An Insurer Is Not Required to Deny Coverage Where None Exists

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

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

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

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

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

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

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

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

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

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

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

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

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

No Coverage for a Non-Non-Owned Car

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

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

Henderson's personal auto policy with Phoenix provided:

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

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

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

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

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

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

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

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

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

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). 

Fourth Department Holds that Additional Insured's Asserted Belief in Nonliability Was an "Insufficient Excuse" to Its Three-Month Late Notice of Suit

CGL – ADDITIONAL INSURED – LATE NOTICE OF SUIT – GOOD FAITH BELIEF IN NONLIABILITY – TIMELY DISCLAIMER
Lehigh Constr. Group, Inc. v. Lexington Ins. Co.
(4th Dept., decided 2/11/2010)

On February 23, 2007, Lehigh Construction Group received suit papers from an employee of a subcontractor who allegedly had been injured on a construction site on which Lehigh had been acting as the general contractor.  Although Lehigh had been named as an additional insured on the subcontractor's CGL policy with Lexington, Lehigh did not notify Lexington of the occurrence until April 17, 2007 and did not forward a copy of the complaint to Lexington until May 8, 2007.  Lexington's policy required notice of an occurrence, claim or suit "as soon as practicable".

By letter dated May 15, 2007, Lexington denied defense and indemnification coverage to Lehigh in relation to the underlying action based upon Lehigh's failure to provide notice of its receipt of the complaint as soon as practicable.  Lehigh commenced this declaratory judgment action, attempting to excuse its delay in forwarding the complaint by arguing that its delay was based upon a reasonable belief in nonliability, namely, because it was only a "pass through" defendant with respect to the underlying action.  Erie County Supreme Court denied Lexington's motion for summary judgment based on its determination that there were issues of fact regarding whether Lehigh's notice to Lexington was timely.

In REVERSING the order appealed from and granting summary judgment to Lexington, the Appellate Division, Fourth Department, held that plaintiff's assumption that other parties would bear the ultimate responsibility for the underlying plaintiff's injuries was an insufficient excuse for failing to provide Lexington with timely notice of the underlying action's commencement.  The appellate court ruled that although an insured's good faith belief in nonliability may excuse that insured's failure to provide timely notice of an occurrence, Lehigh's asserted belief in nonliability was an "insufficient excuse" for its late notice of the lawsuit:

In opposing the motion, plaintiff contended that its delay was based upon a reasonable belief in nonliability because it was only a "pass through" defendant with respect to the underlying action. Although a good faith belief in nonliability may excuse a failure to provide timely notice of an occurrence (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d 742, 743), here there was a failure to provide timely notice of the actual commencement of the underlying action. We thus conclude under these circumstances that, as a matter of law, plaintiff's assumption that other parties would bear the ultimate responsibility for Sherk's injuries is an insufficient excuse for failing to provide Lexington with timely notice of the fact that the underlying action had been commenced (see Philadelphia Indem. Ins. Co. v Genesee Val. Improvement Corp., 41 AD3d 44, 47).  

The Fourth Department further held that Lexington's disclaimer, issued after Lexington's investigation of the matter and within four weeks of its first notice of the accident and underlying action, was timely as a matter of law.

Pay attention.  This appears to be a new rule, at least in the Fourth Department.  An insured's asserted good faith belief in nonliability will not serve to excuse its failure to comply with a liability insurance policy's timely notice of claim or suit condition.  That excuse will only apply to the insured's failure to comply with the policy's notice of accident or occurrence condition.   Remember -- most liability policies contain tandem but distinct notice conditions:  (1) notice of accident or occurrence; and (2) notice of claim or suit.  In the opinion of the Fourth Department, an insured's asserted good faith belief in nonliability applies only to the former condition, not the latter.

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

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

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

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

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

Question of Fact Found on Timeliness of Auto Insurer's Late Notice Disclaimer

AUTO – INSURANCE LAW § 3420(A)(2) – TIMELINESS & SUFFICIENCY OF DISCLAIMER – LATE NOTICE
Liriano v. Eveready Ins. Co.
(2nd Dept., decided 8/4/2009)

Plaintiff sued and obtained a $40,122,06 default judgment against Eveready's insured.  In accordance with Insurance Law § 3420(a)(2), plaintiff served a copy of the default judgment with notice of entry on Eveready by mail on August 13, 2007. Eveready claimed that it never received that judgment in the mail, but first learned of it on March 13, 2008, issuing a disclaimer six days later.  Plaintiff commenced this direct action pursuant to Insurance Law § 3420(b)(1) and successfully moved for summary judgment.  Eveready appealed. 

In REVERSING judgment to the plaintiff, the Second Department ruled that the motion court had improperly granted plaintiff's motion:

In response, the defendant came forward with a sworn denial of receipt and an affidavit of an employee with personal knowledge regarding the defendant's regular practices and procedures in retrieving, opening, and indexing its mail and in maintaining its files on existing claims. That affidavit indicated that the defendant did not receive the judgment in the mail, and instead first learned of it on March 13, 2008, promptly issuing a disclaimer only six days later. Under the circumstances of this case, the defendant's submissions sufficed to raise a triable issue of fact regarding the service of the judgment, and the question of whether the defendant's disclaimer of coverage was timely must await the resolution of that issue (see e.g. Matter of TNT Petroleum, Inc. v Sea Petroleum, Inc., 40 AD3d 771; Johnson v Deas, 32 AD3d 253; First Union Mtge. Corp. v Silverman, 242 AD2d 258; Long Is. Sav. Bank v Meliso, 229 AD2d 478; Poet v Kolenda, 142 AD2d 633). 

Plaintiff had also challenged the sufficiency of Eveready's disclaimer, contending that it was defective and, thus, invalid as against the plaintiff.  The Second Department rejected that argument, as well, holding:

Contrary to the plaintiff's contention and the determination of the Supreme Court, the letter of disclaimer was not defective and, therefore, was not invalid as against the plaintiff. Rather, the letter sent to the plaintiff adequately recited that the defendant was disclaiming coverage as to the plaintiff on the ground that he failed to provide the defendant with timely notice of the underlying litigation and with legal papers filed in connection therewith (see American Tr. Ins. Co. v Sartor, 3 NY3d 71; Matter of GEICO Co. v Wingo, 36 AD3d 908; cf. Shell v Fireman's Fund Ins. Co., 17 AD3d 444; Vacca v State Farm Ins. Co., 15 AD3d 473).

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?

Question of Fact Found on Service on Insurer of Money Judgment Against Insured

AUTO – INSURANCE LAW § 3420(B)(1)– TIMELINESS OF DISCLAIMER
Liriano v. Eveready Ins. Co.
(2nd Dept., decided 6/9/2009)

Plaintiff obtained a $40,112.06 money judgment against Eveready's insured on default, and served that judgment by mail on Eveready on August 13, 2007.  Eveready claimed it did not receive that judgment in the mail, and instead first learned of it on March 13, 2008, promptly issuing a disclaimer six days later.

Plaintiff commenced this action to enforce payment of the judgment pursuant to Insurance Law §§ 3420(a)(2) and (b)(1).  Queens Supreme granted plaintiff's motion for summary judgment and Eveready appealed. 

In REVERSING the plaintiff's judgment, the Second Department held that Eveready had created a triable issue of fact on its alleged non-receipt of the money judgment by submitting "a sworn denial of receipt and an affidavit of an employee with personal knowledge regarding the defendant's regular practices and procedures in retrieving, opening, and indexing its mail and in maintaining its files on existing claims."  That employee averred that Eveready had not received the judgment in the mail.  "Under the circumstances of this case, the defendant's submissions sufficed to raise a triable issue of fact regarding the service of the judgment, and the question of whether the defendant's disclaimer of coverage was timely must await the resolution of that issue", ruled the Second  Department.

The appellate court also overruled the Supreme Court's determination that Eveready's disclaimer letter was defective and invalid as against the plaintiff:

Rather, the letter sent to the plaintiff adequately recited that the defendant was disclaiming coverage as to the plaintiff on the ground that he failed to provide the defendant with timely notice of the underlying litigation and with legal papers filed in connection therewith (see American Tr. Ins. Co. v Sartor, 3 NY3d 71; Matter of GEICO Co. v Wingo, 36 AD3d 908; cf. Shell v Fireman's Fund Ins. Co., 17 AD3d 444; Vacca v State Farm Ins. Co., 15 AD3d 473). 

For those who might wonder why the Second Department did not grant reverse summary judgment to Eveready on the timeliness of a disclaimer issued only six days after first notice, the triable issue identified by the court was not whether six days was timely, but whether Eveready would be able to convince the trier(s)-of-fact that it did not receive the judgment in the mail. 

Disclaimer Issued 44 Days After First Notice Held Timely Given Insurer's Investigation

AUTO – UM – STAY OF ARBITRATION – REASONABLE EXCUSE FOR DELAYED DISCLAIMER
Matter of GMAC Ins. Co. v. Jones
(4th Dept., decided 4/24/2009)

GMAC commenced this special proceeding to stay arbitration of Jones' UM claim.  Jones was injured in a July 3, 2006 motor vehicle accident with Nova Casualty Company's insured, Willoughby.  Nova's first notice of the accident came on January 8, 2008, when it received a letter from Jones's attorney concerning the accident.  On January 14, 2008, Nova sent a letter to Willoughby indicating that there was a "coverage question" based on his "failure to report an accident and cooperate in the investigation." The letter further stated that Nova would continue to handle the claim but that it reserved its right to disclaim coverage.

Thereafter, Nova attempted to locate Willoughby to allow him to explain his failure to notify Nova of the claim. Nova's efforts included sending a letter to Willoughby's last known address, which was returned as undeliverable; calling Willoughby at several of his last known telephone numbers; calling Willoughby's sister, who stated that she had not had contact with Willoughby since April 2007; calling Willoughby's neighbors at Willoughby's known addresses; physically attempting to contact Willoughby at four known addresses; sending letters to Willoughby at his sister's address; attempting to obtain a copy of the police report from the accident; and corresponding with respondent's attorney in an attempt to obtain additional information concerning Willoughby.

Despite those efforts, Nova never received a response from Willoughby, and it disclaimed coverage on February 21, 2008.  Jones then requested UM arbitration with GMAC, contending that Willoughby's vehicle was an "uninsured vehicle" under his policy.

GMAC commenced this special proceeding to stay Jones's UM arbitration, naming Nova as a proposed additional respondent and contending that Willoughby's vehicle was not uninsured because Nova's disclaimer, sent  six weeks after first notice, was untimely.  Erie Supreme denied  GMAC's request for a framed hearing on the timeliness of Nova's disclaimer and denied GMAC's petition.

In AFFIRMING the denial of GMAC's petition, the Fourth Department agreed that Nova had established as a matter of law that its disclaimer of coverage was valid, based on the 18-month delay between the date of the accident and the date on which Nova received notice of that accident.  The appellate court found that Nova was justified in investigating the 18-month late notice before disclaiming:

Contrary to petitioner's further contention, the delay of 44 days between the date on which Nova received notice of the claim and the date on which it notified Willoughby of the disclaimer did not render its disclaimer of coverage untimely. It is well settled that, "[i]n order to effectively disclaim liability or deny coverage . . . under an automobile liability insurance policy, an insurer must give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage' " (Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1029, rearg denied 47 NY2d 951). "[A]n insurer's explanation [for a delay in notifying the insured of a disclaimer] is insufficient as a matter of law where the basis for denying coverage was or should have been readily apparent before the onset of the delay" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 69). "However, an insurer's delay in notifying the insured of a disclaimer may be excused when the insurer conducts an investigation into issues affecting [its] decision whether to disclaim coverage' . . . In that case, the burden is on the insurer to demonstrate that its delay was reasonably related to its completion of a thorough and diligent investigation" (Tully Constr. Co., Inc. v TIG Ins. Co., 43 AD3d 1150, 1152-1153, quoting First Fin. Ins. Co., 1 NY3d at 69). 

We conclude that Nova's efforts constituted an "investigation into issues affecting [Nova's] decision whether to disclaim coverage" (First Fin. Ins. Co., 1 NY3d at 69; see generally Tully Constr. Co., Inc., 43 AD3d at 1153; Sirius Am. Ins. Co. v TGC Constr. Corp., 37 AD3d 818, 819). Nova therefore established a reasonable excuse for the delay as a matter of law, and there was no reason to conduct a "framed issue hearing" with respect to Nova's disclaimer. The fact that Nova knew on January 8, 2008 that the claim involved an accident that occurred on July 3, 2006 "did not make it readily apparent' that it had the right to disclaim coverage" (Ace Packing Co., Inc. v Campbell Solberg Assoc., Inc., 41 AD3d 12, 15). "Only an investigation of the type ordered by [Nova] would yield [information that it] needed in order to make a good faith decision regarding disclaimer" (id.; see Norfolk & Dedham Mut. Fire. Ins. Co. v Petrizzi, 121 AD2d 276, 278, lv denied 68 NY2d 611).

Oh, Won't You Stay...Just a Little Bit Longer...Please, Please, Please....Say You Will

PERSONAL AUTO – LATE NOTICE – TIMELY DISCLAIMER
Roules v. State Farm Ins. Cos.
(2nd Dept., decided 2/10/2009)

If this were a post just about the timeliness of a late notice disclaimer issued 13-days after first notice, it'd be a short one.  Heck, I could tweet it in 140 characters or less (and did, as a matter of fact).

No, this post is more about one of the challenges that both property and liability insurers face in litigating insurance coverage disputes:  getting trial courts to stay the trial of the dispute long enough to prosecute an appeal of a dispositive legal issue.

Trial judges and their law clerks do what they can to manage their sizable dockets.  I understand and don't begrudge them that.  Cases come off dockets in one of three ways:  (1) on dispositive motion; (2) by settlement or discontinuance; or (3) after trial.  Judges and their clerks understand the economics of trying insurance coverage disputes (a/k/a expense in ratio to uncertainty of result) almost as well as insurers themselves do.   Judges also understand, no doubt from past experience, whether active or passive, that a looming trial tends to facilitate settlement of such disputes.  Fair or not, scheduling a quick trial or refusing to stay one to allow the insurer to prosecute an appeal, promotes settlement in many cases.  Cases that then come off judges' dockets and free up their calendars.  To busy litigators and judges, found time can be better than found money.

As a coverage litigator, I've encountered this situation a number of times -- summary judgment denied with a scheduled trial date in fewer months than an appeal can be perfected, argued and decided.  More times than not, the trial judges have been unwilling to stay the trial to allow for the completion of an appeal even where, as in most cases, there would be little if any prejudice to the insured if the trial were delayed.  Why is that?  Why should trial judges care if the appeal goes first?  The most probable reason is leverage.  To leverage a settlement of the action.

Although this dynamic applies more readily to first-party than third-party coverage disputes, liability insurers are not immune from such economic pressure.  My office recently completed a relatively expensive week-long trial of a declaratory judgment action and is a few weeks away from oral argument of the pre-trial denial of our client's motion for summary judgment.  The trial judge refused to stay the trial, and our client did not want us to make a formal motion to either the trial judge of Appellate Division.  No automatic stay provision of CPLR 5519 applied, and a trial is not a proceeding to enforce an order denying summary judgment, per subdivision (c).  We now have two appeals pending -- one from the summary judgment motion denial; and one from the trial judgment.  Yes, the jury found against our client at trial, but given who the insured (a church) and venue (a rural, conservative county) were, we knew going in that our best chance of prevailing in that case was on motion, not at trial.

Cut back to the captioned  case. From eCourts we learn that this action was brought in August 2006 against State Farm pursuant to New York Insurance Law § 3420(a)(2) and (b)(1) to enforce a $150,000 default judgment that was granted against State Farm's insured, Jose Rodriguez, on February 9, 2006 for injuries the plaintiff allegedly had sustained in a motor vehicle accident on June 30, 2001.  State Farm received first notice of the accident on December 14, 2004 (more than three years after the accident date, presumably in relation to the underlying Roules v. Rodriguez action) and disclaimed coverage to Mr. Rodriguez under his auto policy based on late notice on December 27, 2004, 13 days later. 

After obtaining the default judgment, Roules sued State Farm, contending that its denial of coverage to Rodriguez was wrongful.  State Farm moved for summary judgment, which was denied, the motion court holding in August 2008 that "whether the service of the disclaimer in this action was timely, remains an issue of fact."  State Farm appealed. 

CPLR 2201 provides:

Stay

Except where otherwise prescribed by law, the court in which an action is pending may grant a stay of proceedings in a proper case, upon such terms as may be just.

In this case, it appears State Farm made a motion to stay the trial of this 3420(a)(2) judgment-creditor's enforcement action directly to the Appellate Division, Second Department, which, without opposition from the plaintiff-respondent, the Second Department granted on October 30, 2008 "pending hearing and determination of [State Farm's] appeal."  Neither the eCourts' appearance listing nor the Second Department's memorandum decision reveals when the trial of the action had been scheduled.

Last week, the Second Department issued its decision on State Farm's appeal.  Not surprisingly, at least not to me, the court ruled that "[c]ontrary to the determination of the Supreme Court, the timeliness of the disclaimer issued by the defendant State Farm ... did not present an issue of fact":

State Farm made a prima facie showing of its entitlement to judgment as a matter of law by demonstrating that only 13 days elapsed between the date that it first learned of the subject accident and the date that it issued its disclaimer of coverage on the ground of late notice. Moreover, during that 13-day interval, State Farm investigated the matter, reviewed its file, and unsuccessfully attempted to contact its insured. In response to this showing, the plaintiff failed to raise a triable issue of fact. Accordingly, State Farm's disclaimer was timely as a matter of law under the circumstances, and its motion for summary judgment should have been granted (see generally Tully Constr. Co., Inc. v TIG Ins. Co., 43 AD3d 1150; Matter of New York Cent. Mut. Fire Ins. Co. v Gonzalez, 34 AD3d 816; Schoenig v North Sea Ins. Co., 28 AD3d 462; Blue Ridge Ins. Co. v Jiminez, 7 AD3d 652). 

Would the Second Department have been less likely to grant State Farm's motion for a stay of the trial had the plaintiff-respondent opposed that motion?  Perhaps.  Regardless, I submit that more trial and appellate courts should exercise their discretion under CPLR 2201 to grant stays of trials in insurance coverage cases where the insured or judgment creditor will suffer little or no prejudice from a delay of mere months to permit an appeal to be perfected, argued and decided.  It's not that I don't understand how the litigation game is played in cases such as this with judges who apply pressure on insurers to settle and forgo their appeals.  I don't have to like it, though. 

By the way, lest any of you non-music trivialists think that Jackson Browne is to thank for this post's lyrical title (I'll save and try to work "The Load Out" into a future post), it was actually Maurice Williams and the Zodiacs who wrote/first sang Stay in 1959.  The Hollies did an upbeat cover in 1963, and Frankie Valli and the Four Seasons covered the tune again in 1964.  There.  Now you know.  Enjoy all versions.

Question of Fact Found on Whether Assignor Was a "Qualified Person" Entitled to No-Fault Benefits from MVAIC

NO-FAULT – MVAIC – "QUALIFIED PERSON" – TIMELY DISCLAIMER
Howard M. Rombon, Ph.D, P.C. a/a/o Francisca Ruiz-Diaz v. MVAIC
(App. Term, 2nd Dept., decided 10/27/2008)

The New York Motor Vehicle Accident Indemnification Corporation (MVAIC) was established to pay bodily injury damages and no-fault benefits to “qualified” victims of motor vehicle accidents caused by uninsured motorists.

New York Insurance Law § 5221 provides:   

No-fault" benefits to qualified persons.  (a) The terms "basic economic loss", "first party benefits", non-economic loss", "serious injury", "motor vehicle", "insurer", "uninsured motor vehicle" and "covered person", as used in this section, shall have the same meaning given them in section five thousand one hundred two of this chapter.
(b) (1) Notwithstanding the provisions of this article, the corporation shall also provide for the payment of first party benefits to a qualified person for basic economic loss arising out of the use or operation in this state of an uninsured motor vehicle.
(2) A qualified person who has complied with all the applicable requirements of this article shall be deemed to be a covered person and shall have only such rights as a covered person may have under article fifty-one of this chapter.

Insurance Law § 5202(b) defines a "qualified person", in part as, as:

(i) a resident of this state, other than an insured or the owner of an uninsured motor vehicle and his spouse when a passenger in such vehicle, or his legal representative, or (ii) a resident of another state, territory or federal district of the United States or province of the Dominion of Canada, or foreign country, in which recourse is afforded, to residents of this state, of substantially similar character to that provided for by this article, or his legal representative.

In less legalistic, more straightforward terms,  MVAIC's website gives this explanation of what a "qualified person" is:

QUALIFIED PERSON is a resident of New York State or a resident of another state or country having a substantially similar program available to New York State residents injured in that state or country. A QUALIFIED PERSON is someone other than (1) an insured, or (2) the owner of an uninsured motor vehicle and his/her spouse when a passenger in such vehicle. An example of a QUALIFIED PERSON is a pedestrian residing in New York State who does not own a motor vehicle and does not qualify as an insured person under any automobile liability insurance policy, who is struck by an uninsured motor vehicle in New York State.

Plaintiff medical provider brought this action to recover assigned no-fault benefits and moved for summary judgment.  Defendant Motor Vehicle Accident Indemnification Corporation (MVAIC) cross-moved for summary judgment, arguing, that plaintiff's assignor was not a qualified person because she did not provide MVAIC with proof that she was a resident of the State of New York.  Queens Civil granted plaintiff's motion for summary judgment and denied MVAIC's cross motion. MVAIC appealed.

In REVERSING the order appealed from and denying summary judgment to plaintiff, the Appellate Term, Second Department, held:

 Pursuant to Insurance Law § 5221 (b) (2), to be "deemed a covered person" and thereby "have such rights as a covered person may have under [Insurance Law article 51]," an injured person must be a "qualified person," as that term is defined in Insurance Law § 5202 (b), and must have complied with all of the applicable requirements of Insurance Law article 52 (e.g. Insurance Law § 5208). Based upon a review of the moving and cross-moving papers, we find an issue of fact exists as to whether plaintiff's assignor is a "qualified person" and, thus, whether she is a "covered" person entitled to rights under Insurance Law article 51 (see Insurance Law § 5221 [b] [2]; Zuckerman v City of New York, 49 NY2d 557 [1980]). 

Plaintiff provider argued that MVAIC's disclaimer of no-fault benefits was untimely.  In rejecting that argument, the Appellate Term ruled:

We note that MVAIC's failure to establish that it timely denied plaintiff's claims is of no consequence since an assertion that there is a lack of coverage may always be raised (see Central Gen. Hosp. v Chubb Group of Ins. Cos., 90 NY2d 195, 199-200 [1997]; Zappone v Home Ins. Co., 55 NY2d 131 [1982]; A.B. Med. Servs. PLLC v Motor Veh. Acc. Indem. Corp., 10 Misc 3d 145[A], 2006 NY Slip Op 50139[U] [App Term, 2d & 11th Jud Dists 2006]), and the holding in New York Hosp. Med. Ctr. of Queens v Motor Veh. Acc. Indem. Corp. (12 AD3d 429 [2004]) is not to the contrary.