New York Law Review

Tag: Disclaimer

  • KeySpan Gas East Corp. v. Munich Reinsurance America, Inc., 23 N.Y.3d 582 (2014): Scope of Insurance Law § 3420(d)(2) Disclaimer Requirement

    KeySpan Gas East Corp. v. Munich Reinsurance America, Inc., 23 N.Y.3d 582 (2014)

    Insurance Law § 3420(d)(2), requiring timely disclaimer of liability, applies only to death and bodily injury claims arising from accidents, not to environmental contamination claims; for non-qualifying claims, common-law waiver and estoppel principles apply to determine the validity of a disclaimer.

    Summary

    KeySpan Gas East Corp. sought a declaration that its insurers had a duty to defend and indemnify it for environmental damage at former manufactured gas plant (MGP) sites. The insurers argued late notice of the potential claims. The Appellate Division applied Insurance Law § 3420(d)(2), requiring a disclaimer “as soon as reasonably possible.” The Court of Appeals reversed, holding that Section 3420(d)(2) applies only to death or bodily injury claims, not environmental damage claims. The Court remitted the case to the Appellate Division to determine if the insurers waived their late-notice defense under common-law principles.

    Facts

    Long Island Lighting Company (LILCO) notified its excess insurers, including Munich Reinsurance, in October and November 1994 about “environmental concern[s]” at retired MGP sites in Bay Shore and Hempstead. LILCO mentioned potential regulatory action and a property damage claim. Between 1995 and 1996, LILCO provided supplemental information to the insurers, including notice of a formal demand from the New York State Department of Environmental Conservation (DEC) to investigate and remediate the sites. The insurers reserved their rights but did not formally disclaim coverage. KeySpan acquired LILCO’s rights through assignment.

    Procedural History

    KeySpan commenced a declaratory judgment action in September 1997. The insurers asserted late notice as a defense and moved for summary judgment. Supreme Court granted summary judgment for the Bay Shore site but denied it for the Hempstead site, finding a question of fact regarding the reasonableness of the notice delay. The Appellate Division modified, finding that LILCO’s notice was untimely as a matter of law for both sites, but declined to award summary judgment to the insurers because of a potential waiver of their right to disclaim coverage based on late notice. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Insurance Law § 3420(d)(2) applies to environmental contamination claims, thus requiring an insurer to disclaim coverage “as soon as reasonably possible” after learning of grounds for disclaimer.

    Holding

    No, because Insurance Law § 3420(d)(2) applies only to insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy.

    Court’s Reasoning

    The Court of Appeals reasoned that the Appellate Division erred in applying the strict timeliness standard of Insurance Law § 3420(d)(2) to this case. The statute’s plain terms limit its application to cases involving death and bodily injury claims. The court emphasized that the statute was enacted to “aid injured parties” by encouraging prompt resolution of liability claims (citing Allstate Ins. Co. v Gross, 27 NY2d 263, 267 [1970]). Because the environmental contamination claims did not involve death or bodily injury, Section 3420(d)(2) was inapplicable. The court stated, “Where, as here, the underlying claim does not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in Insurance Law § 3420 (d) are inapplicable” (citing Vecchiarelli v Continental Ins. Co., 277 AD2d 992, 993 [4th Dept 2000]). The Court directed the Appellate Division to consider the issue of waiver under common-law principles, requiring a clear manifestation of intent to abandon the late-notice defense, rather than the heightened standard of Section 3420(d)(2). The Court cited Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P., 7 NY3d 96, 104 (2006), among other cases, regarding the elements of common law waiver. The court explicitly disapproved of appellate division cases to the contrary, stating: “To the extent Estee Lauder Inc. v OneBeacon Ins. Group, LLC (62 AD3d 33 [1st Dept 2009]), cited by the Appellate Division here, and other Appellate Division cases hold that Insurance Law § 3420 (d) (2) applies to claims not based on death and bodily injury… those cases were wrongly decided and should not be followed.” This makes the case significant because it clarifies and restricts the application of Section 3420(d)(2).

  • Country-Wide Ins. Co. v. Preferred Trucking Services Corp., 22 N.Y.3d 571 (2014): Timeliness of Disclaimer for Non-Cooperation

    Country-Wide Ins. Co. v. Preferred Trucking Services Corp., 22 N.Y.3d 571 (2014)

    An insurer’s disclaimer of coverage based on an insured’s non-cooperation must be made within a reasonable time after it is clear that further attempts to elicit the insured’s cooperation would be futile, and the reasonableness of the delay is evaluated on a case-by-case basis.

    Summary

    Country-Wide Insurance sought a declaratory judgment that it had no duty to defend or indemnify Preferred Trucking and its driver, Arias, in a personal injury lawsuit due to their failure to cooperate. The New York Court of Appeals held that Country-Wide’s disclaimer was timely because, despite diligent efforts, Arias’s lack of cooperation wasn’t clear until shortly before the disclaimer. The court emphasized that insurers must be given reasonable latitude to secure cooperation before disclaiming coverage, especially when initial non-compliance is followed by sporadic promises of cooperation. This case underscores the insurer’s heavy burden to demonstrate diligent efforts to secure the insured’s cooperation before issuing a disclaimer.

    Facts

    Gallina sued Preferred Trucking and its driver, Arias, for personal injuries. Country-Wide, Preferred Trucking’s insurer, repeatedly tried to contact the company’s president, Markos, and Arias, without success. Plaintiffs sought a default judgment, prompting Country-Wide’s initial notice of potential disclaimer. Markos briefly expressed willingness to cooperate but remained unreachable. Despite ongoing efforts, Arias only became reachable several months later. After initially promising cooperation, Arias later stated he did not care about the deposition date. Country-Wide then disclaimed coverage based on non-cooperation.

    Procedural History

    The Supreme Court struck the defendant’s answer, awarded judgment to the Gallinas, and directed an assessment of damages. Country-Wide then sued for a declaration that it had no duty to defend or indemnify. The Supreme Court declared Country-Wide obligated to indemnify Preferred Trucking but not Arias. The Appellate Division affirmed, finding the disclaimer untimely. The Court of Appeals reversed, holding the disclaimer was timely.

    Issue(s)

    Whether Country-Wide’s disclaimer of coverage, issued approximately four months after its initial awareness of potential non-cooperation, was timely under New York Insurance Law § 3420(d)(2), given its ongoing efforts to secure the insured’s cooperation.

    Holding

    No, because Country-Wide acted reasonably in continuing its efforts to secure Arias’s cooperation, and the insured’s lack of cooperation only became definitively clear shortly before the disclaimer was issued.

    Court’s Reasoning

    The Court of Appeals emphasized that Insurance Law § 3420(d)(2) requires insurers to disclaim coverage “as soon as is reasonably possible.” However, timeliness is case-specific, especially when disclaiming for non-cooperation, which “is often not readily apparent” (Continental Cas. Co. v Stradford, 11 NY3d 443, 449 [2008]). The Court reiterated that insurers should disclaim only after it’s clear that further attempts to elicit cooperation will be futile. The court highlighted the insurer’s “heavy” burden to show it acted diligently in seeking cooperation and that the insured’s attitude was one of “willful and avowed obstruction” (Thrasher v United States Liab. Ins. Co., 19 NY2d 159, 168 [1967]). Here, the delay was justified because Arias, the driver, initially promised cooperation after prior unresponsiveness. His ultimate unwillingness to cooperate became clear only shortly before the disclaimer. The Court reasoned that as long as Country-Wide was seeking Arias’s cooperation in good faith, it could not disclaim.

  • First Financial Ins. Co. v. Jetco Contracting Corp., 1 N.Y.3d 66 (2003): Prompt Disclaimer Rule

    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.

  • Markevics v. Liberty Mutual Insurance Co., 97 N.Y.2d 646 (2001): Insurer’s Duty to Disclaim Coverage to Injured Party

    Markevics v. Liberty Mutual Insurance Co., 97 N.Y.2d 646 (2001)

    An insurance company must provide timely written notice of disclaimer to the injured party when denying coverage based on a policy exclusion, even if the insurer notifies the insured.

    Summary

    Alexandra Markevics sued Liberty Mutual seeking a declaration that the insurer was obligated to defend and indemnify Kerry O’Brien under a homeowner’s policy for injuries Markevics sustained in an accident caused by an intoxicated driver who O’Brien allegedly served while working at her family’s bar. Liberty Mutual disclaimed coverage based on a “business pursuits” exclusion but only notified O’Brien, not Markevics. The New York Court of Appeals held that because the denial of coverage was based on a policy exclusion, Insurance Law § 3420(d) required the insurer to provide timely written notice of the disclaimer to the injured party (Markevics), and failure to do so invalidated the disclaimer.

    Facts

    Kerry O’Brien worked as a bartender at O’Bie’s Bar, a family business owned and operated by her parents. O’Brien lived at her parents’ home, which was insured under a “deluxe” homeowner’s policy issued by Liberty Mutual. O’Brien allegedly served liquor to Sandro Perez at the bar while Perez was visibly intoxicated. Perez then drove his car into a utility pole, injuring his passenger, Alexandra Markevics. Markevics sued O’Brien for negligence.

    Procedural History

    Markevics sued O’Brien for personal injuries. O’Brien tendered her defense to Liberty Mutual. Liberty Mutual disclaimed coverage based on a business pursuits exclusion, but only notified O’Brien. Markevics then commenced a declaratory judgment action against Liberty Mutual, arguing the disclaimer was invalid because it was not sent to her. Supreme Court granted summary judgment to Markevics. The Appellate Division affirmed. Liberty Mutual appealed to the New York Court of Appeals.

    Issue(s)

    Whether an insurance company must provide timely written notice of disclaimer to the injured party when denying coverage based on a policy exclusion under Insurance Law § 3420(d).

    Holding

    Yes, because when a claim falls within the coverage terms of an insurance policy but is denied based on a policy exclusion, Insurance Law § 3420(d) requires the insurer to provide timely written notice of the disclaimer to the injured party.

    Court’s Reasoning

    The Court of Appeals reasoned that under Insurance Law § 3420(d), a disclaimer is unnecessary when a claim does not fall within the coverage terms of an insurance policy. However, a timely disclaimer is required when a claim falls within the coverage terms but is denied based on a policy exclusion. The court emphasized that Liberty Mutual’s denial of coverage was based solely on the business pursuits exclusion, triggering the requirements of Insurance Law § 3420(d). The court cited Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, for the proposition that a disclaimer is required when a claim falls within the coverage terms but is denied based on a policy exclusion. Because Liberty Mutual failed to provide timely written notice of its disclaimer to Markevics, the injured party, the attempted disclaimer was defective, and summary judgment was properly granted to the plaintiff. The Court stated, “Conversely, a timely disclaimer pursuant to Insurance Law § 3420 (d) is required when a claim falls within the coverage terms but is denied based on a policy exclusion”. The Court also rejected Liberty Mutual’s argument that the claim did not arise on the insured premises, stating that the policy provides personal liability coverage without geographical limitation. Finally, the Court declined to consider the argument that O’Brien’s actions were not an “occurrence” because it was not raised in the lower courts.

  • Firemen’s Fund Ins. Co. v. Hopkins, 88 N.Y.2d 836 (1996): Insurer’s Duty to Promptly Disclaim Coverage

    88 N.Y.2d 836 (1996)

    An insurer must provide written notice of disclaimer as soon as reasonably possible after learning of the accident or grounds for disclaimer, and failure to do so precludes an effective disclaimer.

    Summary

    Firemen’s Fund sought to stay arbitration of an uninsured motorist claim, arguing the claimant, Hopkins, failed to provide timely notice of the accident. Hopkins was injured in 1989, but didn’t notify Firemen’s Fund until 1992. The Court of Appeals affirmed the Appellate Division’s order to proceed to arbitration, holding that Firemen’s Fund failed to disclaim coverage in a timely manner. The court emphasized the insurer’s duty to promptly notify the claimant of its intent to disclaim coverage and that an unexplained delay can result in the waiver of the right to disclaim.

    Facts

    Hopkins sustained injuries in 1989 as a passenger in a friend’s car, allegedly caused by an unknown individual who forcibly took control of the vehicle. Almost three years later, in June 1992, Hopkins notified Firemen’s Fund of his intent to file an uninsured motorist claim under his father’s policy, asserting the vehicle was stolen at the time of the accident. Firemen’s Fund requested details about the accident and an explanation for the delay. Hopkins provided the requested information in October 1992 but offered no explanation for the delay. Firemen’s Fund did not respond until Hopkins served a notice of intention to arbitrate.

    Procedural History

    Firemen’s Fund initiated a CPLR article 75 proceeding to permanently stay arbitration. Supreme Court granted the stay. The Appellate Division reversed, dismissed the petition, and directed the parties to arbitration. Firemen’s Fund appealed to the Court of Appeals.

    Issue(s)

    Whether Firemen’s Fund effectively disclaimed coverage for the uninsured motorist claim, given the delay between receiving notice of the claim and initiating proceedings to stay arbitration.

    Holding

    No, because Firemen’s Fund failed to provide timely notice of disclaimer after becoming aware of grounds for disclaimer, precluding an effective disclaimer.

    Court’s Reasoning

    The court relied on the principle that an insurer must give written notice of disclaimer “as soon as is reasonably possible after it first learns of the accident or of grounds for disclaimer of liability.” The court highlighted that failure to do so “precludes effective disclaimer” (citing Hartford Ins. Co. v County of Nassau, 46 N.Y.2d 1028, 1029 (1979)). Firemen’s Fund should have been aware the claim was untimely upon receiving Hopkins’ notification in June 1992. The court noted that Firemen’s Fund did not send a notice of disclaimer; instead, the intent to disclaim was only communicated in the February 1993 petition to stay arbitration. This was nearly eight months after the initial notice and four months after receiving the complete record, which was deemed an unreasonable delay. The court dismissed Firemen’s Fund’s attorney’s claim that the claim was denied earlier due to a lack of evidentiary support. The court effectively applied a strict interpretation of the prompt disclaimer requirement, placing the onus on the insurer to act swiftly upon awareness of potential grounds for denial. The ruling reinforces the policy that insurers must act promptly to avoid prejudicing claimants who may rely on coverage. The Court emphasized the importance of insurers providing timely notice of disclaimer, or else they will be barred from asserting the defense of late notice. In effect, the insurance company waived the right to deny coverage based on late notice by failing to promptly communicate its disclaimer.

  • General Accident Insurance Group v. Cirucci, 46 N.Y.2d 862 (1979): Specificity Required in Insurance Disclaimer Notices

    General Accident Insurance Group v. Cirucci, 46 N.Y.2d 862 (1979)

    An insurance company’s notice of disclaimer must promptly and specifically inform the claimant of the exact grounds on which the disclaimer is based; otherwise, the disclaimer is ineffective.

    Summary

    Celia Cirucci and Katherine Cerchione were injured in a car accident with Carlos Rodriguez. They filed a claim with their insurer, General Accident, under their uninsured motorist policy, and also sued Rodriguez. Rodriguez’s insurer, Aetna, disclaimed coverage, citing Rodriguez’s failure to report the accident and cooperate. General Accident sought to stay arbitration, arguing Aetna should cover the claim. The court held Aetna’s disclaimer was ineffective because it lacked specificity, as Aetna failed to raise the issue of late notice from the injured parties themselves in its initial disclaimer. This specificity requirement ensures claimants can properly assess the validity of the disclaimer and protect their recovery prospects.

    Facts

    • May 20, 1969: Celia Cirucci and Katherine Cerchione were injured in an automobile accident caused by Carlos Rodriguez.
    • Cirucci and Cerchione had an insurance policy with General Accident Insurance Group that included an uninsured motorist endorsement.
    • Cirucci and Cerchione served a demand for arbitration on General Accident and also commenced a civil action against Rodriguez.
    • November 16, 1971: Cirucci and Cerchione notified Aetna, Rodriguez’s insurance carrier, of the accident by mailing a copy of the summons and complaint.
    • March 28, 1972: Aetna mailed a disclaimer letter to Cirucci and Cerchione, citing Rodriguez’s failure to report the accident and failure to cooperate as reasons for disclaiming liability.

    Procedural History

    General Accident initiated a special proceeding to stay arbitration of the uninsured motorist claim, arguing that Aetna should be responsible under Rodriguez’s policy. The Appellate Division ruled against General Accident, finding Aetna’s disclaimer ineffective. The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether Aetna’s disclaimer of coverage was effective against the injured third-party claimants, Cirucci and Cerchione, based on the grounds stated in its disclaimer letter.

    Holding

    No, because Aetna’s notice of disclaimer did not promptly apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated.

    Court’s Reasoning

    The court found that Aetna’s stated grounds for disclaimer – the insured’s (Rodriguez’s) failure to report the accident and failure to cooperate – were not effective against the third-party claimants (Cirucci and Cerchione). The court cited Thrasher v. United States Liab. Ins. Co., noting that a lack of cooperation requires a showing that the insured willfully obstructed the insurance company’s investigation. The court found that Aetna did not sufficiently prove a lack of cooperation. Furthermore, the court cited Lauritano v. American Fid. Fire Ins. Co., noting that an injured third party can seek recovery despite the insured’s failure to provide timely notice. Although Aetna could have disclaimed based on the late notice from the third parties themselves, it did not raise this ground in its original disclaimer letter. The court emphasized the importance of specific and prompt notice of disclaimer, stating, “Both statute and public policy require that motorists be insured against the risks of automobile travel…Although an insurer may disclaim coverage for a valid reason…the notice of disclaimer must promptly apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated.” The court reasoned that without such specific notice, a claimant’s ability to assess the validity of the disclaimer and ultimately obtain recovery would be prejudiced. Because Aetna did not specifically raise the issue of late notice from the third parties in its disclaimer, it could not assert this ground later. This ruling reinforces the insurer’s responsibility to be clear and upfront about the reasons for denying coverage. The court reasoned that “Absent such specific notice, a claimant might have difficulty assessing whether the insurer will be able to disclaim successfully. This uncertainty could prejudice the claimant’s ability to ultimately obtain recovery.”