Continental Casualty Co. v. Stradford, 11 N.Y.3d 443 (2008)
An insurer’s disclaimer of coverage based on an insured’s non-cooperation must be made within a reasonable time, and the reasonableness of the delay is a factual question considering the insurer’s need to investigate and the insured’s pattern of conduct.
Summary
Continental Casualty sought a declaratory judgment that it had no duty to defend or indemnify its insured, Terrance Stradford, in two dental malpractice actions due to his non-cooperation. Over six years, Stradford sporadically cooperated with Continental. The court addressed whether Continental timely disclaimed coverage. The Court of Appeals held that a question of fact remained regarding the timeliness of Continental’s disclaimer, considering Stradford’s pattern of conduct and Continental’s need to investigate. The Court modified the Appellate Division’s order by denying summary judgment to the defendants.
Facts
Hector and Rose Gunaratne, and Sumanadasa Perera, commenced dental malpractice actions against Stradford in 1998. Continental had issued a professional liability policy to Stradford, requiring him to notify Continental of actions, cooperate fully in litigation and settlement efforts, attend hearings and trials, and assist in securing evidence and obtaining witnesses. Stradford notified Continental, but subsequently largely ignored Continental’s requests for treatment records, views on expert witnesses, scheduling depositions, and discussions on settlements, despite repeated warnings that non-cooperation could jeopardize his coverage. Stradford made occasional promises to cooperate and eventually appeared for a deposition in the Gunaratne case. After four years, Stradford requested new counsel in both actions, but never executed the necessary substitution form.
Procedural History
Continental sought a declaratory judgment that it had no duty to defend or indemnify Stradford. The Supreme Court granted summary judgment to Continental. The Appellate Division reversed, finding Continental had established non-cooperation, but the two-month delay in disclaiming was unreasonable. Continental appealed. The Court of Appeals modified the Appellate Division’s order, denying summary judgment to the defendants, holding that the timeliness issue was a question of fact.
Issue(s)
Whether Continental’s approximately two-month delay in disclaiming coverage based on Stradford’s non-cooperation was unreasonable as a matter of law.
Holding
No, because the reasonableness of the delay is a question of fact considering the insurer’s need to evaluate the insured’s pattern of conduct and the insurer’s duty to attempt to elicit cooperation from the insured.
Court’s Reasoning
The Court of Appeals emphasized that even with a valid basis for disclaimer, an insurer must issue it within a reasonable time. Timeliness is almost always a factual question, requiring an assessment of all relevant circumstances, including the time needed for a prompt investigation. The Court noted the difficulty of fixing the time when an insurer’s obligation to disclaim begins, stating that “That period begins when an insurer first becomes aware of the ground for its disclaimer.” However, an insured’s non-cooperation is often not readily apparent, and can be obscured by promises and sporadic cooperation. The court reiterated the “heavy burden that an insurer seeking to establish a noncooperation defense must carry.” Insurers must be encouraged to disclaim for non-cooperation only after it is clear that further reasonable attempts to elicit their insured’s cooperation will be futile. The Court found that the reasonableness of the two-month delay to analyze the six-year pattern of obstructive conduct presented a question of fact precluding summary judgment for either party. The court quoted prior precedent that “investigation into issues affecting an insurer’s decision whether to disclaim coverage obviously may excuse delay in notifying the policyholder of a disclaimer.”