4 N.Y.3d 336 (2005)
Under New York law, an insured’s unreasonable delay in providing notice of a lawsuit to its primary insurer, as required by the insurance policy, constitutes a failure to comply with a condition precedent, allowing the insurer to disclaim coverage without demonstrating prejudice.
Summary
Argo Corp. failed to notify its insurer, Greater New York Mutual Insurance Company (GNY), of a lawsuit filed against it until 14 months after service of the complaint. GNY disclaimed coverage due to the late notice, citing it as a breach of a “condition precedent” under the policy. Argo then sued GNY, seeking a declaratory judgment. The New York Court of Appeals held that Argo’s late notice was unreasonable as a matter of law and, therefore, GNY could disclaim coverage without needing to demonstrate prejudice. The Court distinguished this case from instances where timely notice of the underlying claim was given.
Facts
Igo Maidanek slipped and fell on ice on a sidewalk adjacent to property owned by Henry Moskowitz and managed by Argo Corporation on January 2, 1997. On December 27, 1999, Maidanek sued Argo. Argo acknowledged receiving the summons and complaint on February 28, 2000. A default judgment was served on Argo on November 10, 2000. Argo received notice of entry of the default judgment and of a scheduled hearing on February 13, 2001, and a note of issue for trial readiness on February 21, 2001. Argo finally notified GNY, its insurer, of the lawsuit on May 2, 2001.
Procedural History
Argo filed a declaratory judgment action against GNY in January 2003, challenging GNY’s disclaimer of coverage. Supreme Court granted GNY’s motion to dismiss, finding Argo failed to comply with the policy’s notice provision. The Appellate Division affirmed, holding that Argo provided no reasonable excuse for its failure to comply with the policy’s notice provisions. The Court of Appeals granted leave to appeal and affirmed the Appellate Division’s decision.
Issue(s)
Whether a primary insurer can disclaim coverage based solely on a late notice of lawsuit, or whether the insurer must demonstrate prejudice resulting from the delay.
Holding
No, because Argo’s late notice was unreasonable as a matter of law, and under these circumstances, the insurer need not show prejudice to disclaim coverage.
Court’s Reasoning
The Court relied on the established New York rule that timely notice to an insurer is a condition precedent to coverage. Failure to provide notice “as soon as practicable” vitiates the contract. Citing Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436, 440-443 (1972), the Court emphasized that prejudice to the insurer need not be shown. This rule protects against fraud and collusion, allows for timely investigation, facilitates early estimation of exposure and reserve establishment, and enables early control of claims, aiding in settlement.
The Court distinguished this case from Matter of Brandon (Nationwide Mut. Ins. Co.), 97 NY2d 491 (2002), where the insurer received timely notice of the claim but late notice of the lawsuit. Here, no notice of claim was filed; the first notice was the lawsuit itself. The Court stated that the rationale of the no-prejudice rule applies to late notice of a lawsuit under a liability insurance policy because a liability insurer needs timely notice to actively participate in litigation and settlement discussions and to set adequate reserves.
The Court noted that Argo’s 14-month delay in notifying GNY of the lawsuit was unreasonable as a matter of law. As such, its failure to timely notify GNY vitiated the insurance contract, and GNY did not have to show prejudice before declining coverage.
The Court stated, “A liability insurer, which has a duty to indemnify and often also to defend, requires timely notice of lawsuit in order to be able to take an active, early role in the litigation process and in any settlement discussions and to set adequate reserves. Late notice of lawsuit in the liability insurance context is so likely to be prejudicial to these concerns as to justify the application of the no-prejudice rule.”