importance of making a "good faith decision regarding disclaim[ing]" remains important, in spite of seemingly incompatible decisions such as W. 16th St Tenant Corp. and Transcontinental Ins. Co. which suggest that there are situations in which no coverage investigation should be made. If a liability insurer decides it is necessary to investigate coverage issues, however, it must do so thoroughly and diligently, with meticulous documentation of all efforts made in such an investigation.

So should a liability insurer investigate potential coverage issues in New York? Sure they should, especially if those coverage issues are any less than indisputable. Investigate what appears at first blush to be late notice? Yes, but quickly. But if a policy exclusion also clearly applies to negate coverage regardless of late notice, consider how successful one will be of convincing a court that any delay beyond a week or two in disclaiming was, in the first instance, necessary. The insurer's coverage investigation can be the model of thoroughness and diligence, but if it is found not to have been necessary, even a well-documented investigation followed by a delayed disclaimer will be at risk of invalidation.