American Home Assurance Co. v. National Cas. Co., 85 N.Y.2d 433 (1995)
r
r
An excess insurer, like a primary insurer, can deny coverage based on the insured’s failure to provide timely notice of a potential claim, without needing to demonstrate prejudice resulting from the delay.
r
r
Summary
r
American Home Assurance sought contribution from excess insurers for a settled claim. The excess insurers, including National Casualty, denied coverage due to late notice. The New York Court of Appeals held that, unlike reinsurers, excess insurers are entitled to prompt notice and can deny coverage based on late notice, even without showing prejudice. The court reasoned that excess insurers have rights and obligations similar to primary insurers, including the right to investigate and participate in settlement, distinguishing them from reinsurers who typically “follow the fortunes” of the primary insurer.
r
r
Facts
r
Mobile Gas Co. had primary and excess liability insurance. A family died from carbon monoxide poisoning due to a faulty furnace serviced by Mobile Gas. Liberty Mutual, the primary insurer, quickly conceded liability. American Home, a first-level excess insurer, attempted to settle the claim without notifying the second-tier excess insurers, including National Casualty. After American Home’s initial settlement attempt failed, it notified the second-tier excess insurers. American Home eventually settled the claim for $11.5 million. National Casualty refused to contribute its share, citing late notice.
r
r
Procedural History
r
American Home sued National Casualty in state court to recover its share of the settlement. A parallel case in federal court involving similar facts ruled in favor of the excess insurers. The state trial court granted summary judgment to National Casualty based on collateral estoppel. The Appellate Division reversed, holding that the lack of a prejudice showing was a legal question and that the rule for reinsurance should apply to excess insurers. National Casualty appealed to the New York Court of Appeals.
r
r
Issue(s)
r
Whether an excess insurer can deny coverage based on the insured’s failure to provide timely notice of a potential claim, without needing to demonstrate prejudice resulting from the delay?
r
r
Holding
r
Yes, because excess insurers, unlike reinsurers, have similar rights and obligations as primary insurers, including the right to investigate claims and participate in settlement negotiations, making prompt notice a critical condition precedent to coverage.
r
r
Court’s Reasoning
r
The Court of Appeals distinguished its prior ruling in Unigard Sec. Ins. Co. v. North Riv. Ins. Co., which held that reinsurers must demonstrate prejudice to deny coverage based on late notice. The court emphasized that reinsurers typically