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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Lot in here.  'Cept coverage.

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

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

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.

What Consitutes Prejudice to a Liability Insurer? A Default Judgment Taken Against its Insured Does.

AUTO – LATE NOTICE OF SUIT – DEFAULT JUDGMENT AGAINST INSURED – PREJUDICE
Vernet v Eveready Ins. Co.
(2nd Dept., decided 11/1/2011) 

Under certain types of New York liability insurance policies issued, renewed or modified on and after January 17, 2009, an insured's late notice of an accident or occurrence or of a related lawsuit must prejudice the insurer before it may decline coverage based on the late notice.  New York Insurance Law § 3420(a)(5) now provides that qualifying liability policies issued or delivered in New York State on or after January 17, 2009 must contain a provision

that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer, except as provided in paragraph four of this subsection. 

Although the policy at issue in this case was issued prior to January 17, 2009, its notice of suit condition adopted a prejudice requirement by specifying that the Eveready had no duty to provide coverage "if the failure to comply [with the policy] is prejudicial to [Eveready]."

Plaintiffs were passengers in a livery cab and allegedly sustained personal injuries when the cab was involved in an automobile accident with an individual insured by Eveready.  The accident occurred on October 15, 2000, in Brooklyn. On or about October 25, 2000, Eveready learned of the accident and opened a claims file. Thereafter, on May 29, 2001, and September 26, 2001, Eveready received letters from the plaintiffs' counsel informing it of counsel's representation of the plaintiffs. The next correspondence from the plaintiffs' counsel regarding the insured was received by Eveready on August 15, 2005, nearly five years after the accident date.  In this correspondence, counsel for plaintiffs informed Eveready that an action had been commenced against, among others, Eveready's insured, on July 9, 2003, and that a default judgment dated November 19, 2004, had been entered in that action in favor of the plaintiffs and against, among others, Eveready's insured.  Eveready disclaimed coverage on the ground that its insured had breached the insurance policy by failing to timely notify it of the commencement of an action regarding the accident.

Plaintiffs then commenced this action against Eveready pursuant to New York Insurance Law § 3420(b)(2) to obtain payment of their default judgment against Eveready's insured from Eveready.  Supreme Court, Kings County (Bunyan, J.), denied Eveready's original and renewed motions for summary judgment, and Eveready appealed.

In REVERSING the lower court's order and granting summary judgment to Eveready, the Appellate Division, Second Department, held that Eveready's support on its renewed motion for summary judgment demonstrated, as a matter of law, that notice of suit was late and that it had been prejudiced by the insured's (and the injured parties') late notice:

Here, in support of its renewed motion for summary judgment, the defendant presented prima facie proof of untimely notice via the deposition testimony and affidavit of its claims manager. The manager stated that it was not until August 15, 2005, that the defendant first learned that an action had been commenced and a default judgment entered against the insured. Additionally, as to prejudice, the defendant established that, since it was first informed of the commencement of an action against the insured more than two years after the commencement of the action, the delay constituted "late notice as a matter of law" (1700 Broadway Co. v Greater N.Y. Mut. Ins. Co., 54 AD3d 593, 593).  The defendant further demonstrated that the failure of the insured to provide notice until after a default judgment had been entered prejudiced it because it lost its right to appear and interpose an answer, thus requiring it to shoulder the burden of moving to vacate the default judgment (see American Tr. Ins. Co. v Rechev of Brooklyn, Inc., 57 AD3d 257, 259).

In opposition, the plaintiffs failed to raise a triable issue of fact. The plaintiffs' contentions amounted to unsupported, speculative, and conclusory allegations, and lacked any probative value in determining whether the defendant received timely notification of the underlying action and default judgment (see generally Paladino v Time Warner Cable of N.Y. City, 16 AD3d 646). Further, no excuse or explanation was ever posited as to the late notice.

What was plaintiffs' counsel thinking?  Or not thinking?  Having written not once, but twice, to Eveready in 2001 about the accident and plaintiffs' injuries, why didn't counsel provide a copy of the 2003 suit papers to Eveready and make sure it received timely notice of that suit?  Did counsel mistakenly believe and decide that it would be better not to tell Eveready of the lawsuit and instead obtain a default judgment against its insured before notifying Eveready of the suit?  If that was counsel's strategy, it wasn't a very good one.  Unless counsel knew that the insured had passed along copies of the suit papers to Eveready, the better course of handling would have been to provide notice of the suit directly to Eveready and give it an opportunity to defend its insured.

Insured's 6-Month Delay in Notifying His Insurer of Dog-Bite Incident Found Unreasonable as a Matter of Law

HOMEOWNERS – LATE NOTICE – DOG-BITE INCIDENT – NO-PREJUDICE RULE – GOOD-FAITH BELIEF IN NONLIABILITY
Zimmerman v Peerless Ins. Co.
(2nd Dept., decided 6/21/2011) 

I knew that into an 8-month hole in blogging there would be some back filling.   Here's some late notice fill. 

On October 31, 2006, while jogging in Eaton's Neck, New York, Arthur Angst allegedly was bitten by Erwin Zimmerman's unleashed dog.  Angst and Zimmerman had a brief verbal confrontation, during which Zimmerman saw blood on Angst's hand.  Zimmerman offered to pay Angst's medical expenses, but Angst declined, and the two men did not exchange contact information.  Zimmerman was aware of an incident several years before, in which his dog had "nipped" a neighbor. Within 48 hours of the incident involving Zimmerman's dog and Angst, the Suffolk County Department of Health requested the dog's vaccination records and informed Zimmerman that the dog would be restricted to Zimmerman's property.

Just over six months later, on May 8, 2008, Zimmerman was served with the summons and complaint in the underlying personal injury action. The next day, for the first time, he notified his insurer, Peerless Insurance Company, of the incident.  Zimmerman's insurance policy required that 

in case of an ... "occurrence," the "insured" will perform the following duties that apply:

Give written notice to us or our agent as soon as is practical, which sets forth: 

(1) The identity of the policy and "insured"; 

(2) Reasonably available information on the time, place and circumstances of the ... "occurrence"; and 

(3) Names and addresses of any claimants or witnesses.  

The policy defined an "occurrence" as "an accident ... which results, during the policy period, in: ... 'Bodily injury'" and "bodily injury" was defined, in relevant part, as "bodily harm."

By letter dated May 11, 2008, Peerless disclaimed coverage on the ground that Zimmerman had not complied with the notice provisions of the policy.  Zimmerman commenced this action seeking a judgment declaring that Peerless was required to defend and indemnify him in the underlying action. Following discovery, Peerless moved, and Zimmerman cross-moved, for summary judgment. Supreme Court, Suffolk County (Rebolini, J.), denied the motion and cross motion, and both parties appealed.

In REVERSING the order appealed from insofar as Peerless' motion was concerned, the Appellate Division, Second Department, held that while Peerless had established its prima facie entitlement to summary judgment on the issue of the insured's late notice, the insured had not carried his opposing burden of raising a triable issue of fact as to whether there existed a reasonable excuse for his delay in notifying Peerless of the dog-bite incident:

Here, Peerless established its prima facie entitlement to judgment as a matter of law that Zimmerman's failure to notify Peerless for six months was not based on a reasonable or good faith belief in nonliability by demonstrating that Zimmerman knew immediately that his dog allegedly bit Angst and that Angst may have been injured by the bite. Indeed, Zimmerman knew within 48 hours that a complaint had been made about the incident, even if he did not know Angst's identity. In addition, Zimmerman knew of at least one substantiated incident involving his dog prior to the incident with Angst (see Steinberg v Hermitage Ins. Co., 26 AD3d 426, 427 [2006]; C.C.R. Realty of Dutchess v New York Cent. Mut. Fire Ins. Co., 1 AD3d 304, 305 [2003]; 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Corp., 40 AD3d at 721; cf. Courduff's Oakwood Rd. Gardens & Landscaping Co., Inc. v Merchants Mut. Ins. Co., 84 AD3d 717 [2011]; Ponok Realty Corp. v United Natl. Specialty Ins. Co., 69 AD3d at 597; Sputnik Rest. Corp. v United Natl. Ins. Co., 62 AD3d at 689). Consequently, the burden shifted to Zimmerman to raise a triable issue of fact as to whether there existed a reasonable excuse for his delay in notifying Peerless (see Ponok Realty Corp. v United Natl. Specialty Ins. Co., 69 AD3d at 597; Sputnik Rest. Corp. v United Natl. Ins. Co., 62 AD3d at 689). Even construing all inferences in favor of Zimmerman, he failed to raise a triable issue of fact (see Hanson v Turner Constr. Co., 70 AD3d 641, 643 [2010]; 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Corp., 40 AD3d at 721; Steinberg v Hermitage Ins. Inc., 26 AD3d at 427; C.C.R. Realty of Dutchess v New York Cent. Mut. Fire Ins. Co., 1 AD3d at 305). We reject Zimmerman's argument that the policy was ambiguous as to whether he was obligated to give notice of the occurrence before learning of the possible claimant's identity (see Magistro v Buttered Bagel, Inc., 79 AD3d 822 [2010]). Accordingly, the Supreme Court erred in denying Peerless' motion for summary judgment declaring that it is not obligated to defend or indemnify Zimmerman in the underlying action. In light of this determination, the Supreme Court properly denied Zimmerman's cross motion for summary judgment.  

Because Zimmerman's policy was issued before January 17, 2009 (see Insurance Law § 3420 [c] [2] [A]), Peerless was not required to demonstrate prejudice from Zimmerman's six-month delay in notification. 

"No Prejudice" No More: New York and the Death of the No-Prejudice Rule

By Eric Tausend
Hastings Law Journal, Volume 61, Issue 2

I've posted several times about New York's legislative about-face on its "no prejudice rule" for late notice liability coverage disclaimers that took effect in January 2009.  Most of those posts can be found under this blawg's Direct DJ/Late Notice Bill label, and my April 8, 2009, 35-minute webinar on the new law is available for downloading free of charge here.

It may be some time later this year or early next that we'll begin seeing reported New York cases on the new law and its new issues, including the question of when an insured's or claimant's delay in providing required notice can be said to have "materially impair[ed] the ability of the insurer to investigate or defend the claim."  For now, the "old law" late notice cases are running off. 

Last week I received a complimentary copy of Volume 61, Issue 2 of the Hastings Law Journal from third-year law student, Eric Tausend, who finds insurance law fascinating (pleased to see that there are such law students out there) and wrote that issue's excellent Note entitled, "'No-Prejudice' No More:  New York and the Death of the No-Prejudice Rule".  Eric sent me a copy of his Note in appreciation of the information and research materials he was able to cull from this blawg.  Footnotes 121, 131 and 207 mark the  first time, to my knowledge, that Coverage Counsel has been cited in a law review.

Eric's conclusion:

Chapter 388 represents a monumental change for the State of New York. For far too long the state applied a rigid no-prejudice rule when notice to insurers was untimely.  The results of this application were anything but fair. The change in the law is welcome and long overdue; however, it is not without its own issues and shortcomings.

There are likely to be a number of highly litigated provisions in chapter 388. New York courts will have many difficult questions to answer. Beyond that, with regard to certain aspects of the law, the New York Legislature might even need to enact additional legislation to remedy the gaps and problems that were created by chapter 388. But the real importance of this legislation will likely be beyond the borders of New York. As the champion for and advocate of the no-prejudice rule, New York led a minority of jurisdictions in its application. However, without the leadership and support of New York, it is likely that the remaining jurisdictions that apply the no-prejudice rule will soon stop doing so. It will likely take time but, as New York insurance law goes, so goes the country.

Since the no-prejudice rule under pre-2009 policies is in hospice and awaiting death, I won't debate Eric on whether that rule was fair or unfair, instead merely noting that our highest state court, the New York Court of Appeals, had had plenty of opportunities to change or abandon that rule since first pronouncing 38 years ago in Sec. Mut. Ins. Co. of N.Y. v. Acker-Fitzsimons Corp., 31 NY2d 436 (1972) that "the insurer need not show prejudice before it can assert the defense of noncompliance."  I do agree with Eric, however, that a number of Chapter 388's less than pellucidly clear operative provisions will be litigated extensively in the New York courts.

Thanks for your scholarly and insightful contribution to this subject area, Eric.

Old Policy, Old Law -- CGL Insurer Not Required to Show Prejudice from Insured's Late Notice

CGL – LATE NOTICE – NO PREJUDICE RULE – GOOD FAITH BELIEF IN NONLIABILITY
Ponok Realty Corp. v. United Natl. Specialty Ins. Co.
(2nd Dept., decided 1/5/2010)

Plaintiff, insured landlord, received notice of its tenant's property damage claim more than one year before it notified its CGL insurer, United National Specialty Insurance Company, of that claim.  UNSIC disclaimed liability coverage based on the plaintiff's late notice, and plaintiff commenced this declaratory judgment action for defense and indemnification coverage, arguing: (1) that UNSIC was required to show that plaintiff's delayed reporting prejudiced UNSIC; and (2) that plaintiff's late notice should be excused because it had a good faith belief in nonliability.  Queens Supreme granted UNSIC's motion for summary judgment and plaintiff appealed.

In affirming Supreme Court's order, the Second Department noted that New York's new "prejudice rule" of New York Insurance Law § 3420(c)(2)(A) applies only to policies issued or delivered in New York State on or after January 17, 2009.  The policy in this case was effective from October 2003 to October 2004:

The plaintiff's argument that the "prejudice" rule articulated in Insurance Law § 3420(c)(2)(A), governs this case is unavailing. A 2008 amendment to Insurance Law § 3420(c)(2)(A) (see L 2008, ch 388, § 4) provides that where "an insurer alleges that it was prejudiced as a result of a failure to provide timely notice, the burden shall be on . . . the insurer to prove that it has been prejudiced" if the notice was provided within two years of the time required under the policy (see Insurance Law § 3420[c][2][A][i]). However, it is clear from section 8 of the act amending Insurance Law § 3420 that the amendments were to "apply to policies issued or delivered in this state on or after [January 17, 2009]" (McKinney's Cons Laws of NY, Book 27, Insurance Law § 3420, 2009 Pocket Part, at 15, Historical and Statutory Notes, L 2008, ch 388, § 8; see generally Matter of Auerbach v Board of Educ. of City School Dist. of City of N.Y., 86 NY2d 198, 204). The insurance policy issued by the defendant to the plaintiff was effective from October 3, 2003, until October 3, 2004. Since the policy was issued before the effective date of the relevant amendment to Insurance Law § 3420, the amended version of that section does not apply to the subject insurance policy.

The Second Department also rejected plaintiff's argument that it gave notice of the tenant's claim to UNSIC "as soon as practicable" and found that although the reasonableness of an insured's asserted good faith belief in nonliability generally is a question of fact for the fact-finder, plaintiff in this case had failed to raise a triable issue of fact as to whether its belief that its tenant would not file a claim was reasonable:

In general, the existence of a good faith belief that the injured party would not seek to hold the insured liable, and the reasonableness of such belief, are questions of fact for the fact-finder (see Genova v Regal Mar. Indus., 309 AD2d at 734; C.C.R. Realty of Dutchess v New York Cent. Mut. Fire Ins. Co., 1 AD3d at 305). The burden of demonstrating the reasonableness of the excuse lies with the insured (see Genova v Regal Mar. Indus., 309 AD2d at 734). Nevertheless, summary judgment may be awarded to the insurer if, construing all inferences in favor of the insured, the evidence establishes, as a matter of law, that the insured's belief in nonliability was unreasonable or in bad faith (see 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Co., 40 AD3d at 721; Genova v Regal Mar. Indus., 309 AD2d at 734).

Here, the defendant established its prima facie entitlement to judgment as a matter of law by demonstrating that it was not notified of the subject property damage claim until more than one year had elapsed since the plaintiff received notice of such claim from its tenant (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d at 743; Sputnik Rest. Corp. v United Natl. Ins. Co., 62 AD3d at 689; 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Co., 40 AD3d at 721; Genova v Regal Mar. Indus., 309 AD2d at 734). In opposition, the plaintiff failed to raise a triable issue of fact as to whether its belief that its tenant would not file a claim was reasonable. In construing all inferences in favor of the insured, the evidence established, as a matter of law, that the plaintiff's belief in nonliability was unreasonable (see 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Co., 40 AD3d at 721; Genova v Regal Mar. Indus., 309 AD2d at 734). Accordingly, the Supreme Court properly granted the defendant's motion for summary judgment.

If I only had a dollar for every time I've seen an appellate court remit a DJ matter back to the motion court for entry of a judgment. Remember folks, declaratory judgment actions end in judgments, not orders.

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?

Second Department Affirms Denial of Petition to Stay UM Arbitration -- Insurer's Late Notice & Lack of Physical Contact Grounds Rejected

UM – AUTO  – LATE NOTICE – PREJUDICE – PHYSICAL CONTACT
Matter of New York Cent. Mut. Fire Ins. Co. v. Vento
(2nd Dept., decided 6/9/2009)

The insured, Ann Vento, sought to compel arbitration of her uninsured motorists (UM) coverage claim after she allegedly was struck by an unidentified vehicle while crossing a street at a crosswalk on October 14, 2006.  New York Central Mutual (NYCM) petitioned the Supreme Court to permanently stay arbitration on the ground that the insured had failed to comply with the notice provisions of the subject insurance policy and failed to demonstrate that her injuries were caused by physical contact with the hit-and-run vehicle.

The first notice provision in the supplemental uninsured/underinsured motorist endorsement required that "the insured or someone on the insured's behalf ... shall have filed with the [insurer] a statement under oath."  The second notice provision of the SUM endorsement required both a "notice of claim" and a "proof of claim." Written notice of claim was required "[a]s soon as practicable."  However, written proof of claim was required, upon forms furnished by NYCM, "[a]s soon as practicable after [the petitioner's] written request."

Suffolk Supreme conducted a non-jury framed-issue hearing on the issue of whether the insured's claimed injuries were caused by physical contact with a hit-and-run vehicle and denied NYCM's petition for a stay of the insured's UM arbitration.  NYCM appealed.

In AFFIRMING the trial court's order, the Second Department concluded that: (1) NYCM had not demonstrated prejudice from the insured's delay in providing either notice of claim or proof of claim; and (2) the trial court's non-jury determination of physical contact was supported by the record and, as such, could not be disturbed on appeal:

The insurer's own submissions in support of its petition demonstrated that the insured provided it with notice of the accident as soon as practicable (see Matter of Firemen's Ins. Co. v Clinton, 54 AD3d 759, 759). To the extent that the insurer demonstrated a delay in receiving the "Notice of Intention to Make Claim" form after it sent a written request for proof of claim, the insurer failed to demonstrate that it was prejudiced by any such delay (see Rekemeyer v State Farm Mut. Auto. Ins. Co., 4 NY3d 468, 476; Matter of New York Cent. Mut. Fire Ins. Co. v Ward, 38 AD3d 898, 901; Matter of Nationwide Mut. Ins. Co. [Mackey], 25 AD3d 905, 906-907). 

Furthermore, the sworn, signed, and notarized "Notice of Intention to Make Claim" form received by the insurer satisfied the first notice provision of the subject policy which required that the insured file a "statement under oath" that indicated that the insured had a cause of action arising out of an accident against a person whose identity was unascertainable (cf. Matter of Allstate Ins. Co. v Estate of Aziz, 17 AD3d 460, 461; Matter of Eveready Ins. Co. v Ruiz, 208 AD2d 923, 923), and the insurer failed to demonstrate that it was prejudiced thereby (accord Rekemeyer v State Farm Mut. Auto. Ins. Co., 4 NY3d at 476; Matter of New York Cent. Mut. Fire Ins. Co. v Ward, 38 AD3d at 901; Matter of Nationwide Mut. Ins. Co. [Mackey], 25 AD3d at 906-907).

With respect to the insurer's contention that the insured failed to demonstrate physical contact, we note that "[p]hysical contact is a condition precedent to an arbitration based upon a hit-and-run accident involving an unidentified vehicle" (Matter of Great N. Ins. Co. v Ballinger, 303 AD2d 503, 504; see Insurance Law § 5217; State Farm Mut. Auto. Ins. Co. v Johnson, 287 AD2d 640, 640-641; Matter of Aetna Life & Cas. v Gramazio, 242 AD2d 530, 530). When there is an issue of fact as to whether physical contact occurred, a hearing on the issue must be conducted (see State Farm Mut. Auto. Ins. Co. v Johnson, 287 AD2d at 640-641; Matter of Aetna Life & Cas. v Gramazio, 242 AD2d at 530).

Where, as here, a case is tried without a jury, this Court's power to review the evidence is as broad as that of the trial court, "taking into account in a close case the fact that the trial judge had the advantage of seeing the witnesses'" (Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492, 499, quoting York Mortgage Corp. v Clotar Costr., 254 NY 128, 133-134). In this case, the Supreme Court's determination that the insured had been struck by an unidentified vehicle is supported by the record and will not be disturbed on appeal (see Matter of Halycon Ins. Co. v Fox, 44 AD3d 662). The insured's testimony, credited by the court, demonstrated that she had come into physical contact with the hit-and-run vehicle (see Matter of Nova Cas. Co. v Musco, 48 AD3d 572, 573; Matter of Allstate Ins. Co. v McMahon, 251 AD2d at 572; Matter of Aetna Life & Cas. v Gramazio, 242 AD2d at 530).

Prejudice Still Required for Late Notice of SUM Claim Where Timely Notice of Accident Was Given

AUTO – SUM – LATE NOTICE – PREJUDICE REQUIREMENT
Bhatt v. Nationwide Mut. Ins. Co.
(4th Dept., decided 4/24/2009)

Guess it may have been a fool's errand, after all.  Where timely notice of the original accident had been given, the claimant's delay of nearly 35 months in notifying Nationwide of her SUM claim was not enough without a showing of prejudice to deny SUM coverage based on late notice of the SUM claim:

"[W]here an insured previously gives timely notice of the accident, the carrier must establish that it is prejudiced by a late notice of SUM claim before it may properly disclaim coverage" (Rekemeyer v State Farm Mut. Auto. Ins. Co., 4 NY3d 468, 476). Here, it is undisputed that plaintiff timely notified defendant of the accident and, shortly thereafter, filed a claim for no-fault benefits. Defendant failed to establish that it was prejudiced by plaintiff's delay in providing notice of the SUM claim (see id. at 475-476).

I argued this case for Nationwide, but apparently did not convince the Fourth Department that the Rekemeyer prejudice-required rule cannot apply to every matter in which timely notice of the injury-causing accident was given.  What persuaded the Court of Appeals to change New York's common law and opt for a prejudice requirement in Rekemeyer was State Farm's opportunity to monitor and manage the claimant's active and longstanding no-fault claim in that case, an opportunity Nationwide did not have in this case.  Nonetheless, it's admittedly hard to ask the Appellate Division to carve out an exception to a Court of Appeals' rule that, in its face, seems so clear and absolute:  if there was timely notice of the accident, there must be prejudice from the late notice of the SUM claim in order to disclaim SUM coverage. 

SUM Arbitration Stay Denied -- Prejudice from Late Notice of SUM Claim Not Shown

SUM – LATE NOTICE – PREJUDICE
Matter of Liberty Mut. Ins. Co. (Frenkel)
(3rd Dept., decided 1/29/2009)

The New York Court of Appeals' April 2005 decision in Rekemeyer v State Farm Mut. Auto. Ins. Co. created a new rule:  New York auto insurers were required to show prejudice before disclaiming SUM coverage for an insured's late notice of a SUM claim.  Three years earlier, that same court had ruled in Matter of Brandon (Nationwide Mut. Ins. Co.), 97 NY2d 491 (2002) that a SUM carrier which receives timely notice of a SUM claim must show prejudice before disclaiming SUM benefits based on late notice of the underlying legal action.  In Rekemeyer, inasmuch as State Farm had received timely notice of the accident and the insured's no-fault claim, the court held that State Farm was required to but had not established prejudice from late notice of the actual SUM claim, especially since State Farm had investigated the accident and conducted IMEs in relation to the insured's no-fault claim.

The Third Department has now carried the Rekemeyer rule a step farther.  In this case, Liberty's insured was involved in an automobile accident in an auto accident in October 2004 when the vehicle he was driving was rear-ended.  Three weeks later, the insured's attorney sent a letter to Liberty notifying it that the insured had been injured in an automobile accident, had incurred medical expenses, lost wages from work and would be seeking no-fault benefits under his insurance policy. The letter also stated that "if our investigation reveals that the offending vehicle was not insured or underinsured, we are therefore reserving our rights to pursue [uninsured motorist/supplemental uninsured/underinsured motorist] benefits under [said] endorsement in the policy."

More than two years later, in December 2006, the insured's attorney notified Liberty that the insured was in the process of settling a lawsuit that he had commenced against the tortfeasor for the limits of the tortfeasor's insurance policy and that the insured, upon such settlement, intended to seek supplemental uninsured/underinsured motorist (SUM) benefits under his policy with Liberty.  On January 3, 2007, Liberty notified the insured that it was disclaiming coverage under the policy on the grounds that the insured had failed to provide Liberty with timely notice not only of his lawsuit against the tortfeasor, but also of his claim for SUM benefits. After the insured served Liberty with a notice to compel arbitration, Liberty commenced this CPLR article 75 special proceeding for a permanent stay of that arbitration.  Albany Supreme dismissed Liberty's petition, and Liberty appealed.

In AFFIRMING the dismissal of Liberty petition for a permanent stay of the SUM arbitration, the Third Department noted that the 2004 attorney's letter did put Liberty on notice "of the existence of the accident and the potential implications it held for its policy" and ruled:

There is no dispute that petitioner was put on notice of the existence of the accident within three weeks of its occurrence and that respondent would be submitting a claim pursuant to the no-fault provisions of the policy. With that notice, petitioner also received the police report prepared in connection with the accident that identified the individuals involved in the accident as well as the vehicle each individual was operating.  Petitioner was also notified at that time that respondent would seek SUM coverage under its policy if the tortfeasor's policy proved inadequate to fully compensate him for the injuries that he sustained in the accident.  Under the circumstances, petitioner had ample information at its disposal shortly after the accident occurred to properly investigate this claim and ensure that its interests under the policy were fully protected. Equally important, petitioner has failed to demonstrate that respondent's delay in notifying it of the third-party action or the SUM claim in any way compromised its ability to investigate the circumstances surrounding the accident or to protect its interests under this policy (see Rekemeyer v State Farm Mut. Auto. Ins. Co., 4 NY3d at 475; Matter of Nationwide Mut. Ins. Co. [Mackey], 25 AD3d at 907). As such, its application to stay arbitration was properly denied. 

Under this holding, a mere letter from the insured notifying the auto insurer of an accident with injuries and impending no-fault claim would appear to be enough to satisfy an insured's notice of SUM claim requirement if the auto insurer is unable to prove prejudice from the insured's delay in actual, formal notice of such a claim.  Does this mean that New York auto insurers should investigate every accident reported to them, regardless of seriousness and far in advance of having any reason to believe that a SUM claim may be made?  Why would they?

End of an Era -- The Last Hours of New York's No Prejudice Rule

Tomorrow at midnight, New York will join the ranks of other jurisdictions in which liability insurers must prove prejudice from delayed reporting of liability claims. The changes that Chapter 388 of the Laws of 2008 make to New York's Insurance Law take effect tomorrow, January 17, 2009.

WHAT ARE THESE CHANGES?

What changes are those, you ask? Essentially there are three:

1. Direct DJ Actions Allowed: Personal injury or wrongful death plaintiffs may commence and maintain declaratory judgment actions directly against liability insurers that have disclaimed liability or denied coverage based on late notice. Such DJ actions are limited to the question of late notice, and a plaintiff no longer will need to obtain a money judgment against the insured in order to maintain such a DJ action to challenge the insurer's late notice disclaimer.


2. Prejudice Required: The failure to give any required notice within the time period that a policy prescribes will not invalidate any liability coverage claim made by any insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer. In DJ litigation over a late notice disclaimer, "the insurer's rights shall not be deemed prejudiced unless the failure to timely provide notice materially impairs the ability of the insurer to investigate or defend the claim." Prejudice will be presumed "if, prior to notice, the insured's liability has been determined by a court of competent jurisdiction or by binding arbitration; or if the insured has resolved the claim or suit by settlement or other compromise." If the notice was provided within two years of the loss or occurrence, the burden will be on the insurer to prove that is was prejudiced; if the notice was delayed by more than two years, the burden will be on the insured, injured person or other claimant to prove the insurer was not prejudiced.


3. Disclosure of Liability Coverage & Limits Required: Upon written request, auto and personal liability (homeowners, renters, etc.) insurers will have 60 days to: (1) confirm the existence of liability coverage in effect on the date of the alleged occurrence; and (2) disclose the liability coverage limits of such policies. This new requirement does not apply to excess liability or umbrella policies, whether personal or commercial lines in nature. It also ostensibly does not apply to commercial liability policies, unless they are "used to satisfy a financial responsibility requirement imposed by law of regulation."

WHEN AND HOW DO THESE CHANGES BECOME EFFECTIVE?

When and how do these changes become effective, you ask? In relevant part, Section 8 of the bill states:

This act shall take effect on the one hundred eightieth day after it shall have become a law, and shall apply to policies issued or delivered in this state on or after such date and to any action maintained under such a policy[.]

Tomorrow is Day 180, and this section would seem to limit the entire "act" and its changes to policies "issued or delivered in this state" as of tomorrow, January 17, 2009. Expect there to be some litigation, however, over whether these new rules and requirements -- especially the the direct DJ right and coverage/limits disclosure rule -- apply immediately, even to policies issued or delivered before tomorrow. A strong argument can be made from the language of Section 8 of Chapter 388 that they do not.

The new prejudice requirement is clearly policy language driven, so there shouldn't be much dispute that it will only apply to qualifying policies issued or delivered on and after January 17, 2009. Not the loss date and not the disclaimer date. The policy inception or renewal date. Prejudice will be relevant only to late notice disclaimers of coverage under qualifying liability policies that have an inception or renewal date of January 17, 2009 or later.

To the extent that the new direct DJ right and coverage/limits disclosure requirement are statute driven (CPLR § 3001 and Insurance Law § 3420[d][1]), however, it is likely some will argue that those changes take effect tomorrow and apply regardless of the subject policy's inception or renewal date. I believe the above-quoted language of section 8 of the act indicates otherwise and strongly supports an argument that even those changes apply only to DJ actions brought and coverage requests made under qualifying liability policies issued or delivered on or after January 17, 2009. Liability insurers doing business in New York should consider this issue and choose what effective date and mechanism they will use in responding to direct late notice DJ actions commenced and requests for coverage/limits information received after today.

In determining whether the "new" rules or "old" rules apply, New York liability insurers should first determine the inception or renewal date of the policy under which the claim is made or information is sought. If that date is before Janaury 17, 2009, the "old" rules apply. In cases where these new rules apply, it goes without saying that there will be ample litigation over what constitutes prejudice and when a liability insurer's ability to investigate or defend a claim has been "materially impaired". These new rules do not, however, apply to late notice of first-party property coverage losses and claims. Or to no-fault losses or claims.

HOW WILL THE AMENDED STATUTORY SECTIONS READ?

During this transition period, the websites or services from which you obtain your New York statutory language may include asterisked "effective until..." and "effective..." notes and sections. Here's how the affected statutory sections will read as of tomorrow, January 17, 2009:

CPLR § 3001

§ 3001. Declaratory judgment.
The supreme court may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed. If the court declines to render such a judgment it shall state its grounds. A party who has brought a claim for personal injury or wrongful death against another party may maintain a declaratory judgment action directly against the insurer of such other party, as provided in paragraph six of subsection (a) of section three thousand four hundred twenty of the insurance law.

INSURANCE LAW § 3420

§ 3420. Liability insurance; standard provisions; right of injured person.

(a) No policy or contract insuring against liability for injury to person, except as provided in subsection (g) of this section, or against liability for injury to, or destruction of, property shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions that are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors:

(1) A provision that the insolvency or bankruptcy of the person insured, or the insolvency of the insured's estate, shall not release the insurer from the payment of damages for injury sustained or loss occasioned during the life of and within the coverage of such policy or contract.

(2) A provision that in case judgment against the insured or the insured's personal representative in an action brought to recover damages for injury sustained or loss or damage occasioned during the life of the policy or contract shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured, or upon the insured, and upon the insurer, then an action may, except during a stay or limited stay of execution against the insured on such judgment, be maintained against the insurer under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract.

(3) A provision that notice given by or on behalf of the insured, or written notice by or on behalf of the injured person or any other claimant, to any licensed agent of the insurer in this state, with particulars sufficient to identify the insured, shall be deemed notice to the insurer.

(4) A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, an injured person or any other claimant if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as was reasonably possible thereafter.

(5) A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer, except as provided in paragraph four of this subsection. With respect to a claims-made policy, however, the policy may provide that the claim shall be made during the policy period, any renewal thereof, or any extended reporting period, except as provided in paragraph four of this subsection. As used in this paragraph, the terms "claims-made policy" and "extended reporting period" shall have their respective meanings as provided in a regulation promulgated by the superintendent.

(6) A provision that, with respect to a claim arising out of death or personal injury of any person, if the insurer disclaims liability or denies coverage based upon the failure to provide timely notice, then the injured person or other claimant may maintain an action directly against such insurer, in which the sole question is the insurer's disclaimer or denial based on the failure to provide timely notice, unless within sixty days following such disclaimer or denial, the insured or the insurer: (A) initiates an action to declare the rights of the parties under the insurance policy; and (B) names the injured person or other claimant as a party to the action.

(b) Subject to the limitations and conditions of paragraph two of subsection (a) of this section, an action may be maintained by the following persons against the insurer upon any policy or contract of liability insurance that is governed by such paragraph, to recover the amount of a judgment against the insured or his personal representative:

(1) any person who, or the personal representative of any person who, has obtained a judgment against the insured or the insured's personal representative, for damages for injury sustained or loss or damage occasioned during the life of the policy or contract;

(2) any person who, or the personal representative of any person who, has obtained a judgment against the insured or the insured's personal representative to enforce a right of contribution or indemnity, or any person subrogated to the judgment creditor's rights under such judgment; and

(3) any assignee of a judgment obtained as specified in paragraph one or paragraph two of this subsection, subject further to the limitation contained in section 13-103 of the general obligations law.

(c) (1) If an action is maintained against an insurer under the provisions of paragraph two of subsection (a) of this section and the insurer alleges in defense that the insured failed or refused to cooperate with the insurer in violation of any provision in the policy or contract requiring such cooperation, then the burden shall be upon the insurer to prove such alleged failure or refusal to cooperate.

(2)(A) In any action in which an insurer alleges that it was prejudiced as a result of a failure to provide timely notice, the burden of proof shall be on: (i) the insurer to prove that it has been prejudiced, if the notice was provided within two years of the time required under the policy; or (ii) the insured, injured person or other claimant to prove that the insurer has not been prejudiced, if the notice was provided more than two years after the time required under the policy.
(B) Notwithstanding subparagraph (A) of this paragraph, an irrebuttable presumption of prejudice shall apply if, prior to notice, the insured's liability has been determined by a court of competent jurisdiction or by binding arbitration; or if the insured has resolved the claim or suit by settlement or other compromise.
(C) The insurer's rights shall not be deemed prejudiced unless the failure to timely provide notice materially impairs the ability of the insurer to investigate or defend the claim.

(d)(1)(A) This paragraph applies with respect to a liability policy that provides coverage with respect to a claim arising out of the death or bodily injury of any person, where the policy is: (i) subject to section three thousand four hundred twenty-five of this article, other than an excess liability or umbrella policy; or (ii) used to satisfy a financial responsibility requirement imposed by law or regulation.
(B) Upon an insurer's receipt of a written request by an injured person who has filed a claim or by another claimant, an insurer shall, within sixty days of receipt of the written request: (i) confirm to the injured person or other claimant in writing whether the insured had a liability insurance policy of the type specified in subparagraph (A) of this paragraph in effect with the insurer on the date of the alleged occurrence; and (ii) specify the liability insurance limits of the coverage provided under the policy.
(C) If the injured person or other claimant fails to provide sufficient identifying information to allow the insurer, in the exercise of reasonable diligence, to identify a liability insurance policy that may be relevant to the claim, the insurer shall within forty-five days of receipt of the written request, so advise the injured person or other claimant in writing and identify for the injured person or other claimant the additional information needed. Within forty-five days of receipt of the additional information, the insurer shall provide the information required under subparagraph (B) of this paragraph.

(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.

(e) No policy or contract of personal injury liability insurance or of property damage liability insurance, covering liability arising from the ownership, maintenance or operation of any motor vehicle or of any vehicle as defined in section three hundred eighty-eight of the vehicle and traffic law, or an aircraft, or any vessel as defined in section forty-eight of the navigation law, shall be issued or delivered in this state to the owner thereof, or shall be issued or delivered by any authorized insurer upon any such vehicle or aircraft or vessel then principally garaged or principally used in this state, unless it contains a provision insuring the named insured against liability for death or injury sustained, or loss or damage occasioned within the coverage of the policy or contract, as a result of negligence in the operation or use of such vehicle, aircraft or vessel, as the case may be, by any person operating or using the same with the permission, express or implied, of the named insured.

(f) (1) No policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any natural person arising out of the ownership, maintenance and use of a motor vehicle by the insured shall be issued or delivered by any authorized insurer upon any motor vehicle then principally garaged or principally used in this state unless it contains a provision whereby the insurer agrees that it will pay to the insured, as defined in such provision, subject to the terms and conditions set forth therein to be prescribed by the board of directors of the Motor Vehicle Accident Indemnification Corporation and approved by the superintendent, all sums, not exceeding a maximum amount or limit of twenty-five thousand dollars exclusive of interest and costs, on account of injury to and all sums, not exceeding a maximum amount or limit of fifty thousand dollars exclusive of interest and costs, on account of death of one person, in any one accident, and the maximum amount or limit, subject to such limit for any one person so injured of fifty thousand dollars or so killed of one hundred thousand dollars, exclusive of interest and costs, on account of injury to, or death of, more than one person in any one accident, which the insured or his legal representative shall be entitled to recover as damages from an owner or operator of an uninsured motor vehicle, unidentified motor vehicle which leaves the scene of an accident, a motor vehicle registered in this state as to which at the time of the accident there was not in effect a policy of liability insurance, a stolen vehicle, a motor vehicle operated without permission of the owner, an insured motor vehicle where the insurer disclaims liability or denies coverage or an unregistered vehicle because of bodily injury, sickness or disease, including death resulting therefrom, sustained by the insured, caused by accident occurring in this state and arising out of the ownership, maintenance or use of such motor vehicle. No payment for non-economic loss shall be made under such policy provision to a covered person unless such person has incurred a serious injury, as such terms are defined in section five thousand one hundred two of this chapter. Such policy shall not duplicate any element of basic economic loss provided for under article fifty-one of this chapter. No payments of first party benefits for basic economic loss made pursuant to such article shall diminish the obligations of the insurer under this policy provision for the payment of non-economic loss and economic loss in excess of basic economic loss. Notwithstanding any inconsistent provisions of section three thousand four hundred twenty-five of this article, any such policy which does not contain the aforesaid provisions shall be construed as if such provisions were embodied therein.

(2) (A) Any such policy shall, at the option of the insured, also provide supplementary uninsured/underinsured motorists insurance for bodily injury, in an amount up to the bodily injury liability insurance limits of coverage provided under such policy, subject to a maximum of two hundred fifty thousand dollars because of bodily injury to or death of one person in any one accident and, subject to such limit for one person, up to five hundred thousand dollars because of bodily injury to or death of two or more persons in any one accident, or a combined single limit policy of five hundred thousand dollars because of bodily injury to or death of one or more persons in any one accident. Provided however, an insurer issuing such policy, in lieu of offering to the insured the coverages stated above, may provide supplementary uninsured/underinsured motorists insurance for bodily injury, in an amount up to the bodily injury liability insurance limits of coverage provided under such policy, subject to a maximum of one hundred thousand dollars because of bodily injury to or death of one person in any one accident and, subject to such limit for one person, up to three hundred thousand dollars because of bodily injury to or death of two or more persons in any one accident, or a combined single limit policy of three hundred thousand dollars because of bodily injury to or death of one or more persons in any one accident, if such insurer also makes available a personal umbrella policy with liability coverage limits up to at least five hundred thousand dollars which also provides coverage for supplementary uninsured/underinsured motorists claims. Supplementary uninsured/underinsured motorists insurance shall provide coverage, in any state or Canadian province, if the limits of liability under all bodily injury liability bonds and insurance policies of another motor vehicle liable for damages are in a lesser amount than the bodily injury liability insurance limits of coverage provided by such policy. Upon written request by any insured covered by supplemental uninsured/underinsured motorists insurance or his duly authorized representative and upon disclosure by the insured of the insured's bodily injury and supplemental uninsured/underinsured motorists insurance coverage limits, the insurer of any other owner or operator of another motor vehicle against which a claim has been made for damages to the insured shall disclose, within forty-five days of the request, the bodily injury liability insurance limits of its coverage provided under the policy or all bodily injury liability bonds. The time of the insured to make any supplementary uninsured/underinsured motorist claim, shall be tolled during the period the insurer of any other owner or operator of another motor vehicle that may be liable for damages to the insured, fails to so disclose its coverage. As a condition precedent to the obligation of the insurer to pay under the supplementary uninsured/underinsured motorists insurance coverage, the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be exhausted by payment of judgments or settlements.
(B) In addition to the notice provided, upon issuance of a policy of motor vehicle liability insurance pursuant to regulations promulgated by the superintendent, insurers shall notify insureds, in writing, of the availability of supplementary uninsured/underinsured motorists coverage. Such notification shall contain an explanation of supplementary uninsured/underinsured motorists coverage and the amounts in which it can be purchased. Subsequently, a notification of availability shall be provided at least once a year and may be simplified pursuant to regulations promulgated by the superintendent, but must include a concise statement that supplementary uninsured/underinsured motorists coverage is available, an explanation of such coverage, and the coverage limits that can be purchased from the insurer.

(3) The protection provided by this subsection shall not apply to any cause of action by an insured person arising out of a motor vehicle accident occurring in this state against a person whose identity is unascertainable, unless the bodily injury to the insured person arose out of physical contact of the motor vehicle causing the injury with the insured person or with a motor vehicle which the insured person was occupying (meaning in or upon or entering into or alighting from) at the time of the accident.

(4) An insurer shall give notice to the commissioner of motor vehicles of the entry of any judgment upon which a claim is made against such insurer under this subsection and of the payment or settlement of any claim by the insurer.

(g) No policy or contract shall be deemed to insure against any liability of an insured because of death of or injuries to his or her spouse or because of injury to, or destruction of property of his or her spouse unless express provision relating specifically thereto is included in the policy as provided in paragraphs one and two of this subsection. This exclusion shall apply only where the injured spouse, to be entitled to recover, must prove the culpable conduct of the insured spouse.

(1) Upon written request of an insured, and upon payment of a reasonable premium established in accordance with article twenty-three of this chapter, an insurer issuing or delivering any policy that satisfies the requirements of article six of the vehicle and traffic law shall provide coverage against liability of an insured because of death of or injuries to his or her spouse up to the liability insurance limits provided under such policy even where the injured spouse, to be entitled to recover, must prove the culpable conduct of the insured spouse. Such insurance coverage shall be known as "supplemental spousal liability insurance".

(2) Upon issuanceof a motor vehicle liability policy that satisfies the requirements of article six of the vehicle and traffic law and that becomes effective on or after January first, two thousand three, pursuant to regulations promulgated by the superintendent, the insurer shall notify the insured, in writing, of the availability of supplemental spousal liability insurance. Such notification shall be contained on the front of the premium notice in boldface type and include a concise statement that supplementary spousal coverage is available, an explanation of such coverage, and the insurer's premium for such coverage. Subsequently, a notification of the availability of supplementary spousal liability coverage shall be provided at least once a year in motor vehicle liability policies issued pursuant to article six of the vehicle and traffic law, including those originally issued prior to January first, two thousand three. Such notice must include a concise statement that supplementary spousal coverage is available, an explanation of such coverage, and the insurer's premium for such coverage.

(h) In this section, the term "insurance upon any property or risk located in this state" includes insurance against legal liability arising out of the ownership, operation or maintenance of any vehicle which is principally garaged or principally used in this state, or arising out of the ownership, operation, use or maintenance of any property which is principally kept or principally used in this state, or arising out of any otheractivity which is principally carried on in this state.

(i) Except as provided in subsection (j) of this section, the provisions of this section shall not apply to any policy or contract of insurance in so far as it covers the liability of an employer for workers' compensation, if such contract is governed by the provisions of section fifty-four of the workers' compensation law, or by any similar law of another state, province or country, nor to the kinds of insurances set forth in paragraph three of subsection (b) of section two thousand one hundred seventeen of this chapter.

(j) (1) Notwithstanding any other provision of this chapter or any other law to the contrary, every policy providing comprehensive personal liability insurance on a one, two, three or four family owner-occupied dwelling, issued or delivered in this state on and after the first of March, nineteen eighty-four, shall provide for coverage against liability for the payment of any obligation, which the policyholder may incur pursuant to the provisions of the workers' compensation law, to an employee arising out of and in the course of employment of less than forty hours per week, in and about such residences of the policyholder in this state. Such coverage shall provide for the benefits in the standard workers' compensation policy issued in this state. No one who purchases a policy providing comprehensive personal liability insurance shall be deemed to have elected to cover under the workers' compensation law any employee who is not required, under the provisions of such law, to be covered.

(2) The term "policyholder" as used in this subsection shall be limited to an individual or individuals as defined by the terms of the policy, but shall not include corporate or other business entities or an individual who has or individuals who have in effect a workers' compensation policy which covers employees working in and about his or their residence.

(3) Every insurer who is licensed by the superintendent to issue homeowners or other policies providing comprehensive personal liability insurance in this state shall also be deemed to be licensed to transact workers' compensation insurance for the purpose of covering those persons specified in this subsection.

INSURANCE LAW § 2601(a)

§ 2601. Unfair claim settlement practices; penalties.

(a) No insurer doing business in this state shall engage in unfair claim settlement practices. Any of the following acts by an insurer, if committed without just cause and performed with such frequency as to indicate a general business practice, shall constitute unfair claim settlement practices:

(1) knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue;

(2) failing to acknowledge with reasonable promptness pertinent communications as to claims arising under its policies;

(3) failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies;

(4) not attempting in good faith to effectuate prompt, fair and equitable settlements of claims submitted in which liability has become reasonably clear, except where there is a reasonable basis supported by specific information available for review by the department that the claimant has caused the loss to occur by arson. After receiving a properly executed proof of loss, the insurer shall advise the claimant of acceptance or denial of the claim within thirty working days;

(5) compelling policyholders to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them; or

(6) failing to promptly disclose coverage pursuant to subdivision (d) or subparagraph (A) of paragraph two of subsection (f) of section three thousand four hundred twenty of this chapter.

First Department's Exception to the No-Prejudice Rule in Liability Insurance

I've significantly expanded my original post of December 10th and done an analysis of the First Department's ruling in American Tr. Ins. Co. v Rechev of Brooklyn, Inc.  

 Do the First Department's rulings in that case and others conflict with the Court of Appeals' 2005 decision in Argo Corp. v Greater N.Y. Mut. Ins. Co.?  Read about it here and draw your own conclusions.