First Financial Ins. Co. v. Jetco Contracting Corp., 1 N.Y.3d 66 (2003)

An insurer must provide written notice of disclaimer as soon as is reasonably possible after learning of grounds for disclaimer, and an unexcused 48-day delay is unreasonable as a matter of law.

Summary

First Financial sought a declaratory judgment that it wasn’t obligated to cover Jetco due to late notice. The Second Circuit certified questions to the New York Court of Appeals regarding the timeliness of First Financial’s disclaimer. The Court of Appeals held that an insurer cannot delay notifying the insured of denial of coverage while investigating other potential insurance sources if those sources are unrelated to the denial decision. Further, an unexcused delay of 48 days in providing notice of disclaimer is unreasonable as a matter of law under New York Insurance Law § 3420(d).

Facts

An employee of Jetco’s subcontractor was injured at a work site on July 9, 1998. Jetco’s president knew of the accident immediately but failed to notify First Financial, its insurer. NYU notified First Financial of the accident on February 23, 1999. First Financial informed Jetco on March 2, 1999, that it was a late notice situation and reserved its right to deny coverage. On March 30, 1999, First Financial confirmed that Jetco knew of the accident from the beginning. However, First Financial did not formally deny coverage until May 17, 1999 – 48 days after confirming the grounds for disclaimer. First Financial argued the delay was due to investigating other potential insurance sources for Jetco.

Procedural History

First Financial filed a declaratory judgment action in the Southern District of New York. The District Court found the 48-day delay reasonable because the investigation into other insurance sources benefitted Jetco. Jetco appealed to the Second Circuit. The Second Circuit certified two questions to the New York Court of Appeals regarding whether investigating other insurance excuses delay and whether 48 days is unreasonable if unexcused.

Issue(s)

1. Whether, under N.Y. Ins. Law § 3420(d), an insurer who has discovered grounds for denying coverage may wait to notify the insured of denial of coverage until after the insurer has conducted an investigation into alternate, third-party sources of insurance benefitting the insured, although the existence or non-existence of alternate insurance sources is not a factor in the insurer’s decision to deny coverage?

2. If an investigation into alternate sources of insurance is not a proper basis for delayed notification under N.Y. Ins. Law § 3420(d), is an unexcused delay in notification of 48 days unreasonable as a matter of law under § 3420(d)?

Holding

1. No, because timeliness is measured from when the insurer first learns of grounds for disclaimer.

2. Yes, because the insurer bears the responsibility of justifying delay, and an unexcused delay of 48 days is unreasonable.

Court’s Reasoning

The Court reasoned that Insurance Law § 3420(d) requires insurers to provide written notice of disclaimer “as soon as is reasonably possible.” This is to expedite the process and allow policyholders to pursue other avenues. The timeliness of a disclaimer is measured from when the insurer first learns of grounds for disclaimer. Investigation into issues affecting an insurer’s decision to disclaim may excuse delay, but delay simply to explore other insurance sources for the policyholder is not permissible. Such inquiries may be in the insurer’s interest (reducing risk) and detrimentally delay the policyholder’s search for coverage.

Regarding the 48-day delay, the Court acknowledged the difficulty of imposing a fixed time period. However, the insurer has the responsibility to explain its delay. The Court equated an unexplained delay to an unexcused delay (meaning the explanation is unsatisfactory). The Court held the 48-day delay was unreasonable as a matter of law because the reason for the delay (investigating other insurance) did not relate to the reason for denial (late notice).

The court noted, “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.” An insurer who delays in giving written notice of disclaimer bears the burden of justifying the delay.