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

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

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

Review points from this decision:

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


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


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

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

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

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

The First Department is especially strict with the obligation of New York liability insurers under New York Insurance Law § 3420(d)(2) to "disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state ... as soon as is reasonably possible[.]"

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

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

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

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

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

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

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

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

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

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

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

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

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

George Campbell Painting Reprised

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

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

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

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

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

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

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

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

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

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

... and Sometimes the Bar Eats You

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

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

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

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

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

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

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

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

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

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

Appellate Division, First Department, Holds that Fee Schedule is a Precludable Defense

NO-FAULT – WORKERS' COMPENSATION FEE SCHEDULE – DEFENSE PRECLUSION – UNTIMELY DENIAL – INSURANCE LAW § 5106
Mercury Cas. Co. v. Encare, Inc.
(1st Dept., decided 12/13/2011) 

If a New York no-fault insurer does not issue a timely denial of PIP benefits, is it precluded from limiting payment to the amounts prescribed by the New York workers' compensation fee schedule?  In the opinion of the Appellate Division, First Department, the answer is YES, it is precluded from asserting the fee schedule defense.

Nor do we find it significant, in light of the genesis and purposes of the preclusion rule, that Insurance Law § 5108 prohibits a medical provider from seeking fees in excess of the fee schedule. Virtually every application of the preclusion rule involves the compromise of statute, policy provision, or judge-made rule in service of effectuating the important purposes of the No-Fault Law. The expansion of the lack of coverage exception proposed by Mercury would substantially weaken the long-established rule of preclusion.

Jason Tenenbaum, who represented Mercury in this case, offers his observations of this decision here.

Madness.  Simply madness.

When Just a Reservation of Rights Letter Won't Do

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

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

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

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

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

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

*  *  *  *  *

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Should Liability Insurers Investigate Coverage Issues in New York?

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

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

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

For this statute to apply there must be four things:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Insurer Failed to Establish that Its 62-Day Delay in Disclaiming Liability Coverage Was Reasonably Related to the Completion of a Necessary Investigation

CGL – UNTIMELY DISCLAIMER – NEED TO INVESTIGATE
Crocodile Bar, Inc. v. Dryden Mut. Ins. Co.
(4th Dept., decided 4/24/2009)

Plaintiff brought this declaratory judgment action seeking defense and indemnification coverage for three underlying personal injury actions and moved for summary judgment, contending that Dryden had failed timely to disclaim liability coverage.

Erie Supreme granted plaintiff's motion and the Fourth Department AFFIRMED, finding that Dryden had failed to establish that its 62-day delay in disclaiming coverage based on the policy's liquor liability exclusion was reasonable:

"[A] timely disclaimer [of coverage] pursuant to Insurance Law § 3420(d) is required [where, as here,] a claim falls within the coverage terms but is denied based on a policy exclusion" (Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648-649; see Worcester, 95 NY2d at 188-190; Penn-America Group v Zoobar, Inc., 305 AD2d 1116, 1117, lv denied 100 NY2d 511). "[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" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 66; see Republic Franklin Ins. Co. v Pistilli, 16 AD3d 477, 479; Squires v Robert Marini Bldrs., 293 AD2d 808, 810, lv denied 99 NY2d 502). Here, Dryden's claims adjuster was aware when he received the claim on November 10, 2005 that the claim was excluded from the policy, and Dryden failed to establish that its 62-day delay was "reasonably related to the completion of a necessary, thorough, and diligent investigation" (Quincy Mut. Fire Ins. Co. v Uribe, 45 AD3d 661, 662; see First Fin. Ins. Co., 1 NY3d at 70; Morath v New York Cent. Mut. Fire Ins. Co., 49 AD3d 1245).

Rule:  When an insurer attempts to explain a delay in disclaiming liability coverage by asserting that there was a need to investigate issues that would affect the decision on whether to disclaim, the burden is on the insurer to establish that the delay was reasonably related to the completion of a necessary, thorough, and diligent investigation.

Insurer's Mere Denial of Receipt of Default Judgment Against Its Insured Held Not to Rebut Presumption of Its Receipt

AUTO – LATE NOTICE OF SUIT – INSURANCE LAW § 3420(A)(2) ACTION – PRESUMPTION OF RECEIPT – UNTIMELY DISCLAIMER
Maldonado v. State Farm Mut. Auto. Ins. Co.
(NYC Civil, Queens Co., decided 1/15/2009)

It has long been held in New York -- usually in the context of a notice of cancellation of an insurance policy -- that a person's mere denial of receipt, without more, is insufficient to rebut the presumption of receipt that arises from evidence of proper mailing.  See this blog's Presumption of Receipt label.  It is usually the insurer who benefits from that rule.  In this case, however, it worked against State Farm. 

Sometimes called New York's "direct action statute", New York Insurance Law § 3420(a)(2) provides:

§ 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) hereof, 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 which are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors:

(2) A provision that in case judgment against the insured or his 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.

The New York Court of Appeals has held that since this particular section does not specifically provide a method for giving notice of entry of judgment to the insurer, any method of service which is reasonably calculated to do so ought to be sufficient to comply with the statutory requirement.  Thrasher v United States Liability Ins. Co., 19 NY2d 159 (1967).  Under New York CPLR Rule 2103, service of papers on a party who has not appeared may be made by regular mail.

In this case plaintiffs brought a personal injury action and obtained a $25,000 default judgment against State Farm's insured.  The personal injury action stemmed from a November 21, 2003 automobile accident, but this decision does not indicate when plaintiffs sued State Farm's insured or whether plaintiffs took proceedings for the entry of the judgment within one year after the default, as required by CPLR § 3215(c).

According to the decision, plaintiffs served State Farm with the underlying judgment and notice of entry by mailing those items to State Farm's office on March 7, 2008, and produced an affidavit of service by mail to this effect.  When the judgment remained unpaid for 30 days, plaintiffs then commenced this action against State Farm pursuant to Insurance Law § 3420(a)(2) to recover the $25,000 default judgment obtained against State Farm's insured.

In an affidavit submitted in opposition to plaintiffs' motion for summary judgment, State Farm claimed that although it had been aware of the underlying 2004 accident, it did not receive the judgment and notice of entry in March, 2008.  State Farm's affidavit also asserted that its first notice of the underlying action and judgment against its insured was its receipt of the plaintiffs' summons and complaint in this action in late June, 2008, after which it promptly disclaimed coverage on July 9, 2008, presumably based on its insured's failure to forward the underlying suit papers.  Plaintiffs argued that State Farm's July disclaimer was untimely under Insurance Law § 3420(d) because State Farm was presumed to have received the underlying judgment and notice of entry four months earlier in March and had all the information it needed to disclaim at that time.  

On the parties' opposing motions for summary judgment, the court noted that "the only issues... to determine on the instant motion and cross-motion are when State Farm was put on notice of the underlying judgment against its insured, and whether it timely notified the plaintiffs that it was declining coverage due to its insured's violations of the policy agreement."  In accepting the plaintiffs' argument and granting summary judgment to them, Queens Civil Court Judge Diccia Pineda-Kirwan applied the presumption of receipt rule against State Farm:

First, the plaintiffs served the underlying judgment with notice of entry by mailing it to defendant's office on March 7, 2008, as evidenced in the affidavit of service of Wilfredo Bonilla. While defendant submits the affidavit of Justine Sinkler as proof that it did not receive the underlying judgment, "a properly executed affidavit of service raises a presumption that a proper mailing occurred, and a mere denial of receipt is not enough to rebut the presumption." (Kihl v Pfeffer, 94 NY2d 118 [1999].) Accordingly, the denial of receipt by Ms. Sinkler is not enough to create an issue of fact as to when the judgment with notice of entry was received by the defendant. (Kihl, 94 NY2d 118.) Thus, as a matter of law, the defendant was put on notice of the underlying judgment on March 7, 2009. 

Second, it must be determined whether State Farm's July 9, 2008 letter disclaiming coverage complies with the statutory requirement of disclaiming coverage "as soon as reasonably possible." (Insurance Law § 3420(d).) The Court of Appeals determined in First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64 [2003], that "once the insurer has sufficient knowledge of facts entitling it to disclaim, or knows that it will disclaim coverage," it must notify the party seeking the benefit of the policy coverage in writing as soon as reasonably possible. Timeliness of an insurers disclaimer is measured from the time when the insurer first learns of the grounds for denial of coverage. (First Fin. Ins. Co., 1 NY3d 64; Moore v Ewing, 9 AD3d 484 [2004].) Here, State Farm was aware that it was going to disclaim coverage once the underlying judgment was served upon it, as its reasons for disclaiming coverage were based on its insured's failure to forward suit papers in the underlying cause of action. Thus, State Farms unexplained delay in disclaiming coverage for over four months after it had "sufficient knowledge of facts entitling it to disclaim" is unreasonable as a matter of law. (First Fin. Ins. Co., 1 NY3d 64; Matter of Allstate Ins. Co. v Swinton, 27 AD3d 462 [2006]; Shell v Fireman's Fund Ins. Co., 17 AD3d 444 [2005]; Vacca v State Farm Ins. Co., 15 AD3d 473 [2005]; Moore, 9 AD3d 484.)

Questions occurring to me regarding the injured parties' notice of entry mailing to State Farm include:  When and how did the injured parties learn of State Farm's identity as the insurer?  Did they or their attorney communicate with State Farm before the underlying action was brought?  Were they given a policy number or a claim number?  Did they include such number(s) on their notice of entry mailing?  If not, why not?  How did they know which State Farm office to send the notice of entry to?  Did anyone call and get a claim number, representative's name or office location before sending the notice of entry to State Farm?  Was the notice of entry sent only by regular mail?  If so, why not send by certified mail to make sure State Farm received it?

So what's an insurer to do in the face of such an affidavit of mailing?  Perhaps depose the affiant, in an attempt to create a question on the mailing.  And certainly say more in opposition to a 3420(d)-based motion than merely denying receipt of the judgment and notice of entry.  That doesn't cut it for insureds, and it now has been held not to cut it for insurers.

45-Day Delay in Disclaiming Additional Insured Coverage Held to be Unreasonable as a Matter of Law

CGL – ADDITIONAL INSURED – UNTIMELY DISCLAIMER – PRIORITY OF COVERAGES
Pav-Lak Indus., Inc. v. Arch Ins. Co.
(1st Dept., decided 11/13/2008)

Arch Insurance Company insured B&J Welding  & Iron Works, n/k/a Mid Island Steel Corporation.  Zurich American Insurance Company insured Pav-Lak Industries.  Pav-Lak was the general contractor on a high school construction project and contracted with B&J for steel fabrication and erection work.  B&J did the fabrication work and subcontracted the erection work to Ranger Steel Corporation.  An employee of Ranger Steel was injured during that project and sued Pav-Lak and other parties.  On behalf of Pav-Lak, Zurich tendered that claim for defense and indemnification to Arch under B&J's policy. 

The Arch policy contained a Blanket Additional Insured endorsement, which amended the "Who Is An Insured" clause of the Arch policy "to include as an insured the person or organization as an insured where required by contract but only with respect to liability arising out of your [the named insured's] operations ... or your [the named insured's] work".  The policy defined "your work" as "(a)(1) work or operations performed by you or on your behalf; and (a)(2) materials, parts or equipment furnished in connection with such work or operations".  By its contract with Pav-Lak, B&J was required to obtain general liability insurance coverage of at least $6 million, naming Pav-Lak as an additional insured to that coverage. The Arch policy also contained a “Designated Operation or Entities Exclusion Endorsement", which excluded liability coverage  for any claims arising out of the “operations” of Ranger Steel ("the Ranger Steel exclusion").

Zurich tendered Pav-Lak's defense and indemnification to Arch by letter dated March 22, 2005, which Arch received on March 28, 2005.  In its tender letter, Zurich informed Arch that the "claimant, an employee of your subcontractor, Ranger Steel, fell from a height[.]"   Forty-five days later, on May 12, 2005, Arch sent a letter to B&J advising that because the claimed injuries were sustained by a Ranger Steel employee while working for Ranger Steel, the injured party's claims arose out of Ranger Steel's operations and thus were excluded by the Ranger Steel exclusion.  The disclaimer letter was copied to Pav-Lak and other parties.

Pav-Lak and Zurich commenced this declaratory judgment action for primary additional insured coverage under the Arch policy.  New York Supreme denied plaintiffs' motion and granted Arch's cross motion for summary judgment, declaring, among other things, that Zurich's policy was primary to Arch's policy, and that Arch was not obligated to defend Pav-Lak in the underlying personal injury action.

The First Department REVERSED, holding that Pav-Lak was entitled to liability coverage from Arch as an additional insured under B&J's policy:

The additional insured coverage endorsement of Arch's policy extends coverage to injuries sustained by the sub-subcontractor's employee, because those injuries arose out of the operations or work of the subcontractor (see Tishman Constr. Corp. of N.Y. v CNA Ins. Co., 236 AD2d 211 [1997]; Consolidated Edison Co. of N.Y. v Hartford Ins. Co., 203 AD2d 83, 83-84 [1994]). Thus, Arch was required to disclaim coverage. Arch's disclaimer letter dated May 12, 2005 was effective as against Pav-Lak because Pav-Lak received a copy of it (see Schlott v Transcontinental Ins. Co., Inc., 41 AD3d 339 [2007], lv denied 9 NY3d 817 [2008]), and, further, the grounds of disclaimer were stated with sufficient specificity (see Realm Natl. Ins. Co. v Hermitage Ins. Co., 8 AD3d 110 [2004]). However, Arch's 45-day delay in disclaiming coverage was unreasonable as a matter of law.  There was no need for an investigation, because the basis for the disclaimer was readily apparent from Zurich's tender letter, which Arch received on March 28, 2005 (see West 16th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 AD2d 278 [2002], lv denied 98 NY2d 605 [2002]; McGinley v Odyssey Re (London), 15 AD3d 218 [2005]).

By failing to give Pav-Lak timely notice of its disclaimer, Arch waived its reliance on the Ranger Steel exclusion as a basis for disclaiming coverage (see Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648-649 [2001]). In any event, however, resolving the ambiguity of the language of the exclusion against Arch, the exclusion does not apply to Pav-Lak (see Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383 [2003]).

Arch's policy with B&J contained an endorsement that provided for a $1 million deductible.  Pav-Lak and Zurich argued that by not timely asserting that deductible in a disclaimer letter, Arch waived its right to rely on that deductible in accordance with Insurance Law § 3420(d).  Both the lower court and the First Department disagreed, holding: 

Arch did not waive the $1 million deductible in its policy, because the deductible endorsement does not bar coverage or implicate policy exclusions and therefore is not subject to the time requirements for disclaiming coverage under Insurance Law § 3420(d) (see Power Auth. of State of N.Y. v National Union Fire Ins. Co. of Pittsburgh, 306 AD2d 139 [2003]).  Nor is the endorsement a warranty under Insurance Law § 3106(a), since it contains no condition precedent to coverage.

Finally, with respect to the priority of coverage between the Arch and Zurich policies, the First Department looked to both contract and policy language in holding that Arch's policy was primary and Zurich's was excess:

In its contract with Pav-Lak, defendant B&J Welding & Iron Works agreed to name Pav-Lak as an additional insured on a primary basis and agreed that Pav-Lak's own general liability insurance would be excess only and non-contributory to B & J's policy. In accordance with that contract, B&J obtained the Arch policy, which contained an additional insured endorsement providing coverage to any entity that B&J was contractually required to insure for liability arising out of B&J's work or operations. This additional insured endorsement unambiguously applied to Pav-Lak (see e.g. Tishman Constr. Corp. of N.Y. v American Mfrs. Mut. Ins. Co., 303 AD2d 323, 324 [2003]). Pav-Lak's commercial general liability policy, the Zurich policy, provided that its coverage would be excess over "[a]ny other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement." Thus, the Zurich policy is excess to the Arch policy (see id.).

Many of the background facts of this DJ action come not from the First Department's decision, but from the July 14, 2008 decision of New York County Supreme Court Justice Doris Ling-Cohan in what must be a related DJ action, also entitled Pav-Lak Industries, Inc. v Arch Ins. Co., 2008 NY Slip Op 31987(U) (Sup. Ct., New York Co., decided 7/14/2008).  The First Department's decision in this case mirror's Justice Ling-Cohan's decision in that matter.