Excess Insurer's Disclaimer 37 Days After First Notice Held Untimely as a Matter of Law

EXCESS – ADDITIONAL INSURED – LATE NOTICE TO EXCESS INSURER – 37-DAY UNTIMELY DISCLAIMER 

Liberty Mut. Fire Ins. Co. v. Navigators Ins. Co.
(1st Dept., 2/1/2018)

Review points from this decision:

• Notice Requirement:  An insurer's duty to cover losses of its insured is not triggered unless the insured gives timely notice of loss in accordance with the terms of the insurance contract.


• Additional Insured's Obligation to Give Timely Notice:  Even if an insurance policy were construed as specifying that only the named insured was required to provide notice of occurrences, demands and suits to the insurer, the duty to give reasonable notice as a condition of recovery is implied in all insurance contracts and is applicable to an additional insured.


• Timeliness of Notice to Excess Carrier:  Where notice to an excess insurer carrier is at issue, the focus is on whether the insured reasonably should have known that the claim against it would likely exhaust its primary insurance coverage and trigger its excess coverage, and whether any delay between acquiring that knowledge and giving notice to the excess carrier was reasonable under the circumstances.

But even if the additional insured's (or its liability insurer's) notice to the excess carrier is untimely, that late notice can be excused, in effect, if the excess carrier fails to disclaim in a timely manner.  And a delay by the excess insurer (Navigators) of only 37 days in disclaiming based on late notice -- a coverage defense that presumably was readily apparent to the excess insurer at first notice and did not require investigation --  in this case was held to be untimely as a matter of law:

Here, we find that Liberty Mutual's November 17, 2010 letter was sufficient to provide notice of claim to Navigators. However, even if the June 2010 supplemental bill of particulars implicated Navigators' excess policy (see Nova Cas. Co. v Interstate Indem. Co., 42 Misc 3d 1229[A], 2014 NY Slip Op 50250[U] [Sup Ct, Kings County 2014]), and the notice was untimely, Navigators' disclaimer, issued 37 days later, was untimely as a matter of law (see e.g. Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 88-89 [1st Dept 2005]; West 16th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 AD2d 278 [1st Dept 2002], lv denied 98 NY2d 605 [2002]).

Judgment against Navigators for $850,000 plus statutory interest and costs.  An expensive delay.

The First Department is especially strict with the obligation of New York liability insurers under New York Insurance Law § 3420(d)(2) to "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 ... as soon as is reasonably possible[.]"

Use it (quickly) or lose it.  The coverage defense based on policy exclusion or breach of policy condition, that is.  See this blog's ... and Sometimes the Bar Eats You post for other examples of  relatively short delays in disclaiming that were held to be untimely as a matter of law. 

Defending the Insured's Default Without Disclaiming Dooms the Declaratory Judgment Action

COMMERCIAL LIABILITY – LATE NOTICE – PREJUDICE – UNTIMELY DISCLAIMER
Montpelier US Ins. Co. v. 240 Mt. Hope Realty Co.
(SDNY, decided 10/22/2015)

I can see and understand what the insurer was trying to do here, but by not immediately disclaiming for late notice, it in effect conceded coverage.

12/07/12     tenant's pit bull bites a child attending a birthday party at the insured premises
01/07/13     insured served with summons and complaint
07/08/13     default judgment granted against insured
08/19/13     insurer (MUSIC) receives first notice of the incident, claim, suit and default
11/18/13     defense counsel retained by MUSIC succeeds in vacating the default
05/15/14     Appellate Division, First Department, reverses the vacatur and reinstates the default
06/12/14     MUSIC sends letter to insured reserving MUSIC's right to disclaim based on late notice
08/12/14     MUSIC commences declaratory judgment action in state court
02/13/15     MUSIC recommences DJ action in federal court

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

(2) 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.

In GRANTING the insured's cross motion for summary judgment, the District Court agreed that MUSIC was required to defend and indemnify the insured the underlying personal injury action action due to MUSIC's failure to disclaim coverage in a reasonably timely fashion as required by Insurance Law § 3420(d)(2):

Time begins to run for purposes of such disclaimer when the insurer knows the grounds for its entitlement to disclaim. See First Fin. Ins. Co. v. Jetco Contracting Corp., 1 N.Y.3d 64, 66 (2003) ("[O]nce the insurer has sufficient knowledge of facts entitling it to disclaim, or knows that it will disclaim coverage, it must notify the policyholder in writing as soon as is reasonably possible."); accord Liberty Ins. Underwriters Inc. v. Great Am. Ins. Co., No. 11-CV-6973 (DLC), 2012 WL 2359876, at *6 (S.D.N.Y. June 20, 2012). And where Section 3420(d)(2) applies, the insured need not show prejudice from the delayed disclaimer; instead, the only question is whether the delay was "unreasonable." See Adams v. Chi. Ins. Co., 49 F. App'x 346, 349 n.** (2d Cir. 2002) (summary order); Jewish Cmty. Ctr. of Staten Island v. Trumbull Ins. Co., 957 F. Supp. 2d 215, 236-37 (E.D.N.Y. 2013) (citing cases); KeySpan Gas E. Corp. v. Munich Reinsurance Am., Inc., 23 N.Y.3d 583, 590 (2014) (noting that 3420(d)(2) "creates a heightened standard for disclaimer that depends merely on the passage of time rather than on the insurer's manifested intention to release a right as in waiver, or on prejudice to the insured as in estoppel" (internal quotation marks omitted)); First Fin. Ins., 1 N.Y.3d at 67 n.2 (noting that, under Section 3420(d)(2), "prejudice is of no legal relevance"). 

 Here, MUSIC had knowledge of sufficient facts to disclaim coverage when it received notice of the default judgment on August 19, 2013. At that point, MUSIC would indisputably have been entitled to disclaim on the ground that Defendants' notice was untimely and that MUSIC was prejudiced by the delay; in fact, there is an "irrebuttable presumption of prejudice" that applies when, as here, an insurer receives notice of a claim only after the insured's liability has been determined. See N.Y. Ins. Law § 3420(c)(2)(B). But MUSIC elected not to disclaim coverage and did not make any reservation of its right to disclaim coverage, instead taking up Defendants' defense in the underlying lawsuit; indeed, it did not disclaim coverage until nearly ten months later, on June 12, 2014. (See Compl. ¶¶ 30, 34; Defs.' Mem. 4, 6). That ten-month delay, with no explanation, is comparable to — indeed, longer than — unexcused delays that the Second Circuit and other courts have held to be unreasonable as a matter of New York law. See, e.g., Bluestein & Sander v. Chi. Ins. Co., 276 F.3d 119, 122 (2d Cir. 2002) (nine months); Adams, 49 F. App'x at 349 (eight months); First Fin., 1 N.Y.3d at 66 (forty-eight days); West 16th St. Tenants Corp. v. Pub. Serv. Mut. Ins. Co., 736 N.Y.S.2d 34, 35 (1st Dep't 2002) (thirty days); Colonial Penn Ins. Co. v. Pevzner, 698 N.Y.S.2d 310, 310 (2d Dep't 1999) (forty-one days); Hartford Ins. Co. v. Nassau Cnty., 46 N.Y.2d 1028, 1029-30 (1979) (two months); Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 266-67 (1970) (seven months); see also, e.g., N.Y. State Ins. Fund v. Mt. Vernon Fire Ins. Co., 371 F. App'x 207, 210 (2d Cir. 2010) (amended summary order) (discussing cases involving unexplained delays of two months and forty-eight days); cf. O'Dowd v. Am. Sur. Co. of N.Y., 3 N.Y.2d 347, 355 (1957) ("It is clear that when an insurer defends an action on behalf of an insured, in his stead, with knowledge of facts constituting a defense to the coverage of the policy, it is thereafter estopped from asserting that the policy does not cover the claim."). It follows that MUSIC must defend and indemnify Defendants and the latter are entitled to summary judgment. 

MUSIC unsuccessfully argued that its time to disclaim did not begin to run until the First Department, Appellate Division, reinstatement the default against the insured in the underlying personal injury action:

As the New York Court of Appeals has explained, in enacting Section 3420(d), the New York State Legislature "intended to expedite the disclaimer process, thus enabling a policyholder to pursue other avenues expeditiously." First Fin. Ins., 1 N.Y.3d at 68. Thus, 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." Id. at 68-69 (internal quotation marks omitted) (emphasis added). Here, MUSIC first learned of the grounds for denial of coverage on August 19, 2013, when it received notice of the underlying lawsuit and the default judgment entered against Defendants. See, e.g., West 16th St. Tenants Corp., 736 N.Y.S.2d at 35 (holding that an insurer's thirty-day delay in disclaiming coverage was unreasonable as a matter of law because the lack of timely notice by the insured "was obvious from the face of the notice of claim" and the insurer "had no need to conduct an investigation before determining whether to disclaim"). At bottom, MUSIC's argument is that it was in the interest of Defendants for it to provide a defense until the appellate process ran its course. But that argument is effectively the same as the policy argument rejected by the New York Court of Appeals in First Financial Insurance Co. See 1 N.Y.3d at 69 (rejecting an argument that delays to explore other sources of insurance for policyholders "should be encouraged because they are for the benefit of the insured," explaining "that they may also be in the insurer's interest in reducing its ultimate risk, and further may detrimentally delay the policyholder's own search for alternative coverage"). And ultimately, in analyzing whether an insurer gave timely notice of its intent to disclaim coverage, it makes more sense to look at the delay in giving such notice and the reasons (or lack thereof) for that delay than it does to the results of litigation thereafter, which could conceivably take months or years to resolve.

In New York, the timeliness of a liability insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for the disclaimer of liability or denial of coverage.  Write that down.  Or memorize it.

George Campbell Painting Reprised

CGL – BLANKET ADDITIONAL INSURED – EMPLOYEE INJURY EXCLUSION – UNTIMELY DISCLAIMER – INSURANCE LAW § 3420(D)(2)    
Endurance Am. Specialty Ins. Co. v. Utica First Ins. Co.
(1st Dept., decided 10/8/2015)

New York Insurance Law § 3420(d)(2), where applicable, requires that written notice of a disclaimer or denial be sent "as soon as is reasonably possible ... to the insured and the injured person or any other claimant."

Since 2012 when the First Department issued its decision in George Campbell Painting, liability insurers doing business in New York have been on notice, and on guard, that a disclaimer or denial which implicates Insurance Law § 3420(d)(2) -- one for bodily injury or death claims based on either the applicability of a policy exclusion or the breach of a policy condition -- should not await the methodical completion of the insurer's coverage investigation where at least one exclusion-based or condition-based ground for disclaiming or denying coverage is already apparent or known.  To wait to disclaim or deny until the insurer completes its coverage investigation under such circumstances is to risk having the declination challenged and found to to have not been "as soon as [was] reasonably possible" in violation of § 3420(d)(2).

This case effectively arguably extends or enlarges the preclusive impact or scope of George Campbell Painting, at least in the First Department.  New York commercial general liability insurers take note.

Plaintiff Endurance American Specialty Insurance Company insured contractor Adelphia Restoration Corporation.  Defendant Utica First Insurance Company insured subcontractor CFC Contractor Group, Inc.  The Utica First policy contained a blanket additional insured endorsement providing additional insured coverage to entities for which CFC was required to procure additional insured coverage under a written agreement executed prior to a loss.  However, the Utica First policy also contained a broad exclusion for bodily injuries sustained by employees of any insured, or by contractors or employees of contractors "hired or retained by or for any insured."

October 16, 2011 -- employee of CFC allegedly injured on the job
November 16, 2011 -- Utica First receives first notice of accident from Rockville Risk Management, TPA for Endurance (Adelphia)
November 21, 2011 -- Utica denies defense/indemnification overage to CFC; letter copied to Rockville but not to Adelphia
May 10, 2012 -- Rockville tenders Adelphia's defense and indemnity to Utica First, noting that CFC had contracted with Adelphia, but does not provide copy of contract
November 20, 2012 -- Rockville again tenders Adelphia's D&I to Utica First; requests response to tenders
January 25, 2013 -- Rockville sends copy of contract between Adelphia and CFC to Utica First
January 28, 2013 -- Utica First receives copy of contract
January 29, 2013 -- Utica First denies D&I coverage to Adelphia based on employee exclusion

Adelphi conceded that on its face, the employee exclusion in Utica First's policy with CFC precluded coverage to it and to CFC; however, Adelphi contended that the timing of Utica First's disclaimer to it precluded Utica First from denying it coverage. The First Department agreed:

Utica's disclaimer of liability for coverage by letter dated November 21, 2011 to its named insured, defendant CFC, did not constitute notice to additional insured Adelphi under Insurance Law § 3420(d)(2) (see Sierra v 4401 Sunset Park, LLC, 24 NY3d 514 [2014]). Further, although Utica knew by November 21, 2011, at the latest, that the employee exclusion applied to the employee's alleged accident, Utica did not immediately disclaim coverage on that basis; it instead waited to disclaim coverage until January 29, 2013 — one day after it had received the contract that triggered the blanket endorsement. However, Insurance Law § 3420(d) "precludes an insurer from delaying issuance of a disclaimer on a ground that the insurer knows to be valid . . . while investigating other possible grounds for disclaiming" (George Campbell Painting v National Union Fire Ins. Co. of Pittsburgh, PA, 92 AD3d 104 [1st Dept 2012]; see also City of New York v. Northern Ins. Co. of N.Y., 284 AD2d 291 [2d Dept 2001], lv dismissed 97 NY2d 638 [2001]).  

If Adelphi was not entitled to coverage because of the employee exclusion, it did not matter one way or the other whether it was an additional insured under the CFC/Utica policy, and Utica therefore did not need to investigate Adelphi's status in order to disclaim coverage under the exclusion (see George Campbell Painting, 92 AD3d at 111-112). Indeed, given its statement that it would not indemnify "our insured or any other party for any judgment awarded," Utica must have known that the employee exclusion was effective not only as to CFC but also as to Adelphi, and therefore, Utica should have immediately disclaimed to Adelphi on that basis. Thus, Utica's investigation as to whether Adelphi was an additional insured was insufficient as a matter of law as the basis for a disclaimer.

Practice Pointer:  When it appears a policy exclusion applies broadly to negate coverage to the named insured and all other persons or entities, issue the declination not only to the named insured, but also directly and separately to those persons or entities who may have claims to coverage under the policy, regardless of whether it is known for certain that those persons or entities qualify as insureds or additional insureds.  

... and Sometimes the Bar Eats You

CGL – 62-DAY LATE NOTICE – 33-DAY UNTIMELY DISCLAIMER
Tower Ins. Co. of N.Y. v. NHT Owners LLC
(1st Dept., decided 12/20/2011)

Those of you who read the advance sheets know that Tower Insurance Company has successfully defended many late notice disclaimers, especially in the Appellate Division, First Department, where Tower is headquartered.  Reporting delays of 3 months, 5 months, 5 months, 7 months, 9 months, and 9 months to Tower have been ruled unreasonable as a matter of law, entitling Tower to summary judgment.  Most of the reported case law to date, of course, was decided under New York's "old" no-prejudice rule; under most New York liability policies issued, renewed or modified on and after January 17, 2009, insurers must demonstrate that they were prejudiced by their insureds' delayed reporting in order successfully to disclaim coverage based on such late notice.

In this latest episode of late notice limbo, Tower disclaimed liability coverage to the defendant insureds in this case based on their 62-day delay in notifying Tower of an accident in which an individual fell from a ladder in an elevator at defendants' premises.  The insureds were aware of the accident on the day it occurred.  Supreme Court, New York County (Marcy S. Friedman, J.) granted the defendant insureds' cross motion for summary judgment against Tower in this declaratory judgment action, and Tower appealed.

In unanimously AFFIRMING the order appealed from, with costs, the Appellate Division, First Department, found it unnecessary to reach the issue of whether the insureds' 62-day reporting delay was timely because Tower's 33-day delay in disclaiming was, in the First Department's opinion, untimely as a matter of law:

A liability policy that requires an insured to provide notice of an occurrence to its insurer "as soon as practicable" obligates the insured to give notice of the occurrence within a reasonable period of time (Great Canal Realty Corp. v Seneca Ins. Co., 5 NY3d 742, 743 [2005]). However, we need not reach the question of whether, under all the circumstances, the insureds' notice of claim, 62 days after the occurrence, was timely, where they conducted an inquiry into the underlying accident, and believed there was no liability (see Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436, 441 [1972]) because the court properly held that the notice of disclaimer, after a 33-day period, was untimely as a matter of law (see Ins Law § 3420[d]; First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 68-69 [2003]; see e.g. West 16th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 AD2d 278 [2002], lv denied 98 NY2d 605 [2002]). The insurer's sole ground for the disclaimer of coverage was the insured's delay in notifying it of the occurrence, which was readily apparent at the time of the notice of claim (see First Fin. Ins. Co., 1 NY3d at 69). 

The New York courts have recognized a number of excuses to an insured's late notice of occurrence:

• reasonable, good faith belief in non-liability
• de minimus injury
• ignorance of coverage

In effect, a liability insurer's untimely disclaimer of coverage can also operate to excuse an insured's late notice.  New York Insurance Law § 3420(d)(2) requires that for bodily injury or death claims arising out of New York accidents, liability insurers must disclaim liability or deny coverage in writing "as soon as is reasonably possible" to the insured and the injured person or any other claimant.

How soon is that?  In this case, 33 days was not as soon as reasonably possible.  But that's not the New York state record.  30 days is.  Where the ground or grounds for the liability insurer's disclaimer are "readily apparent" from the time of the insured's first notice of claim, any delay by the insurer in disclaiming liability or denying coverage will be scrutinized by the New York courts.  Here are the low water marks in New York for what have been found to be untimely disclaimers as a matter of law:

30 days	West 16th Street Tenants Corp. v. Public Service Mut. Ins. Co., 290 AD2d 278 (1st Dept. 2002)
37 days	2833 Third Ave. Realty Assocs. v. Marcus, 12 AD3d 329 (1st Dept. 2004)
41 days	Matter of Nationwide Mut. Ins. Co. v. Steiner, 199 AD2d 507(2nd Dept. 1993)
48 days	First Fin. Ins Co. v. Jetco Contr. Corp., 1 NY3d 64 (Ct. Apps. 2003)
60 days	Milbank Housing Dev. Fund v. Royal Indem. Co., 17 AD3d 280 (1st Dept. 2005)

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. 

Hold Harmless Indemnitee Found Not Entitled to Additional Insured Coverage

CGL – BLANKET ADDITIONAL INSURED ENDORSEMENT – CERTIFICATE OF INSURANCE – HOLD HARMLESS AGREEMENT – TIMELY DISCLAIMER – SUPPLEMENTARY PAYMENTS PROVISION
Hargob Realty Assoc., Inc. v. Fireman's Fund Ins. Co.
(2nd Dept., decided 5/18/2010)

Fireman's Fund issued a commercial general liability insurance policy to U.S.A. Interior, LLC (USAI), that contained an additional insured endorsement, which added to the insured persons covered under the subject policy

any entity the Named Insured is required in a written contract to name as an insured ... but only with respect to liability arising out of work performed by or on behalf of the Named Insured for the Additional Insured.  (Emphasis added.)

Plaintiff entered into a construction contract with USAI pursuant to which USAI was to perform demolition work at certain premises owned by the plaintiff. The only written agreements between USAI and the plaintiff pertaining to the project were a one-page proposal from USAI specifying the bid price and work to be performed and a hold harmless agreement.  Pursuant to the hold harmless agreement, USAI, as the subcontractor, agreed to indemnify and hold harmless the plaintiff, as the owner, "from and against any and all claims, suits, liens, judgment, damages, losses and expenses arising in whole or in part ... from the acts, omissions, breach or default of [USAI] in connection with the performance of any work by or for [USAI]," except for claims arising from Hargob's own negligence.

Plaintiff commenced this declaratory judgment action for defense and indemnification coverage from Fireman's Fund in relation to an underlying personal injury action that presumably related to USAI's demolition work for plaintiff.  In AFFIRMING Nassau County Supreme Court's order granting Fireman's Fund's motion for summary judgment, the Second Department held:

1. Hold Harmless Agreement:  Notwithstanding USAI's written agreement to indemnify the plaintiff, the hold harmless agreement did not contain any requirement that USAI name the plaintiff as an additional insured under the subject policy and, thus, the additional insured endorsement of USAI's policy with Fireman's Fund was not applicable.
   
   
2. Certificate of Insurance:  The USAI certificate of insurance proffered in opposition to Fireman's Fund's motion, listing the plaintiff as an additional insured under the subject policy, was insufficient to alter the language of the policy itself, especially since the certificate recited that it was for informational purposes only, that it conferred no rights upon the holder, and that it did not amend, alter, or extend the coverage afforded by the policy.
   
   
3. Timely Denial of Coverage:  Fireman's Fund's denial of coverage under the additional insured endorsement constituted a denial based upon a "lack of inclusion" rather than "by reason of exclusion" and, thus, it was not required to deny coverage where none existed.  Therefore, to the extent that the denial of coverage was based upon lack of coverage as an additional insured pursuant to the additional insured endorsement, a timely disclaimer was unnecessary.
   
   
4. Supplementary Payments Provision:   The policy's supplementary payments provision, which obligated Fireman's Fund to defend an indemnitee of the named insured when certain specified conditions are met, did not also afford liability coverage. "Contrary to the plaintiff's contention, the supplementary payments provision did not demonstrate an intent by [Fireman's Fund] to afford the plaintiff coverage solely on the basis that it is an indemnitee of the named insured, in the absence of the plaintiff's addition as 'an insured' under Section II of the subject policy pursuant to the additional insured endorsement.   (see Stainless, Inc. v Employers Fire Ins. Co., 69 AD2d at 33).  Liability coverage under the policy is afforded by Section I, not the supplementary payments provision. Therefore, Hargob's status as an indemnitee does not operate to confer upon it status as an additional insured, and it is, thus, not entitled to liability coverage under the subject policy pursuant to the supplementary payments provision."

Commencement of a Declaratory Judgment Action Can Constitute Timely Written Notice of Disclaimer Under New York Insurance Law § 3420(d)(2)

CGL – TIMELY DISCLAIMER – INSURANCE LAW § 3420(D)(2)
Blue Ridge Ins. Co. v. Empire Contr. & Sales, Inc.
(2nd Dept., decided 5/18/2010)

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.  (Emphasis added.)

Must the "written notice" of a liability insurer's disclaimer or denial always take the form of a letter, or can the insurer's commencement of a declaratory judgment action satisfy the written notice requirement? 

In REVERSING the Suffolk County Supreme Court's order granting summary judgment against Blue Ridge Insurance Company, the Second Department reminded:

Here, the plaintiff's commencement of the subject declaratory judgment action on August 15, 2001, constituted timely notice of disclaimer as to Juneau (see Generali-U.S. Branch v Rothschild, 295 AD2d 236, 237-238; see also Continental Cas. Co. v Employers Ins. Co. of Wausau, 60 AD3d 128, 135). 

Not All Policy Definitions Are Created Equal -- Ones Limiting Coverage By Lack of Inclusion Are Not Subject to New York Insurance Law § 3420(D)(2)

CGL – COMMERCIAL AUTO – "HIRED AUTO" & "NON-OWNED AUTO" DEFINITIONS – INSURANCE LAW § 3420(D)(2) – LACK OF INCLUSION
NGM Ins. Co. v Blakely Pumping, Inc.
(2nd Cir., 2/1/2010)

When may a negative or limiting policy definition be considered an exclusion subject to the timely disclaimer and denial requirement of New York Insurance Law § 3420(d)(2)?  When it negates liability coverage that the policy otherwise provides.  In a rare insurance coverage decision from the Second Circuit United States Court of Appeals, the court ruled that not all policy definitions that limit coverage are exclusions.  The two in this case -- the "Hired Auto" and "Non-Owned Auto" definitions -- are not.

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

If under a liability policy issued or delivered in [New York 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.

On November 3, 2005, Brian Blakely crashed his pickup truck into Peter Slingerland’s car in Kingston, New York. Blakely was driving the truck in the course of his work for his company, Blakely Pumping, as he frequently did. Slingerland and his wife brought a personal injury action against both Blakely and Blakely Pumping.

In a letter dated March 18, 2006, Blakely Pumping requested that NGM Insurance Company defend the action pursuant to an insurance policy for "Businessowners Liability Coverage” that Blakely Pumping had purchased from NGM. The policy generally covered liability for personal injuries but contained a section entitled “Exclusions” that expressly negated coverage for damages “arising out of the ownership, maintenance, use or entrustment to others of any ... ‘auto’ ... owned or operated by or rented or loaned to any insured.” Blakely Pumping, however, had also purchased an endorsement from NGM that modified the policy; the Endorsement extended coverage to bodily injury arising from the use of a “Hired Auto” or a “Non-Owned Auto” by the company or one of its employees. The endorsement defined those terms as follows:

“Hired Auto” means any “auto” you lease, hire or borrow. This does not include any “auto” you lease, hire or borrow from any of your “employees” or members of their households, or from any partner or “executive officer” of yours.

“Non-Owned Auto” means any “auto” you do not own, lease, hire or borrow which is used in connection with your business. 

On March 23, 2006, NGM disclaimed coverage, based on the policy’s auto exclusion.  In a letter dated July 24, 2006, counsel for the Slingerlands called NGM’s attention to the endorsement’s extension of coverage for bodily injuries arising out of the use of a “Hired Auto” or “Non-Owned Auto.”  Two weeks later, NGM again disclaimed coverage, this time on the ground that Blakely was an executive officer of Blakely Pumping and, therefore, his pickup truck was neither a “Hired Auto” nor “Non-Owned Auto” as defined in the endorsement.

In July 2007, NGM commenced this action, seeking a declaratory judgment that it was under no obligation to defend or indemnify Blakely Pumping in the underlying Slingerland personal injury action.  On March 24, 2009, after the parties cross-moved for summary judgment, the district court entered a judgment declaring that NGM was indeed obligated to defend and indemnify Blakely Pumping.  Although the court concluded that Blakely Pumping had borrowed the auto of one of its officers and that the accident was therefore not covered under the terms of the policy as modified by the endorsement, the district court found that the policy's "Hired Auto" and "Non-Owned Auto" definitions constituted exclusions of general coverage, thereby triggering the timely disclaimer and denial requirement of New York Insurance Law § 3420(d)(2).  Since NGM originally disclaimed coverage based only on the policy's auto exclusion, the district court ruled that it had "waived" its right to disclaim coverage on other grounds.  Thus, the district court held that NGM’s subsequent notice of disclaimer was ineffective.  NGM appealed to the Second Circuit. 

In REVERSING the district court's ruling, the Second Circuit held that the district court erred in finding that the endorsement’s definitions of “Hired Auto” and “Non-Owned Auto” were exclusions triggering the timely disclaimer or denial requirement of New York Insurance Law § 3420(d)(2):

Determining whether there is no coverage by reason of exclusion as opposed to lack of inclusion can be “problematic."  Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 189 (2000).  We find guidance in Planet Insurance Co. v. Bright Bay Classic Vehicles, Inc., 75 N.Y.2d 394 (1990), a case that is particularly applicable to the facts before us.  There, the New York Court of Appeals considered whether definitional language that did not appear in the section of an insurance policy entitled “Exclusions” eliminated coverage by reason of exclusion or lack of inclusion. Defendant Bright Bay obtained the policy in question for its fleet of rental cars. The policy defined “covered rental cars” as those rented for periods of less than 12 months.  Id. at 398. One of Bright Bay’s cars was later involved in an accident while being rented for a 24-month period.  The court found that, although the insurance company disclaimed coverage based on the definition of “covered rental cars” as opposed to a provision in the policy’s “Exclusion” section, the definition’s limiting language still amounted to an exclusion.  Id. at 400. The court explained that the car was initially covered by the policy and only “became ‘uncovered’ upon the happening of a subsequent event: i.e., the rental ... for a lease period other than that prescribed in the policy.”  Id. at 401. Since the car was at one point covered, this was not a case where there “was never a policy in effect covering the involved automobile.”  Id.

In the instant case, the principal issue in dispute is whether the district court erred in finding that the Endorsement’s definitions of “Hired Auto” and “Non-Owned Auto” constitute exclusions requiring a notice of disclaimer.  We conclude that the district court did err in so finding.

The Endorsement did not generally cover auto accidents; it covered only accidents arising from the use of a “Hired Auto” or “Non-Owned Auto.”  Those terms were defined in such a way that an employee’s or officer’s vehicle, like Blakely’s pickup truck, could never be covered. This is not a case then where “the happening of a subsequent event” implicated a definitional term that “uncovered” a formerly covered car.  Id.  Rather, it is a case in which “the policy as written could not have covered the liability in question under any circumstances.” Zappone [v. Home Ins. Co.], 55 N.Y.2d [131] at 134.  In short, there was no coverage “by reason of lack of inclusion,” and thus no notice of disclaimer was required. Id. at 137 (internal quotation marks omitted).

The court also discussed but distinguished the New York Appellate Division's decisions in Greater New York Mutual Insurance Co. v. Miller, 205 A.D.2d 857(3d Dept. 1994) (policy definition of an “insured” negated coverage for drivers who used the auto in question without permission) and United Services Automobile Association v. Meier, 89 A.D.2d 998 (2d Dept. 1982) (policy definitions that negated coverage from individuals engaged in automobile businesses).  In distinguishing the Meier case, the Second Circuit noted:

In fact, the Meier court found that other definitions in the same policy – such as the definitions of “owned vehicle,” “newly acquired vehicle,” and “temporary substitute vehicle” – were not exclusions.  Id. at [454 N.Y.S.2d] 320-21.  According to the court, the failure of the vehicle in question to qualify as one of these defined terms meant that there was never a “contract of insurance with the person or for the vehicle involved in the accident.”  Id. at [454 N.Y.S.2d] 321. We employ identical logic in our analysis.

In New York, noncoverage grounds based on a lack of inclusion are not subject to Insurance Law § 3420(d).  Disclaimers or denials based either on policy exclusions or conditions are.  Although somewhat of a fine distinction, the difference between policy definitions that negate coverage and ones that merely state what is covered is an important one.  The Second Circuit correctly analyzed these definitions in concluding that the policy provided no coverage in the first place for the insured's officer's use of his own pickup truck, which did not meet the policy's definitions of either a hired auto or non-owned auto.

54-Day Delay in Issuing Late Notice Disclaimer Found to Be Unreasonable as a Matter of Law

CGL – UNTIMELY DISCLAIMER – LATE NOTICE – INSURANCE LAW § 3420(D)(2) – PROOF OF MAILING
Mid City Constr. Co., Inc. v. Sirius Am. Ins. Co.
(2nd Dept., decided 2/9/2010)

Waiting 54 days to issue a late notice disclaimer is not "as soon as is reasonably possible", as required by Insurance Law § 3420(d)(2), holds the Appellate Division, Second Department, in this decision.  In AFFIRMING Kings Supreme's award of summary judgment to the insured on its cross claim for declaratory judgment, the Second Department also found that Sirius American Insurance Company failed to raise a triable issue of fact with sufficient proof that it had mailed an earlier disclaimer letter -- only 11 days after having gained sufficient knowledge of facts entitling it to disclaim -- by certified mail, return receipt requested.  An affidavit from a claims representative who did not have personal knowledge of the mailing of the earlier disclaimer letter, coupled with the certified mail receipt, standing alone, were found insufficient to raise a triable issue of fact as to actual mailing of the earlier disclaimer letter:

The defendant Finaly General Contracting Corp., a/k/a Finaly General Contractors, Inc. (hereinafter Finaly), established its prima facie entitlement to judgment as a matter of law on its cross claim for declaratory relief against the defendant Sirius America Insurance Company (hereinafter Sirius) by demonstrating that Sirius did not disclaim coverage "as soon as is reasonably possible" (Insurance Law § 3420[d][2]; see Sirius Am. Ins. Co. v Vigo Constr. Corp., 48 AD3d 450, 452). Finaly showed that Sirius had "sufficient knowledge of facts entitling it to disclaim" by June 10, 2005, at the latest, and that Sirius did not disclaim until August 3, 2005 (see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 66). In opposition, Sirius failed to raise a triable issue of fact as to whether it sent an earlier disclaimer letter on June 21, 2005, by certified mail, return receipt requested (see Rael Automatic Sprinkler Co., Inc. v Schaefer Agency, 52 AD3d 670, 673). "Generally, proof that an item was properly mailed gives rise to a rebuttable presumption that the item was received by the addressee'" (New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d 547, 547, quoting Matter of Rodriguez v Wing, 251 AD2d 335, 336). "The presumption may be created by either proof of actual mailing or proof of a standard office practice or procedure designed to ensure that items are properly addressed and mailed" (Residential Holding Corp. v Scottsdale Ins. Co., 286 AD2d 679, 680). Sirius offered no evidence as to its standard office practices for mailing disclaimer letters, and the affidavit of a claims representative was insufficient to raise a triable issue of fact since he did not have personal knowledge of the mailing of the disclaimer letter (see New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d at 547; Tracy v William Penn Life Ins. Co. of N.Y., 234 AD2d 745, 748). The certified mail receipt, standing alone, was insufficient to raise a triable issue of fact as to actual mailing (see New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d at 548; Matter of State Farm Mut. Auto. Ins. Co. [Kankam], 3 AD3d 418, 419; cf. Westchester Med. Ctr. v Liberty Mut. Ins. Co., 40 AD3d 981, 983). Although issues of fact exist as to whether Finaly provided notice of an occurrence "as soon as practicable" (M & N Mgt. Corp. v Nationwide Mut. Ins. Co., 307 AD2d 257, 258), Sirius's "failure to provide notice of disclaimer as soon as is reasonably possible precludes effective disclaimer, even where the insured's own notice of the incident is untimely" (Tex Dev. Co. v Greenwich Ins. Co., 51 AD3d 775, 778; see Osterreicher v Home Mut. Ins. Co. of Binghamton, N.Y., 272 AD2d 926, 927). 

Under New York Insurance Law § 3420(d)(2), an untimely disclaimer or denial will, in effect, excuse an insured's late notice and preclude the assertion of coverage-negating policy exclusions or conditions for bodily injury or death claims arising from New York accidents.  With the prevalence of email as a business communication tool, might liability insurers consider obtaining consent and sending disclaimer and denial letters to their insureds via email as well as mail?  See, NYSID OGC Opinion No. 07-08-17, Electronic distribution by insurers of insurance policies, forms, and bills to insureds ("The Department has consistently encouraged the use of electronic transactions in insurance where there is consent on the part of the insured to enter into an electronic transaction, except to the extent that statutory requirements cannot be satisfied by an electronic transmittal.")  But for better proof of the mailing of the June 21, 2005 letter, Sirius might not have been found to owe defense and indemnification to its insured in the underlying personal injury action.

For other untimely disclaimer decisions discussed on this blog, click here.

Late Notice Disclaimer Letter Ruled Ineffective Against Insureds to Whom It Was Not Specifically Addressed

CGL – INEFFECTIVE DISCLAIMER – INSURANCE LAW § 3420(D)(2)
Maughn v. RLI Ins. Co.
(2nd Dept., decided 12/22/2009)

New York case law is legion, as they say,  that a liability insurer's non-compliance with New York Insurance Law § 3420(d)(2) can excuse the insured's breach of the policy's notice condition.  Add this decision to that legion. 

RLI Insurance Company insured Fay Neiss, Neiss Management Corp., and 91-01 through 91-11 Church Limited Liability, all at the same mailing address.  Within three weeks of receiving late notice of an accident involving the insureds, RLI Insurance Company sent a disclaimer letter to the insureds' mailing address but specifically addressed only to Neiss Management.  The underlying plaintiff brought this action for a judgment declaring that RLI was obligated to defend and indemnify all three insureds in his underlying personal injury action. The insureds moved and RLI cross-moved for summary judgment.  Kings Supreme granted the insureds' motion and denied RLI's cross motion, and RLI appealed.  

In MODIFYING the order appealed from, the Second Department ruled that RLI was not obligated to defend or indemnify Neiss Management, but it was obligated to defend and indemnify the other two insureds because its disclaimer letter had not been specifically addressed to them, even though it was sent to their address:

On their motion for summary judgment, the defendants Fay Neiss and 91-01 through 91-11 Church Limited Liability (hereinafter Church) met their burden of establishing that the defendant RLI Insurance Company (hereinafter RLI) did not properly disclaim coverage as to them by submitting RLI's disclaimer letter, which was not addressed to them specifically (see Matter of Eveready Ins. Co. v Dabach, 176 AD2d 879). In response, RLI failed to raise a triable issue of fact. Athough actual notice of RLI's disclaimer letter may have been sent to the address at which all of the moving defendants were located, the disclaimer was only addressed to the defendant Neiss Management Corp. (hereinafter Management). That disclaimer, therefore, was ineffective as to Fay Neiss and Church, to whom it was not addressed (see Insurance Law § 3420[d][2]), and the Supreme Court properly granted that branch of the motion which was for summary judgment as to those defendants.

However, the Supreme Court erred in granting that branch of the motion which was for summary judgment in favor of Management, and, in effect, denying that branch of RLI's cross motion which was for summary judgment against Management. In support of its cross motion, RLI submitted, inter alia, the disclaimer letter, which was properly addressed and issued to Management, through its building manager, within three weeks of receiving notice of the accident, and established that the notice provided to it by Management was untimely (see DeFreitas v TIG Ins. Co., 16 AD3d 451; Yarar v Children's Museum of Manhattan, 4 AD3d 420, 421; cf. 875 Forest Ave. Corp. v Aetna Cas. & Sur. Co., 30 NY2d 726). Therefore, RLI met its prima facie burden of establishing its entitlement to judgment as a matter of law against Management. In opposition, Management failed to raise a triable issue of fact.

Takeaway Point:   Make sure liability disclaimer and denial letters are specifically addressed to each and every insured to whom or which coverage is being denied, even if all insureds are related and located at the same mailing address. The insertion of a few more characters, spaces and lines into RLI's disclaimer in this case ostensibly would have saved it the cost of defending and potentially indemnifying two of its three insureds in the underlying personal injury action.