Two-Year Suit Deadline Runs from Actual Loss Date, Not from Loss Date Used on Insurer's Correspondence

COMMERCIAL PROPERTY – TWO-YEAR SUIT LIMITATION CONDITION – ESTOPPEL 

Kotecki's Grandview Grove Corp. v. Acadia Ins. Co.
(4th Dept., 2/9/2018)

Property insurance policies in New York can limit an insured's time to sue the insurer for breach of the policy to one or two years.  Equitable estoppel is a legal doctrine by which a party to a legal claim or defense can be precluded or "estopped" from taking a legal action that is inconsistent with that party's previous words, claims, or conduct.  For equitable estoppel to apply, however, the party seeking to apply equitable estoppel must have reasonably relied to that party's detriment on the other party's prior words or conduct.

With respect to a suit limitations defense, a defendant may be estopped from pleading such a defense if the plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action.  Plenty of New York insurance coverage cases exist in which insureds have argued -- sometimes successfully and sometimes unsuccessfully -- that their insurers should be estopped from asserting the policy's two-year suit limitations period because they either (1) engaged in a course of conduct which lulled the insureds into inactivity in the belief that their claims would ultimately be processed or (2) induced the insureds by fraud, misrepresentation or deception to refrain from commencing a timely action.

So what if the insurer consistently uses the wrong loss date on all its claim correspondence, including the coverage declination letter that, among other things, advised the commercial insured that it had two years from the reported loss date to sue (per 11 NYCRR § 216.6[c]) and the insured commences suit within two years of that date?  Does estoppel apply?

No, says the Appellate Division, Fourth Department, REVERSING Supreme Court's denial of summary judgment to the insurer, Acadia Insurance Company:

Plaintiff commenced this action to recover under an insurance policy issued by defendant Acadia Insurance Company (Acadia) for loss that it allegedly sustained in a "rain and/or windstorm." Plaintiff reported the loss to its insurance broker, defendant First Niagara Risk Management, Inc. (First Niagara). First Niagara prepared a property loss notice listing the date of loss as June 10, 2013. Acadia investigated the claim, partially denied it in October 2013, and reaffirmed that denial in February 2014. All of Acadia's correspondence listed the date of loss as June 10, 2013. The correspondence also advised plaintiff pursuant to New York insurance regulations that, in the event it wished to contest the denial, plaintiff was required by the policy to commence such an action within two years of the reported date of loss. On June 3, 2015, plaintiff commenced this action. During discovery, it was learned that the actual date of loss was May 28, 2013. In response to Acadia's notice to admit, plaintiff admitted that it noticed the damage to its property on May 28, 2013, that it contacted a roofing company on that date to repair the damage, and that it also contacted First Niagara on that date. Acadia then moved for summary judgment dismissing the amended complaint against it as time-barred.  

Supreme Court erred in denying the motion. Acadia met its initial burden of establishing that plaintiff's action was not commenced within two years of the date of loss as required by the policy (see Compis Servs. v Hartford Steam Boiler Inspection & Ins. Co., 272 AD2d 886, 887 [4th Dept 2000]; see generally Nowacki v Becker, 71 AD3d 1496, 1497 [4th Dept 2010]), and plaintiff failed to raise an issue of fact to defeat the motion (see generally Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). Contrary to plaintiff's contention, it did not raise a triable issue of fact whether Acadia should be equitably estopped from relying on the limitations period provided in the policy. "Under the doctrine of equitable estoppel, a defendant is estopped from pleading a statute of limitations defense if the plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action" (Richey v Hamm, 78 AD3d 1600, 1601-1602 [4th Dept 2010] [internal quotation marks omitted]; see Simcuski v Saeli, 44 NY2d 442, 449 [1978]). "A plaintiff seeking to apply the doctrine of equitable estoppel must establish that subsequent and specific actions by defendant[] somehow kept [him or her] from timely bringing suit' " (Putter v North Shore Univ. Hosp., 7 NY3d 548, 552 [2006]). Here, Acadia did nothing to keep plaintiff from commencing the suit in a timely manner. Although Acadia listed the date of loss incorrectly in its correspondence disclaiming coverage, that was the result of incorrect information provided by First Niagara, plaintiff's agent. In any event, plaintiff was always aware of the actual date of loss and that an action had to be commenced within two years of that date. Thus, plaintiff was not induced by Acadia's conduct to refrain from filing this suit in a timely manner.

No inducement because the insured could not and should not have relied on what it knew or should have known was a erroneous loss date in the insurer's correspondence. 

Estoppel by Delay

PROFESSIONAL LIABILITY  – LATE NOTICE – UNTIMELY DISCLAIMER – ESTOPPEL
B&R Consol., LLC v Zurich Am. Ins. Co.
(2nd Dept., decided 9/24/2014)

At my firm's biennial coverage seminar last September I spent a good deal of time talking about Insurance Law § 3420(d)(2) untimely disclaimer/denial case law.  But 3420(d)(2) applies only to coverage declinations regarding accidentally caused death or bodily injury.

No accident?  No death or bodily injury?  No risk of a disclaimer or denial being invalidated as untimely, right?  No, not right.  Liability insurers' coverage disclaimers and denial can be found to be untimely and therefore unenforceable even if 3420(d)(2) does not apply.  How?  Estoppel.

As applied to liability insurers as in this case, estoppel is an equitable doctrine deriving from common law rather than statute.  It essentially provides that an insurer may not take or change its position on coverage if either its delay in doing so or previous words or conduct caused prejudice to its insured's legal position.  I advise my firm's insurer clients that reservation of rights (ROR) letters protect against the application of estoppel.  Or, I should say, are supposed to protect against invalidation of disclaimers and denials by estoppel.

Zurich insured a then lawyer, Frederick Powell, who misappropriated funds intended for his client, B&R Consolidated, LLC.  An amended complaint filed and served on Powell alleged that he had breached his fiduciary duty and duty of loyalty to B&R.  Powell notified Zurich of the lawsuit 51 days after receiving the summons and complaint.  Zurich assigned defense counsel and issued a reservation of rights letter to Powell 18 days after it first received notice of the claim and underlying lawsuit.  The reservation of rights letter reserved Zurich's right to disclaim coverage based upon certain policy exclusions and Powell's failure to give timely notice of the commencement of the action against him.

Approximately five months later, Zurich issued a full disclaimer of coverage based on Powell's asserted failure to give timely notice of the commencement of the underlying action. Zurich also advised Powell that it reserved the right to deny coverage on all other grounds set forth in its earlier ROR letter, and that it would no longer provide a defense or indemnify him in the underlying action. After obtaining on motion a judgment against Powell in the principal amount of $585,056.18, B&R commenced this Insurance Law § 3420(b) action against Zurich.

Supreme Court denied Zurich's and granted B&R's cross motion for summary judgment.  In AFFIRMING that order, the Appellate Division, Second Department, held first that Zurich could be held liable to B&R under Insurance Law § 3420(b) even though it did not issue the professional liability policy in question because there was an apparent agency relationship between Zurich and defendant American Guarantee and Liability Insurance Company given that: (1) Zurich's logo was on documents created and distributed by American Guarantee; (2) Zurich's claims counsel was assigned to handle Powell's case; (3) assigned counsel was required to follow Zurich's guidelines and to submit bills to Zurich; and (4) Powell was contacted by Zurich's Customer Care Center regarding the claim and was directed to file his claim on Zurich's website.

In upholding Supreme Court's finding that American Guarantee was estopped from relying upon its late notice defense because its disclaimer to Powell was untimely, the Appellate Division reasoned:

Where, as here, the matter does not involve death or bodily injury, the untimely disclaimer by an insurer does not automatically estop the insurer from disclaiming on the basis of late notice unless there has been a showing of prejudice to the insured due to the delay (see Only Natural, Inc. v Realm Natl. Ins. Co., 37 AD3d 436 [2007]; United States Fid. & Guar. Co. v Weiri, 265 AD2d 321 [1999]; Esseks, Hefter & Angel v Government Empls. Ins. Co., 215 AD2d 430 [1995]). Although the court did not make a determination that Powell was prejudiced by the defendants' approximate five-month delay in disclaiming coverage, based upon this record, B&R made a sufficient showing of prejudice to Powell due to the defendants' late disclaimer such that the defendants are estopped from disclaiming coverage (cf. Legum v Allstate Ins. Co., 33 AD3d 670 [2006]). Moreover, the purported reason for the disclaimer of coverage was evident on the face of the original complaint, and did not require any additional investigation by the insurer (see Uptown Whole Foods v Liberty Mut. Fire Ins. Co., 302 AD2d 592, 593 [2003]). The defendants failed to rebut this showing.

The appellate court did not explain or indicate what B&R's "sufficient showing of prejudice to Powell" consisted of, and neither had the lower court's decision.  In fact, the lower court did not even rule on B&R's argument of estoppel by delay.  Was the prejudice American Guarantee's sudden withdrawal of defense counsel?  

So what to do about the advice that ROR letters protect against estoppel?

Federal Appeals Court Rules that "Executed" Means Signed or Fully Performed. Certificate of Insurance Question Certified to New York Court of Appeals.

CGL – ADDITIONAL INSURED – BLANKET ADDITIONAL INSURED ENDORSEMENT – "EXECUTED" – CERTIFICATE OF INSURANCE – ESTOPPEL
10 Ellicott Square Court Corp. v. Mountain Valley Indem. Co.
(2nd Cir. US Ct. Apps., decided 12/23/2010)

Plaintiffs were the owner and construction manager for a commercial building in Buffalo, New York.  On August 14, 2003, they contracted with Ellicott Maintenance, Inc., to perform some interior demolition at the building.  The construction agreement required Ellicott Maintenance to procure and maintain $5,000,000 in public liability insurance for any legal liabilities arising out of the demolition project, which was to be primary to the building owner's own liability insurance.  The construction agreement also required that Ellicott Maintenance obtain, prior to the commencement of work, "Certificates of Insurance naming [the plaintiffs] as additional insureds."  Representatives of the plaintiffs and Ellicott Maintenance did not actually sign the agreement until September 12, 2003. 

At the time Ellicott Maintenance entered into the construction contract with the plaintiffs in August, it had in place a $1 million per occurrence primary CGL policy and a $2 million per occurrence umbrella policy with defendant Mountain Valley Indemnity Company.  The primary policy's blanket additional insured endorsement extended coverage to any “person or organization with whom [Ellicott Maintenance] agreed, because of a written contract[,] to provide insurance such as is afforded under [the primary policy], but only with respect to liability arising out of [Ellicott Maintenance's] operations," and only when “the written contract or agreement [between Ellicott Maintenance and the additional insured] ha[d] been executed...prior to the ‘bodily injury.’"

The umbrella policy extended coverage to additional insureds with whom Ellicott Maintenance had “agreed in writing prior to any [injury] ... to provide insurance such as is afforded” by the umbrella policy.  Unlike the primary policy, however, the umbrella Policy did not provide that its coverage of additional insureds was effective only if the written agreement between Ellicott Maintenance and any additional insureds had been “executed.”

On August 19, 2003,an entity identified by the court as "Mountain Valley's agent", issued a certificate of insurance (COI) identifying Mountain Valley as the issuer of the primary and umbrella policies, Ellicott Maintenance as the named insured, and the plaintiffs as “additional insured with respect to project: Graystone.”  The COI contained the standard limiting and disclaiming language on its front and rear sides:

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.

THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.

DISCLAIMER: The Certificate of Insurance ... does not constitute a contract between the issuing insurer ... and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon.

Ellicott Maintenance began work the day after it received the COI.  On September 9, 2003, three days before the construction agreement was signed, David DelPrince, an employee of a subcontractor hired by Ellicott Maintenance was injured when a roof collapsed at the Graystone site.

Plaintiffs notified Mountain Valley's agent of DelPrince's injury and potential claim by letter dated October 22, 2003, requesting that Mountain Valley defend and indemnify them in any suit brought by DelPrince. Some six months later, by letter dated April 13, 2004, Mountain Valley informed the plaintiffs that it would not defend or indemnify them because, inasmuch as the construction sgreement had not been signed on behalf of the parties before DelPrince was injured, “there was not in existence on the date of loss a written contract executed prior to the bodily injury,” as required by the terms of the primary policy. The letter further stated that even if the plaintiffs qualified as additional insureds under the primary policy as of the date of the accident, Mountain Valley would deny coverage because the plaintiffs had failed to timely notify Mountain Valley of DelPrince's injury and possible claim, as required by the primary policy.

DelPrince filed suit against plaintiffs and Ellicott Maintenance in New York State Supreme Court, Erie County, in October 2004, alleging negligence and violations of the New York Labor Law, and seeking to recover damages for the injuries he sustained.  In late January 2007, plaintiffs commenced this declaratory judgment action, alleging that they were additional insureds under the primary policy and therefore were entitled to coverage from Mountain Valley for the underlying DelPrince suit.  The plaintiffs further alleged that the COI bound Mountain Valley to provide coverage despite the absence of a signed agreement between plaintiffs and Ellicott Maintenance.  Finally, the plaintiffs alleged that Mountain Valley should be precluded from relying on the defense of untimely notice because Mountain Valley's response disclaiming coverage was itself untimely. The plaintiffs later amended their complaint to add a claim alleging entitlement to indemnification and defense as additional insureds under the umbrella policy.

The parties cross-moved for summary judgment and, adopting the September 2009 report and recommendation of the magistrate judge in whole, the District Court granted plaintiffs' motion and denied defendant's in February 2010.  On the question of whether the construction agreement was “executed” prior to DelPrince's injury, the court adopted the magistrate's conclusion that “in light of ‘common speech’ and the reasonable expectations of a businessperson”, and because Mountain Valley, as the drafter of the policy, could have used the term “signed” if it had intended to require a signature, the term “executed” as used in the primary policy should not be interpreted to require the parties' signatures to trigger coverage under that policy.  The District Court also accepted the magistrate judge's analysis as being consistent with the Nassau County Supreme Court's November 2008 decision in Burlington Ins. Co. v Utica First Ins. Co., 22 Misc. 3d 1112A, a decision the Second Department reversed on March 9, 2010, less than three weeks after the District Court's decision in this case.

On the question of whether the plaintiffs were entitled to coverage based on the COI, the magistrate judge had recommended finding that the COI incorporated the terms of the primary and umbrella policies. Relying on Niagara Mohawk Power Corp. v. Skibeck Pipeline Co., 271 A.D.2d 867 (4th Dept. 2000), the magistrate judge found that Mountain Valley's agent, acting within the scope of its authority, “issued the certificate of insurance naming [the plaintiffs] as additional insureds, upon which [the plaintiffs] were entitled to rely, regardless of the absence of a signing of the construction contract at that time.”  The magistrate judge therefore recommended estopping Mountain Valley from denying coverage to the plaintiffs, a recommendation the District Court judge adopted.  Finally, the magistrate judge rejected Mountain Valley's argument that the plaintiffs had not provided timely notice of DelPrince's injury.

Mountain Valley appealed to the United States Court of Appeals for the Second Circuit.   In a unanimous opinion, that court affirmed the District Court's finding that plaintiffs were covered as additional insureds under the umbrella policy but reserved decision on the COI estoppel question of coverage under the primary policy pending the New York Court's of Appeals' answer of this certified question:

In a case brought against an insurer in which a plaintiff seeks a declaration that it is covered under an insurance policy issued by that insurer, does a certificate of insurance by an agent of the insurer that states that the policy is in force but also bears language that the certificate is not evidence of coverage, is for informational purposes only, or other similar disclaimers, estop the insurer from denying coverage under the policy?

Significantly, the Second Circuit agreed with the Second Department's March 2010 decision in Burlington Ins. Co. v Utica First Ins. Co. that "executed" means signed or fully performed:

Because New York law unambiguously requires either the signing of a contract or its full performance for it to be "executed" within the meaning of an insurance policy requiring such prior execution, and because neither occurred here, the Construction Agreement was not executed as of the date of DelPrince's injury.  The district court's finding that it was and its conclusion that for that reason the Primary Policy was in effect at the time of the accident, are therefore in error.

On the question of whether Mountain Valley should nonetheless be estopped from denying coverage to the plaintiffs under the primary policy because Mountain Valley's agent issued, and the plaintiffs relied upon, the COI, however, the Second Circuit noted that New York's intermediate appellate courts are divided on this issue -- the First and Second Departments of the Appellate Division having ruled that informational COIs cannot give rise to an estoppel situation, while the Third and Fourth Departments having held that a certificate of insurance can estop an insurer from denying coverage where the parties intended to provide coverage to the party seeking it if the certificate was issued by an agent within the scope of its authority, and if the party seeking coverage reasonably relied on the certificate of insurance by, for example, beginning construction work.

Because of the "diversity of authority among the Appellate Divisions" on this "significant issue of state law," the Second Circuit reserved decision on the COI estoppel issue and certified the above question to the New York Court of Appeals.

With respect to the umbrella policy, however, the Second Circuit found that since the umbrella policy's additional insured endorsement did not provide that its coverage of additional insureds was effective only if the written agreement between its named insured and any additional insureds had been “executed”, plaintiffs were entitled to coverage under that policy:

Section 3(c) of the Umbrella Policy provides: "Any person or organization with whom or with which you have agreed in writing prior to any loss, `occurrence[,]' or `offense' to provide insurance such as is afforded by this policy is an insured...." Fijal Decl. Ex. K at 8 (§ 3(c)). Pursuant to Section 3(d), "Each person or organization who is an `insured' in the `underlying insurance' is an `insured' under this insurance subject to all the limitations of such `underlying insurance' other than the limits of the underlying insurer's liability." Id. (§ 3(d)).

We conclude that Section 3(c) renders the plaintiffs insureds under the Umbrella Policy. The policy requires no more than an agreement in writing. The New York Court of Appeals "ha[s] long held that a contract may be valid even if it is not signed by the party to be charged, provided its subject matter does not implicate a statute... that imposes such a requirement." Flores v. Lower E. Side Serv. Ctr., Inc., 4 N.Y.3d 363, 368, 828 N.E.2d 593, 596 (2005). "[A]n unsigned contract may be enforceable, provided there is objective evidence establishing that the parties intended to be bound." Id. at 369, 828 N.E.2d at 597.

This case and its certified question will now head to the New York Court of Appeals for an answer.  Depending on how the New York Court of Appeals answers the certified question, the Second Circuit will either affirm or reverse the District Court's finding of additional insured coverage to the plaintiffs under the primary policy.  Regardless of its impact on the outcome of this particular case, however, the New York Court of Appeals' answer of the certified question will likely affect many, many cases in which certificates of insurance have been issued identifying one or more entities as additional insureds without either a corresponding endorsement of the actual listed primary or umbrella policies or the triggering of additional insured coverage under such policies' blanket additional insured endorsements.

Issues of Fact Preclude Summary Judgment on Whether Insurer is Estopped from Denying Additional Insured Coverage

CGL – ADDITIONAL INSURED – CERTIFICATE OF INSURANCE – ESTOPPEL
Sevenson Envtl. Servs., Inc. v. Sirius Am. Ins. Co.
(4th Dept., decided 6/11/2010)

Plaintiffs submitted a certificate of insurance (COI) providing that they "and their respective officers, employees and agents [we]re named as additional insureds on [Thomas Johnson Inc.'s general liability policy with Sirius on] a direct, primary and non-contributory basis."  They also submitted an additional insured (AI) endorsement naming persons or organizations "as on file with company."  In response, Sirius submitted an affidavit of its third-party claims administrator, who averred that the named insured's underwriting file did not contain any request or notice to name plaintiffs as additional insureds on the policy.

In ruling that Supreme Court properly denied summary judgment to Sirius, the Fourth Department found that the fact that Sirius's third-party claims administrator did not locate any documentation in the named insured's underwriting file was, by itself, insufficient to establish as a matter of law that neither Sirius nor one of its agents possessed documentation naming plaintiffs as additional insureds.

The Fourth Department, however, disagreed with the lower court's ruling that Sirius was estopped from denying AI coverage to the plaintiffs:

It is well established that a certificate of insurance, by itself, does not confer insurance coverage, particularly under the circumstances of this case, in which the certificate expressly provides that it "is issued as a matter of information only and confers no rights upon the certificate holder [and] does not amend, extend or alter the coverage afforded by the policies listed below," e.g., the general liability policy. "A certificate of insurance is only evidence of a carrier's intent to provide coverage but is not a contract to insure the designated party nor is it conclusive proof, standing alone, that such a contract exists" (Tribeca Broadway Assoc., LLC, 5 AD3d at 200; see School Constr. Consultants, Inc. v ARA Plumbing & Heating Corp., 63 AD3d 1029, 1030-1031; Home Depot U.S.A., Inc. v National Fire & Mar. Ins. Co., 55 AD3d 671, 673).

Nevertheless, an insurance company that issues a certificate of insurance naming a particular party as an additional insured may be estopped from denying coverage to that party where the party reasonably relies on the certificate of insurance to its detriment (see Lenox Realty v Excelsior Ins. Co., 255 AD2d 644, 645-646, lv denied 93 NY2d 807; Bucon, Inc. v Pennsylvania Mfg. Assn. Ins. Co., 151 AD2d 207, 210-211). For estoppel based upon the issuance of a certificate of insurance to apply, however, the certificate must have been issued by the insurer itself or by an agent of the insurer (see Tribeca Broadway Assoc., LLC, 5 AD3d at 200; Niagara Mohawk Power Corp. v Skibeck Pipeline Co., 270 AD2d 867, 869; Lenox Realty, 255 AD2d at 646; see also American Ref-Fuel Co. of Hempstead v Resource Recycling, 248 AD2d 420, 423-424).

The Fourth Department held that both parties failed to eliminate all triable issues of material fact regarding whether the COI was issued by or at the direction of an agent of Sirius.

Absent Evidence Supporting Estoppel Argument, Plaintiffs' Suit Against Homeowner's Insurer Dismissed as Having Not Been Timely Commenced Within Two Years of Loss Date

PROPERTY – HOMEOWNERS – TWO-YEAR CONTRACTUAL SUIT LIMITATIONS PERIOD
Snyder v. Allstate Ins. Co.
(2nd Dept., decided 2/2/2010)

Nothing particularly new in this decision, but the Second Department reiterates that a homeowner's insurance policy's two-year suit limitation period is enforceable and supports the dismissal of an action commenced more than two years after the loss date absent evidence that the insurer either (1) engaged in a course of conduct which lulled the insureds into inactivity in the belief that their claim would ultimately be processed or (2) induced the insureds by fraud, misrepresentation or deception to refrain from commencing a timely action:

Here, the documentary evidence submitted by the defendant in support of its motion conclusively established that the instant action was barred because it was commenced after the two-year limitation period contained in the subject insurance policy had expired (see Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966, 967-968; Neary v Nationwide Mut. Fire Ins. Co., 17 AD3d 331). Thereupon, "the burden shifted to the plaintiffs to aver evidentiary facts establishing that the case at hand falls within [an exception to the limitations period]" (Minichello v Northern Assur. Co. of Am., 304 AD2d 731, 732). Exceptions exist where a defendant insurer has "engaged in a course of conduct which lulled [the plaintiffs] into inactivity in the belief that their claim would ultimately be processed" or has induced the plaintiffs "by fraud, misrepresentation or deception to refrain from commencing a timely action" (Minichello v Northern Assur. Co. of Am., 304 AD2d at 732 [internal quotation marks omitted]; see Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d at 967-968; Neary v Nationwide Mut. Fire Ins., Co., 17 AD3d 331). 

In opposition to the motion, the plaintiffs failed to demonstrate any basis for estopping the defendant from relying upon the contractual limitations period. Accordingly, the Supreme Court properly granted the defendant's motion pursuant to CPLR 3211(a)(1) to dismiss the complaint (see Dimmick v New York Prop. Ins. Underwriting Assn., 57 AD3d 602, 603; Minichello v Northern Assur. Co. of Am., 304 AD2d 731).

Unqualified Assumption of Additional Insureds' Defense for Two Years Estops Insurer from Seeking Contribution from Co-Insurer

CGL – ADDITIONAL INSUREDS – COINSURANCE – OTHER INSURANCE – ESTOPPEL BETWEEN INSURERS
Liberty Ins. Underwriters, Inc. v. Arch Ins. Co.
(1st Dept., decided 4/14/2009)

The City of New York and its Department of Environmental Protection were involved in a construction project with Crescent Contracting Corp.  The DEP entered into a general contract with Yonkers Contracting Company in relation to that project.  As required by that contract, Yonkers purchased CGL coverage from Arch Insurance Company, and the Arch policy contained an additional insured endorsement affording AI coverage to any parties Yonkers was contractually obligated to name as AIs.  The AI coverage endorsement stated that "[c]overage afforded to these additional parties will be primary to, and noncontributory with, any other insurance available to that person or organization."

Crescent had CGL insurance with Liberty, presumably also insuring the City and DEP as AIs in some capacitiy.  The Liberty policy's "Other Insurance" clause provided that "if other valid and collectible insurance [was] available to any insured for a loss [Liberty] cover[ed] * * *, then this insurance [wa]s excess of such insurance and [Liberty would] have no duty to defend any claim or 'suit' that any other insurer ha[d] a duty to defend."

An employee of Yonkers was injured while working on the construction project and brought a personal injury action against the City, DEP and Crescent.  Through its attorneys, Arch initially agreed in April 2006 to defend and indemnify the City and DEP in the personal injury action.  A week later, Arch tendered the City's and DEP's defense and indemnification to Liberty, which Liberty accepted in a May 2006 letter containing no reservation of rights. 

Liberty defended the City and DEP in the personal injury action for two years.  On March 1, 2008, three days after a pre-trial conference was held in that action, Liberty sent a letter to the City's Law Department purporting to reserve Liberty's rights, stating that Liberty would not indemnify the City or DEP in the personal injury action "if there is no liability on the part of Crescent[.]"  Liberty also noted in that letter that its coverage was excess to coverage available to the City and DEP under Yonkers' policy with Arch.

When Arch refused to re-assume the City's and DEP's defense, Liberty commenced this declaratory judgment action seeking declarations that Arch was obligated to defend and indemnify the City and DEP and that Arch's coverage was primary to Liberty's excess coverage.  Finding that Liberty was "estopped from requesting contribution" because it had "unqualifiably" taken over the defense and indemnification of the underlying personal injury action and failed to reserve any rights as against Arch, New York Supreme granted Arch's cross motion for summary judgment and declared that Liberty was obligated to defend and indemnify the City and DEP in the underlying action and reimburse Arch for the costs it incurred in defending the underlying action prior to Liberty's acceptance of Arch's tender.

In MODIFYING the motion court's order, the First Department agreed that Liberty was equitably estopped from seeking coverage contribution from Arch, but held that Arch was not entitled to recover its pre-tender defense costs.  Relying on established Second Department case law, the First Department rejected Liberty's argument that the doctrine of equitable estoppel should only apply to coverage disputes between insureds and their insurers:

"The doctrine of estoppel precludes an insurance company from denying or disclaiming coverage where the proper defending party relied to its detriment on that coverage and was prejudiced by the delay of the insurance company in denying or disclaiming coverage based on the loss of the right to control its own defense" (Merchants Mut. Ins. Group v Travelers Ins. Co., 24 AD3d 1179, 1182 [2005] [internal quotation marks and brackets omitted]). We reject plaintiff's argument that this doctrine should be limited to coverage disputes between insurers and insureds, and not applied to coverage allocation disputes between insurers (see e.g. Fireman's Fund Ins. Co. v Zurich Am. Ins. Co., 37 AD3d 521 [2d Dept 2007]; Donato v City of New York, 156 AD2d 505, 507-508 [2d Dept 1989]). Lumbermens Mut. Ins. Co. v Lumber Mut. Ins. Co. (148 AD2d 328 [1st Dept 1989]), cited by plaintiff, is not to the contrary. Lumbermens merely held that failure by an insurer to reserve its rights under the circumstances of that case did not constitute an intentional relinquishment, or waiver, of the right to seek contribution from another insurer (id. at 330). It did not address the issue of whether an insurer may be estopped, by its unqualified assumption of the defense of an action, from seeking contribution from another insurer. No issues of fact exist as to whether defendants, in tendering the defense to plaintiff, lacked knowledge that plaintiff would ultimately claim to be only an excess insurer, or whether defendants lost control of the underlying defense and were otherwise prejudiced by plaintiff's assumption thereof for two years without reserving a right to disclaim coverage (see Federated Dept. Stores v Twin City Fire Ins. Co., 28 AD3d 32, 39 [2006]). Defendants, however, are not entitled to reimbursement of defense costs incurred before tendering the defense to plaintiff (see Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD2d 84, 94 [2005]), and we modify the declaration accordingly. 

 Had there been either a pre-tender discussion between Arch and Liberty about the priority of their respective coverage obligations or a reservation of rights in Liberty's tender acceptance letter, the result may have been different.  Three takeaway points from this case are:

1. when accepting a tender of defense and indemnification from another insurer, be sure to address and expressly reserve one's rights vis-à-vis coverage priority and defenses;
2. pre-tender defense costs are not recoverable; and 
   
3. equitable estoppel can apply between coinsurers.

Fitts and Starts -- GEICO Found to Owe Liability Coverage to Parking Garage Employee Due to Untimely Disclaimer

AUTO – PARKING BUSINESS EXCLUSION – APPOINTMENT OF DEFENSE COUNSEL – ESTOPPEL – UNTIMELY DISCLAIMER
Government Employees Ins. Co. v. Liberty Mut. Ins. Co.
(Sup. Ct., New York Co., decided 7/11/2008)

When the allegations of a personal injury complaint make it clear that a policy exclusion applies, further investigation may be deemed unnecessary and the insurer will be found to owe coverage if it has not issued a timely declination of coverage based on that exclusion.

Fitts had Smellie, an employee of Edison Parking Corporation, park her car. While doing so, Smellie struck a pedestrian in the parking garage with Fitts's car, injuring him. GEICO insured Fitts under her personal auto policy, and Liberty insured the parking garage and its employees. The pedestrian commenced a personal injury action against Fitts, Smellie and Edison.

The decision indicates that "shortly after the lawsuit began, GEICO received notification and was requested to defend all defendants." Three and a half months later, GEICO's staff defense counsel sent a letter to Smellie (the parking garage employee) indicating that “[als your attorneys, our professional obligation is to you, and we will be defending your interests in this case. We are committed to providing you with excellent service as well as excellent representation.” No letter was sent to Edison, the parking garage.

Approximately two weeks later, or a total of approximately four months from when the underlying personal injury action was filed, GEICO commenced this DJ action seeking a declaration that it was not obligated to defend or indemnify Smellie or Edison because Liberty's policy afforded primary liability coverage to them. Alternatively, GEICO argued that its coverage for Smellie and Edison was excess to the coverage available to them under Liberty's commercial liability policy.

In support of its argument that it owed no coverage to Smellie and Edison, GEICO pointed an exclusion within its policy that negated coverage for any "'insured' * * * while employed or otherwise engaged in the 'business' of * * * [p]arking vehicles designed for use mainly on public highways." Liberty argued that GEICO's failure to timely disclaim coverage to Smellie and Edison based on this exclusion violated Insurance Law § 3420(d) and precluded it from doing so.

New York Supreme Court Justice Louis York agreed, holding:

Here, neither party sets forth the specific date on which GEICO received notice of the claim - although, based on GEICO's assertions, it appears that it received the complaint in the underlying action shortly after the November 24, 2006 date on the complaint. Indeed, GEICO asserts that it took approximately 4 months - or, approximately 120 days - for it to disclaim coverage. The complaint in question, Tamarit v. Edison Parking Corp., Index 117850/2006, explains that Ms. Smellie was an employee of Edison, that she was the operator of the vehicle when it struck Mr. Tamarit, that the car belonged to Ms. Fitts - GEICO’s insured - and that the incident took place in Edison’s garage while Ms. Fitts left the car in the care of the garage. Based on GEICO’s repeated assertions that the applicability of the exclusion is clear on its face and readily ascertainable, and that this type of exclusion commonly applies to parking garages, GEICO should have realized from a quick glance at the complaint that the exclusion applied here. Where the disclaimer’s basis “was or should have been readily apparent before the onset of the delay, any explanation by the insurer . . . will be insufficient as a matter of law . . . .” Bovis Lend Lease LMB, Inc., v. Royal Surplus Lines Ins. Co., 27 A.D.3d 84, 88, 806 N.Y.S.2d 53, 56(1st Dept. 2005).

The court rejected GEICO's "conclusory statement" that “the complexities of the circumstances surrounding the underlying incident" required it to investigate further, finding that GEICO had not elaborated on a single one of the purported complexities surrounding the case and had not set forth any of the details of the alleged investigation.

The court did not reach the issues of whether Liberty’s policy excluded coverage or whether GEICO would be liable for excess coverage. Based on the lack of a counterclaim by Liberty for declaratory relief, the court also denied Liberty's cross motion for a declaration that it was not liable for excess coverage to Ms. Fitts, the vehicle's owner. Finally, the court also did not reach the issue of whether estoppel applied to preclude GEICO from denying coverage to Smellie and Edison, noting that Liberty had not adequately address all the elements necessary to show or refute an estoppel argument, and that GEICO’s argument that the letter of its staff defense counsel “merely indicated that the firm would be defending Ms. Smellie, not indemnifying him [sic],” "is, at best, strained."

Although it is not clear from the decision, in granting Liberty's cross motion for summary judgment, in part, and declaring that GEICO "must indemnify the insured parties at issue", Edison (the parking garage) presumably was found to be entitled to defense and indemnification coverage from GEICO, as well.

As one who regularly litigates insurance coverage disputes, I had to smile at footnote # 2 of the court's decision: "Liberty quotes some or all of the provisions, but does not indicate where they are located in the myriad forms and hundreds of pages that comprise its policy." Practice Pointer: Include the entire policy but be sure either the excerpt the relevant provisions in separate exhibits, identify the form/endorsement number and page of the provision, or re-paginate the entire policy and give the court a page reference. Courts like to confirm that a policy provision upon which a movant is relying is actually in the policy, but generally don't like to flip through hundreds of pages of policy forms to find it.

Extension Is Not Waiver of 2-Year Suit Limitations Period in Homeowners Policy

HOMEOWNERS – FIRE LOSS – 2-YEAR CONTRACTUAL SUIT LIMITATIONS PERIOD – WAIVER – ESTOPPEL – BAD FAITH
Van Acker v. Unitrin Preferred Ins. Co.
(Sup. Ct., Wayne Co., decided 6/30/2008)

Most if not all property insurance policies contain some sort of contractual suit limitations period. In New York, policies must allow up to two years from the loss date for the insured to bring suit for losses caused by fire and lightning. The New York courts have repeatedly upheld contractual suit limitations periods, as parties are free to contract and may always provide for a suit limitations period shorter than the otherwise applicable statute of limitations.

It sometimes happens that the adjustment and settlement of a large loss takes upwards of two years. In such cases, insureds or their representatives will often request an "extension" of the policy's two-year suit limitations period, since suing before there has been any breach of the insurer's obligation to pay would be premature and potentially subject to dismissal.

The Van Ackers' home sustained a major fire loss on December 10, 2003. On October 25, 2004, Unitrin made an offer of $243,258.98. The Van Ackers then retained their own adjuster, who estimated damages to be $299,492.28. On December 15, 2004 (one year and 5 days after the loss date), the parties signed an agreement to submit their damage appraisals to an umpire. The dwelling RCV was resolved in April 2005, but the Van Ackers' contents RCV and ALE remained in dispute. The Van Ackers moved back into their residence in November 2005, with their contents loss claim still unresolved.

On December 7, 2005 (three days before the two-year loss anniversary date), the Van Ackers emailed Unitrin's general adjuster, to confirm their earlier oral request for an extension of the policy's two-year suit limitations period. That condition provided:

Suit Against Us. No action can be brought unless the policy provisions have been complied with and the action is started within two years of the date of loss.

In a reply email on December 13, 2005 (three days after the two-year suit deadline), Unitrin's general adjuster agreed to a "one-time extension to March 1, 2006." The e-mail further stated in part that "we do not intend to waive or prejudice any rights under the policy[.]" Nevertheless, there were subsequent emails between the parties during the month of March, including one from Unitrin's general adjuster to the Van Ackers, dated March 10, 2006 (after the date of the expiration of the extension), which indicated that he had had a "health issue" arise, and that he been unable to finish looking over some paperwork. On April 11, 2006, Unitrin's general adjuster sent another email to the Van Ackers in which he re-affirmed the March 1, 2006 extension. The Van Ackers commenced this action on August 21, 2007. (Note: The decision gives a 2007 commencement date but later states that the insureds commenced this action four months after the April 2006 email. Either that email was sent in April 2007 or the action was commenced in August 2006.)

Unitrin moved to dismiss the action as barred by the policy's suit limitations period. In opposition, the Van Ackers argued that the March 10, 2006 email Unitrin's general adjuster sent to them, in which he admitted he had not been available to review certain documents, created a fact question as to whether Unitrin waived the policy's suit limitations requirement.

Wayne County Supreme Court Justice Dennis Kehoe disagreed, finding that the insureds had not established the existence of any material triable issue of fact as to the doctrines of waiver or estoppel:

Based on the evidence presented by the Plaintiffs, this Court must find that the circumstances do not rise to the level of a waiver of the statute of limitations by the insurer. While there is evidence of ongoing negotiations between the parties, such negotiations, without more, do not meet the burden imposed by the Court of Appeals on the insured of demonstrating the existence of any "material triable issue of fact."

Although it was not necessary to reach the issue of plaintiffs' bad faith cause of action, Justice Kehoe also ruled that "[w]ere the Court to consider the issue, it would conclude that an action for punitive damages for failing to negotiate in good faith does not lie against Unitrin, in that the Plaintiffs have failed to allege the elements necessary to support a cognizable cause of action in tort which is 'independent of the contract'".

Couple of observations: It's not a "statute of limitations" we're talking about, it's a contractual limitations period. Although the decision does not say so, one can surmise that Unitrin fully paid and settled the dwelling and ALE claims prior to the two-year loss anniversary. Chances are that Unitrin also paid what it thought it owed on the Van Ackers' contents claim, so this suit may have been over what they insureds believed they were still owed on their contents loss. Negotiations extending beyond the suit deadline, in and of themselves, do not constitute a waiver or create an estoppel, although clarity in intention and reservations of rights are always best in those situations.

Premium Audit Charge May Undermine Prior Coverage Denial

CGL – INSURED PREMISES – PREMIUM AUDIT – ESTOPPEL
Moncrief v. DiChiaro
(2nd Dept., decided 6/24/2008)

Interesting case.

Purchase Land Development Corp. (PLDC) moved to renew its opposition to the previously successful motion for summary judgment of its CGL insurer, Sirius America Insurance Company, declaring that Sirius was not obligated to defend and indemnify PLDC in an underlying personal injury action. Westchester Supreme granted that renewal motion and reversed its earlier award of summary judgment to Sirius. Sirius appealed.

Sirius insured Location "A" under its CGL policy with PLDC. The underlying accident occurred in an unfinished home PLDC was constructing at Location "B". PLDC contended that 4-6 months before the accident, it had instructed its insurance broker to have Sirius add Location "B" to the policy. The broker apparently did not make that request until after the accident date.

In AFFIRMING the order appealed from, the Second Department agreed with the lower court that PLDC had raised a question of fact on coverage by submitting deposition testimony of a vice president of PLDC's insurance broker, that after the policy expired, Sirius audited the policy and thereafter charged PLDC "a premium for all the work associated with [the subject premises]" for the policy period, which included the accident date. Although the broker's VP conceded that the audit may not have specifically listed Location "B" as the property covered under the policy during the policy period, he explained that the coverage was related to PLDC's construction of a home, and during the policy period, the only home owned by and being built by PLDC was located at Location "B".

Based on this testimony, the Second Department concluded: "As such, Sansotta's deposition testimony also raised a question of fact as to whether Sirius may be estopped from denying coverage after it accepted premium payments from PLDC following the audit (citations omitted)."

Another example of what happens when the underwriting and claims departments are out of sync. Moral of the story: Probably not a good idea retroactively to assess and collect premium for risks for which the claims department has already denied liability coverage.

Lack of Separate Claims Examiners for Defense and Coverage Files Held to Warrant Estoppel Defense and Discovery Against CGL Insurer

CGL – ESTOPPEL – SINGLE ADJUSTER HANDLING BOTH DEFENSE & DJ FILES
U.S. Underwriters Ins. Co. v. Ziering
(EDNY, decided 5/28/2008)

Embedded within this discovery dispute decision is what I believe may be an "issue of first impression" or something new in the arena of insurance coverage in New York.

U.S. Underwriters disclaimed coverage to Ziering, its insured, for an underlying property damage suit that alleged damages caused by Ziering's construction activities near the underlying plaintiff's property. Underwriters provided a defense to Ziering in the underlying suit, however, and commenced this action for a judgment declaring that it was not obligated to either defend or indemnify Ziering in the underlying action.

In January 2008, the court granted Ziering's motion for permission to amend its answer to assert an affirmative defense of estoppel, arguing that it had learned that the same Underwriters' claims examiner was controlling both the underlying litigation and this one, to Ziering's harm. Ziering argued that because Underwriters did not erect a screen between those individuals managing Ziering's defense in the state court action and prosecuting Underwriters' claim in this action, Underwriters should be estopped from denying coverage. The court permitted Ziering to amend its answer to assert this defense.

Following that amendment, Ziering served discovery demands for: (1) Underwriters' litigation guidelines, manuals, etc.; (2) reports, correspondence, etc. from underlying counsel to Underwriters relating to the underlying property damage action; (3) reports, etc. from Underwriters to underlying counsel relating to the underlying property damage action; and (4) copies of relevant investigation reports. Underwriters objected to the demands as vague, overbroad, burdensome, irrelevant and improper, and as protected from discovery on privilege grounds. Ziering moved to compel responses.

In opposing that motion, Underwriters asserted that Ziering's real position is a claim that "no court has previously found to exist, namely, a purported failure to assign separate claims examiners for the coverage and defense aspects of the same claim file matter." Underwriters argued that such a claim is more akin to one for legal malpractice than to a true estoppel claim. The court, however, noted that "[w]hile the letter referenced by Underwriters' clearly states that it will provide Ziering with a defense in the Davis action "without waiving any of the grounds for disclaimer" set forth in the letter, it is far from clear that an estoppel defense can arise only when disclaimer is waived, as Underwriters claims."

In support of its motion, Ziering argued that Underwriters' articulation of the estoppel defense was entirely different from the actual defense Ziering was asserting. Ziering argued that it was not asserting that Underwriters had waived its right to disclaim coverage; instead, it sought to estop Underwriters from denying coverage because it allegedly "failed to, in good faith, properly consider, investigate and assess the claims against its insured when it provided a defense" in the Davis action. Ziering further contended that a liability insurer's duty to defend must be fulfilled, and is not satisfied merely by designating independent counsel. Thus, Ziering concluded, the internal claims procedure materials and written communications between Underwriters and underlying retained defense counsel were relevant to the estoppel defense because they pertained not to any malpractice claim, but to a breach of Underwriters' duty owed to its insured in providing a defense.

In rejecting Underwriters' argument that an estoppel can arise only where an insurer has waived its disclaimer rights, the court held:

While such a waiver may well give rise to an estoppel defense, there is nothing before the court to demonstrate that an estoppel defense could not arise under other circumstances as well. Here, Ziering is apparently arguing that Underwriters is estopped from disclaiming coverage because it has breached its duty to provide a zealous defense to Ziering in the Davis action. In response to Underwriters' argument that no court has found the use of a single claims adjuster to be improper, Ziering argues that the fact that "a single claims adjuster has acted as both the insured's prosecutor and defender renders the limited nature of the defense pursued by the insurer highly suspect," and provides some proof in support of the estoppel defense. Thus, Ziering does not claim that the use of a single claims adjuster is per se proof of breach of the duty to defend, only that it is some evidence of that breach, and enough to make the documents that they have demanded relevant. Much of the parties' argument goes to the merits of the estoppel defense itself, an issue that is not properly before this court now and cannot be decided at this time. Whether that defense proves to be meritorious or not, the documents requested by Zeiring [sic] are relevant to it, and cannot be withheld on that ground.

The court then went on also to reject Underwriters' argument that communications between it and retained defense counsel for Ziering in the underlying action were privileged from discovery:

[W]here an insured retains counsel to defend an insured in litigation, the attorney's paramount client is the insured. Therefore, to the extent that the interests of the insured and the insurer collide with respect to the assertion of the attorney-client privilege for communications with counsel retained for the insured, the insured necessarily prevails. (Citations and internal quotes omitted.)

The court found that since Ziering was the "paramount client", any privilege attached to the communications between Underwriters and retained defense counsel in the underlying property damage action was Ziering's, and Underwriters could not withhold production on that basis.

Although the court's earlier decision was merely to allow the insured to assert an estoppel defense based on Underwriters' use of a single claims examiner to monitor and handle both the defense (PD) and coverage (DJ) actions, the very fact that the court allowed such an amendment is potentially troublesome, especially to small insurers that may not have the staff to assign separate adjusters to parallel defense and coverage files. And just how far "up" must the screen extend? Past claim supervisors and managers? At some point, the claims decisionmakers cannot be separated.

Policy Rescission Granted for Material Misrepresentations in Application

COMMERCIAL PROPERTY – FIRE LOSS – MATERIAL MISREPRESENTATION IN APPLICATION – RESCISSION – WAIVER – ESTOPPEL – TIMELINESS OF DENIAL
Precision Auto Accessories, Inc. v. Utica First Ins. Co.
(4th Dept., decided 6/6/2008)

Plaintiff's business was destroyed by fire. After an investigation, Utica First notified plaintiff that it was denying coverage and rescinding the policy based on material misrepresentations made in plaintiff's insurance application with respect to plaintiff's prior loss and claims history. Plaintiff sued for coverage, and the parties moved and cross-moved for summary judgment. Supreme Court denied both motions.

The Fourth Department MODIFIED and granted summary judgment to Utica First, holding that it was entitled to rescind the policy because it established as a matter of law that plaintiff had made material misrepresentations such that Utica First would not have issued the policy had it known the true facts. "To establish materiality of misrepresentations as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins or rules pertaining to similar risks, to establish that it would not have issued the same policy if the correct information had been disclosed in the application[.]"

In support of its motion, Utica First submitted the affidavit of its president, who set forth Utica First's minimum underwriting guidelines for prior losses for a risk such as plaintiff's business. Attached to the affidavit was a copy of defendant's underwriting guidelines "for the relevant period," which corroborated the applicable minimum underwriting requirements set forth by Utica First's president concerning prior losses for risks such as plaintiff's business. Utica First's president further stated in his affidavit that, "if [defendant] had been aware of plaintiff's true loss history . . . [defendant] would not have issued a policy of insurance to plaintiff."

The Fourth Department agreed with Utica First that the misrepresentations did not need to be willful in order to rescind the contract.

Insurance Law § 3105 (b) does not specify that a misrepresentation must be willful, and '[w]hether or not plaintiff intended to provide inaccurate statements or misrepresentations at the time [it] filled out the application is irrelevant" (Curanovic, 307 AD2d at 437). Rather, a "material misrepresentation, even if innocent or unintentional, is sufficient to warrant a rescission of the policy" (citations omitted). Although plaintiff contends that, pursuant to the terms of the policy, defendant is required to establish that plaintiff's misrepresentations were willful, when an insurance policy is void ab initio based on material misrepresentations in the application, it is as if the policy never came into existence, and an insured cannot create coverage by relying on the terms of a policy that never existed[.]

Plaintiff argued that Utica First could not rely on any misrepresentations in the application because they were the result of the negligence of Utica First's alleged agents. In rejecting that argument, the appellate court noted:

Plaintiff is bound by the misrepresentations in the application, inasmuch as "[t]he signer of a contract is conclusively bound by it regardless of whether he or she actually read it" (citation omitted). Further, an insured "ha[s] a duty to review the entire application and to correct any incorrect or incomplete answers". Additionally, "an insurance broker is generally considered to be an agent of the insured" (citation omitted). "To establish that the broker was acting as the insurer's agent, [t]here must be evidence of some action on the insurer's part, or facts from which a general authority to represent the insurer may be inferred" (citation omitted). Although the insurance agency that bound the coverage may have been an agent of defendant, the broker who completed the application was hired by plaintiff as its agent and was an independent contractor with no connection to defendant.

Plaintiff next argued that Utica First waived its right to rescind the policy because it knew of plaintiff's misrepresentations concerning plaintiff's loss history before the fire. The court rejected that argument, finding deposition testimony of the plaintiff's insurance broker that she heard within two hours of the fire that Utica First was going to rescind the policy based on the plaintiff's prior losses to be both speculative and inadmissible hearsay. "Moreover, even assuming that defendant acquired knowledge of plaintiff's actual loss history before the fire, we conclude that such knowledge, by itself, is insufficient to constitute a waiver because plaintiff has failed to establish that it paid a premium to defendant after defendant allegedly acquired that knowledge."

Plaintiff's final argument was that Utica First was estopped from disclaiming coverage because it took eight months to do so. In opposition to that argument, Utica First contended that its investigation into plaintiff's loss history was ongoing and was delayed based on the lack of cooperation by plaintiff in providing an adequate authorization for its previous insurer's records. In rejecting the plaintiff's untimely disclaimer argument, the Fourth Department held:

Here, even assuming, arguendo, that defendant's notice of disclaimer was untimely, we conclude that defendant is not estopped from rescinding the policy as void ab initio inasmuch as, contrary to plaintiff's contention, plaintiff failed to demonstrate any prejudice based on defendant's alleged delay in disclaiming coverage (citations omitted). Although plaintiff contends that it was prejudiced because, without the insurance proceeds, it was unable to pay its suppliers and otherwise to re-start its business, it failed to identify any triable issue of fact whether it was prejudiced by the delay with respect to the asserted ground for rescission, i.e., the purported misrepresentations made in the insurance application.

With respect to the plaintiff's untimely disclaimer argument, it is important to bear in mind that Insurance Law § 3420(d) applies only to liability coverage disclaimers and denials for bodily injury or death claims arising from accidents that occur in New York. It does not apply to first-party property coverage denials. Only the equitable doctrines of waiver or estoppel can apply to preclude an insurer from denying first-party property coverage.