New York Law Review

Tag: Disclaimer of Coverage

  • QBE Insurance Corp. v. Jinx-Proof, Inc., 23 N.Y.3d 1106 (2014): Effective Disclaimer of Coverage Despite Confusing Language

    QBE Insurance Corp. v. Jinx-Proof, Inc., 23 N.Y.3d 1106 (2014)

    An insurance company’s disclaimer of coverage is effective if it sufficiently apprises the insured of the grounds for disclaimer, even if the disclaimer contains some contradictory or confusing language.

    Summary

    QBE Insurance Corp. issued a liability policy to Jinx-Proof, Inc. that contained an assault and battery exclusion. After a patron sued Jinx-Proof for injuries sustained from an employee’s intentional act, Jinx-Proof notified QBE. QBE sent two letters disclaiming coverage for the assault and battery claims but also mentioned defending the matter under the liquor liability portion of the policy, reserving rights for assault and battery allegations. QBE then sought a declaratory judgment that it had no duty to defend or indemnify Jinx-Proof. The New York Court of Appeals held that QBE’s disclaimer was effective because the letters specifically and consistently stated the policy excluded assault and battery coverage, sufficiently apprising Jinx-Proof of the basis for the disclaimer despite some confusing language.

    Facts

    • QBE Insurance Corp. issued a liability policy to Jinx-Proof, Inc. with an assault and battery exclusion.
    • In December 2007, a patron of Jinx-Proof’s bar sued for injuries allegedly caused by an employee throwing a glass at her face.
    • Jinx-Proof notified QBE of the lawsuit in January 2008, which included claims of negligence and intentional acts.
    • QBE sent two letters to Jinx-Proof disclaiming coverage for the assault and battery claims but also mentioning defending under the liquor liability portion, reserving rights.

    Procedural History

    • QBE commenced a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify Jinx-Proof.
    • The Supreme Court granted QBE’s motion for summary judgment.
    • The Appellate Division modified the order, declaring that QBE was not obligated to defend Jinx-Proof, and otherwise affirmed.
    • Jinx-Proof appealed to the New York Court of Appeals.

    Issue(s)

    Whether an insurance company’s disclaimer of coverage is effective when the disclaimer letters contain some contradictory or confusing language but specifically state that the policy excludes coverage for the relevant claims.

    Holding

    Yes, because the letters specifically and consistently stated that Jinx-Proof’s insurance policy excludes coverage for assault and battery claims, which was sufficient to apprise Jinx-Proof that QBE was disclaiming coverage on that ground, regardless of any contradictory or confusing language.

    Court’s Reasoning

    The Court of Appeals focused on the clarity of the disclaimer regarding the assault and battery exclusion. The court stated, “Although the letters contained some contradictory and confusing language, the confusion was not relevant to the issue in this case. The letters specifically and consistently stated that Jinx-Proofs insurance policy excludes coverage for assault and battery claims.” This specific disclaimer was sufficient to inform Jinx-Proof that QBE was disclaiming coverage based on the exclusion. The court cited Blue Ridge Ins. Co. v Jiminez, 7 AD3d 652, 653 (2d Dept 2004), to support the principle that a disclaimer can be effective even with a reservation of rights. The court also declined to consider Jinx-Proof’s argument about potential coverage under the liquor liability portion of the policy, as this argument was not raised in the lower courts and was based on information outside the record. The court emphasized that neither party submitted the liquor liability portion of the policy to the motion court, making the argument “unreviewable” and “based on pure speculation.” This case clarifies that the key requirement for an effective disclaimer is clear communication of the grounds for denial, even if other parts of the communication are less clear.

  • Continental Casualty Co. v. Stradford, 11 N.Y.3d 443 (2008): Timeliness of Disclaimer Based on Insured’s Non-Cooperation

    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.”

  • Matter of New York Central Mutual Fire Insurance Company v. Aguirre, 11 N.Y.3d 772 (2008): Insurer’s Duty to Disclaim Coverage Promptly

    Matter of New York Central Mutual Fire Insurance Company v. Aguirre, 11 N.Y.3d 772 (2008)

    An insurer must disclaim liability or deny coverage as soon as reasonably possible after learning of grounds for doing so, even if the insured’s actions provide a basis for denial.

    Summary

    This case addresses the timeliness of an insurer’s disclaimer of coverage. Aguirre and others were injured in a car accident involving an unidentified hit-and-run driver and sought supplementary uninsured/underinsured motorist (SUM) benefits under a policy issued by New York Central Mutual. The insurer requested completion of proof-of-claim forms but the claimants never returned them. The insurer then sought to stay arbitration based on this failure. The Court of Appeals held that the insurer’s delay in disclaiming coverage, after becoming aware that the forms were not returned, was unreasonable as a matter of law, precluding an effective disclaimer.

    Facts

    Jorge Aguirre, Rosa, and Amanda Alzate were injured on August 4, 2002, while in a parked car that was struck by another vehicle driven by an unidentified hit-and-run driver.

    The injured parties sought benefits under the Supplementary Uninsured/Underinsured Motorists (SUM) coverage of the car owner’s insurance policy with New York Central Mutual Fire Insurance Company.

    On August 15, 2002, the claimants’ attorney notified the insurer of the claim and enclosed no-fault insurance applications.

    On September 3, 2002, the insurer acknowledged the claim and requested the immediate completion and return of “Notice of Intention to Make Claim” forms.

    The claimants never returned the requested forms.

    In May 2003, the claimants filed a request for uninsured motorist arbitration.

    Procedural History

    New York Central Mutual petitioned the Supreme Court to stay arbitration based on the claimants’ failure to return the completed proof-of-claim forms.

    The Supreme Court granted the petition, finding that the return of the forms was a condition precedent to coverage.

    The Appellate Division affirmed the Supreme Court’s decision.

    The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether New York Central Mutual disclaimed liability or denied coverage “as soon as reasonably possible” within the meaning of Insurance Law § 3420 (d), given that the basis for denial (failure to return proof-of-claim forms) was known to the insurer well before it sought to stay arbitration.

    Holding

    Yes, because the insurer had knowledge of the basis for denying coverage (failure to return the proof-of-claim forms) significantly before petitioning to stay arbitration and failed to disclaim coverage in a timely manner.

    Court’s Reasoning

    The Court of Appeals reasoned that the requirement to fill out and return a proof-of-claim form is a condition of coverage.

    The court emphasized that under Insurance Law § 3420 (d), an insurer must disclaim liability or deny coverage “as soon as reasonably possible.” The timeliness is measured from when the insurer first learns of the grounds for disclaimer.

    Quoting First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 67 (2003), the court stated, “An insurer’s failure to provide notice as soon as is reasonably possible precludes effective disclaimer, even [where] the policyholder’s own notice of the incident to its insurer is untimely.”

    The court found that the insurer was aware of the claimants’ failure to return the forms, and thus the basis for denying coverage, well before it filed the petition to stay arbitration. The insurer’s letter demanding “immediate completion and return” of the forms indicated that the insurer expected prompt compliance.

    The court concluded that the delay between the insurer’s awareness of the missing forms and its attempt to stay arbitration was unreasonable as a matter of law. The fact that the insurer did not set a precise deadline for the return of the forms did not excuse its delay.

    The court noted that if the insurer suspected fraud, it could still contest the claim on that basis during arbitration.

  • Matter of Empire Mut. Ins. Co., 39 N.Y.2d 720 (1976): Insurer’s Burden to Prove Non-Cooperation for Disclaimer

    Matter of Empire Mut. Ins. Co., 39 N.Y.2d 720 (1976)

    An insurer seeking to disclaim liability based on the insured’s non-cooperation bears a heavy burden to prove both diligent efforts to secure cooperation and a willfully obstructive attitude by the insured.

    Summary

    This case addresses the extent of an insurer’s responsibility to prove non-cooperation by its insured before disclaiming liability. Empire Mutual sought to avoid arbitration by disclaiming coverage, alleging non-cooperation. The court held that Empire Mutual failed to meet its heavy burden of proving that the insured willfully obstructed the investigation. The insurer’s efforts to contact the insured, while diligent, did not demonstrate the insured’s willful obstruction, as there was insufficient proof the insured received the insurer’s communications. The court emphasized that mere non-action is insufficient to establish non-cooperation unless the inference of non-cooperation is practically compelling.

    Facts

    The claimant was involved in an accident with an automobile insured by Boston Old Colony Insurance Company, which was later acquired by Empire Mutual Insurance Company. The claimant’s attorney notified Boston Old Colony of the accident. The insurer’s adjuster sent multiple letters to the owner and operator of the insured vehicle over five months, via regular and registered mail, but only the registered mail was returned undelivered. The adjuster also visited the insured’s known addresses, left cards, communicated with the insured’s broker, and contacted the Motor Vehicle Department. Independent investigators also located the address of both the owner and operator, made several trips to the address, and left messages; however, none of these efforts elicited a response from either the owner or the operator.

    Procedural History

    The initial court and the Appellate Division ruled against Empire Mutual, finding insufficient evidence of non-cooperation to justify disclaiming liability. Empire Mutual appealed to the New York Court of Appeals.

    Issue(s)

    Whether Empire Mutual, the insurer, presented sufficient evidence to demonstrate that its insureds willfully and avowedly obstructed the investigation of the accident, thereby justifying the insurer’s disclaimer of liability based on non-cooperation.

    Holding

    No, because the insurer failed to prove that the insureds received any post-accident communications and demonstrated a willful and avowed obstruction. The insurer’s efforts, while diligent, were insufficient to demonstrate the necessary level of obstruction by the insureds.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s order, holding that Empire Mutual failed to meet its burden of proving non-cooperation. The court emphasized that under New York Insurance Law § 167, subd. 5, the burden of proving failure or refusal to cooperate rests heavily on the insurer. The court cited Thrasher v. United States Liab. Ins. Co., stating that the insurer must demonstrate not only that it acted diligently to obtain the insured’s cooperation and that its efforts were reasonably calculated to do so, but also that the insured’s attitude was one of “willful and avowed obstruction.”

    The court found no evidence that the insureds acted or failed to act in a way that could support a finding of non-cooperation. While the return of registered mail might suggest receipt of regular mail, there was insufficient proof the insured received any post-accident communications from the insurer or claimant’s attorney. The court distinguished this case from Thrasher, where the insured’s nonactions were more significant.

    The court clarified that non-action could potentially evidence a lack of cooperation, but the inference of non-cooperation must be practically compelling. In this instance, the court deemed the evidence presented insufficient to meet this high standard.

    The court explicitly stated: “We find in this record no evidence of acts or omissions to act on the part of the insured on which could be predicated a finding of non-co-operation… This record discloses only nonaction on the part of the insureds. In our view this cannot be escalated in this case to non-co-operation; it was short even of the series of nonactions by the insured in the Thrasher case.”

    The court also noted that the assigned risk nature of the insurance policy did not relieve the insurer of its burden to prove the requisite failure or refusal to cooperate.

  • Allstate Ins. Co. v. Gross, 27 N.Y.2d 263 (1970): Insurer’s Duty to Promptly Disclaim Coverage

    Allstate Ins. Co. v. Gross, 27 N.Y.2d 263 (1970)

    Under New York Insurance Law § 167(8), an insurer must not only give prompt notice of a decision to disclaim liability or deny coverage but also must reach that decision promptly, i.e., within a reasonable time, based on the circumstances.

    Summary

    Allstate sought a declaratory judgment that it was not obligated to defend or pay a claim related to an accident involving its insured, Gross. Gross allegedly injured Butch with his car in August 1963, but did not notify Allstate. Allstate first learned of the accident when it received the summons and complaint served on Gross in October 1963. Allstate reserved its right to disclaim but did not file a declaratory judgment action until May 1964. The New York Court of Appeals held that Allstate’s seven-month delay in disclaiming coverage was unreasonable as a matter of law, even without a showing of prejudice to the insured, injured party, or the Motor Vehicle Accident Indemnification Corporation (MVAIC). The court reasoned that Insurance Law § 167(8) requires insurers to promptly decide whether to disclaim coverage, not just promptly notify after the decision is made.

    Facts

    1. On August 17, 1963, Gross, an Allstate insured, allegedly struck and seriously injured Lynn Butch with his automobile.
    2. Gross notified the police but did not inform Allstate about the accident.
    3. On October 14, 1963, the Butches served Gross with a summons and complaint.
    4. The next day, Gross turned the summons and complaint over to Allstate, providing Allstate with its first notice of the accident and claim.
    5. On October 24, 1963, Allstate sent Gross a letter reserving its right to disclaim coverage “because of late notice and for other reasons.”
    6. Allstate served an answer in the Butches’ action on behalf of Gross, sought and received a bill of particulars, and represented Gross at his pretrial examination.
    7. MVAIC intervened due to its potential liability to the injured parties.

    Procedural History

    1. On May 23, 1964, Allstate commenced a declaratory judgment action seeking a declaration that it was not obligated to defend the Butches’ action against Gross or pay any resulting claim.
    2. The trial court found in favor of Allstate, holding that Gross had breached his policy by failing to provide timely notice of the accident.
    3. The Appellate Division reversed, holding that Allstate’s seven-month delay in disclaiming coverage was unreasonable as a matter of law, despite its reservation of rights. The Appellate Division did not find that the delay prejudiced any party.
    4. Allstate appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether Insurance Law § 167(8) requires an insurer to make a prompt decision to disclaim liability or deny coverage, in addition to providing prompt notice of such a decision.
    2. Whether a finding of prejudice to the insured, the injured party, or MVAIC is required for an insurer’s delay in disclaiming coverage to be deemed a violation of Insurance Law § 167(8).

    Holding

    1. Yes, because the statutory language requiring prompt notice of disclaimer implies a corresponding obligation to reach the decision to disclaim promptly.
    2. No, because the statute establishes a flexible time limit on disclaimer based on reasonableness, independent of a showing of prejudice, although prejudice is still relevant under common law waiver and estoppel doctrines.

    Court’s Reasoning

    1. The court interpreted Insurance Law § 167(8) as imposing a duty on insurers to act promptly in deciding whether to disclaim coverage, not just in providing notice after the decision is made. The court reasoned that delaying the decision to disclaim indefinitely would undermine the purpose of the statute, which is to protect the interests of the injured party and MVAIC by enabling them to pursue alternative remedies more quickly.
    2. The court emphasized that the statutory scheme aims to protect injured parties and MVAIC, who rely on timely resolution of coverage issues. Prompt disclaimer allows MVAIC to investigate claims earlier and injured parties to avoid costly litigation against the insurer.
    3. The court distinguished the statutory requirement of prompt action from common-law defenses like waiver and estoppel, which require a showing of prejudice. While those defenses remain available, the statute establishes a separate, absolute rule that an unreasonable delay in disclaiming coverage violates the rights of the insured, the injured party, and MVAIC.
    4. The court stated: “The statute provides a flexible time limit on disclaimer of liability or denial of coverage, but a time limit nevertheless. The limit depends merely on the passage of time rather than on the insurer’s manifested intention to release a right as in waiver, or on prejudice to the insured as in estoppel.”
    5. The court clarified that “unreasonableness” is the standard for evaluating delay, meaning that no particular time frame constitutes undue delay, but the question of unreasonableness is a factual one dependent on the circumstances, considering the time needed for investigation of coverage or breach of policy conditions.
    6. The court noted that prior to the enactment of the statute, insurers could only be prevented from disclaiming by showing waiver or estoppel, the latter requiring prejudice. “The Motor Vehicle Accident Indemnification Law has, in effect, established an absolute rule that unduly delayed disclaimer of liability or denial of coverage violates the rights of the insured, the injured party, and MVAIC.”

  • Thrasher v. United States Liab. Ins. Co., 19 N.Y.2d 159 (1967): Insurer’s Duty to Diligently Seek Insured’s Cooperation

    Thrasher v. United States Liab. Ins. Co., 19 N.Y.2d 159 (1967)

    An insurer has a heavy burden to demonstrate a lack of cooperation by its insured, requiring diligent efforts to secure the insured’s cooperation and a showing that the insured’s attitude was one of willful and avowed obstruction.

    Summary

    Thrasher sued United States Liability Insurance Company (USLI) after USLI disclaimed coverage for its insured, Kelley, in a negligence action. The New York Court of Appeals held that USLI failed to meet its burden of proving Kelley’s lack of cooperation. The court found that USLI’s efforts to locate Kelley for trial were not sufficiently diligent, and the evidence did not establish that Kelley willfully obstructed USLI’s defense. The court also determined that serving notice of entry of judgment on the law firm representing Kelley (and retained by USLI) satisfied the statutory requirement of serving the insurer. This case emphasizes the high standard insurers must meet to disclaim coverage based on non-cooperation.

    Facts

    Kelley loaned his car to Morgan, who invited Thrasher for a ride. An accident occurred, injuring both Thrasher and Morgan. Thrasher sued Kelley, alleging Morgan’s negligent operation of the vehicle. Morgan also sued Kelley, alleging defective brakes. USLI insured Kelley. USLI was informed by Kelley that he loaned his car to Morgan. USLI’s investigator made some attempts to locate Kelley when the case was approaching trial but failed to secure his attendance.

    Procedural History

    Thrasher initially sued Kelley. Morgan also sued Kelley. The two actions were consolidated. After a jury trial, Thrasher and Morgan won judgments against Kelley. USLI disclaimed coverage based on Kelley’s failure to cooperate. Thrasher and Morgan then sued USLI, seeking to recover on the judgments. The trial court found USLI’s disclaimer invalid. The Appellate Division reversed, holding that Kelley violated the cooperation clause and that service of notice of entry of judgment was not properly made on the insurer. The Court of Appeals reversed the Appellate Division and reinstated the trial court’s judgment.

    Issue(s)

    1. Whether service of notice of entry of judgment on the law firm retained by the insurer to represent the insured constitutes service “upon the insurer” under Section 167(1)(b) of the Insurance Law?

    2. Whether the insurer met its burden of proving that its insured failed to cooperate in the defense of the underlying negligence action, thereby justifying a disclaimer of coverage?

    Holding

    1. Yes, because service upon the attorney retained by the insurance company is reasonably calculated to give notice to the insurer that a judgment has been rendered against its insured.

    2. No, because the insurer failed to demonstrate diligent efforts to secure the insured’s cooperation and failed to prove that the insured’s attitude was one of willful and avowed obstruction.

    Court’s Reasoning

    The Court reasoned that service of notice of entry on the law firm representing the insured (and retained by the insurer) fulfilled the statutory requirement. The court emphasized that, although the firm technically represented Kelley, in reality, it was representing the insurance company’s interests. The court stated, “The law maintains the fiction that the insured is the real party in interest at the trial of the underlying negligence action in order to protect the insurance company against overly sympathetic juries…Once a judgment has been rendered, however, and a suit is subsequently brought against the insurance company, the reason for the fiction no longer exists.”

    Regarding the cooperation clause, the Court emphasized that the burden of proving a lack of cooperation falls on the insurer. Because a disclaimer based on non-cooperation penalizes the plaintiff for the actions of the insured, the insurer must demonstrate that it acted diligently in seeking the insured’s cooperation, employed reasonable efforts to obtain that cooperation, and that the insured’s attitude was one of “willful and avowed obstruction.” The Court found that USLI’s efforts to locate Kelley were not diligent, and the evidence did not support a conclusion that Kelley willfully obstructed USLI’s defense. The Court noted that USLI waited to contact Kelley until after the actions were consolidated. The court also found the efforts to find Kelley were “feeble indeed”.