New York Law Review

Tag: Disclaimer of Liability

  • Sierra v. 4401 Sunset Park, LLC, 22 N.Y.3d 108 (2013): Notice of Disclaimer Must Be Sent Directly to Insured

    Sierra v. 4401 Sunset Park, LLC, 22 N.Y.3d 108 (2013)

    Under New York Insurance Law § 3420(d)(2), when an insurer disclaims liability, it must provide written notice of the disclaimer directly to the insured party, even if that party is an additional insured under a policy obtained by a contractor, and notice to the insured’s own insurance carrier is insufficient.

    Summary

    4401 Sunset Park, LLC, and Sierra Realty Corp. (collectively, “Sunset Park”) contracted with LM Interiors Contracting, LLC (“LM”). Their contract required LM to obtain liability insurance naming Sunset Park as additional insureds, which LM did through Scottsdale Insurance Company (“Scottsdale”). Sunset Park also had their own insurance with Greater New York Mutual Insurance Company (“GNY”). After an LM employee was injured, he sued Sunset Park, who then notified GNY. GNY notified Scottsdale, who disclaimed coverage but only notified GNY, not Sunset Park. The court held that Scottsdale’s disclaimer was ineffective because it failed to notify Sunset Park directly, as required by Insurance Law § 3420(d)(2).

    Facts

    Sunset Park owned and managed an apartment building and contracted with LM for renovations.
    The contract mandated LM to maintain liability insurance naming Sunset Park as additional insureds; LM obtained a policy from Scottsdale.
    Sunset Park also had their own liability insurance policy with GNY.
    An LM employee, Juan Sierra, was injured at the worksite on August 18, 2008.
    Sunset Park did not notify either GNY or Scottsdale of the accident immediately.
    Juan Sierra sued Sunset Park on November 30, 2008, prompting Sunset Park to notify GNY.
    GNY then notified Scottsdale of the claim on January 6, 2009, requesting a response regarding defense and indemnification.
    Scottsdale disclaimed liability on February 2, 2009, citing a failure to provide timely notice of the occurrence, but only notified GNY, not Sunset Park.

    Procedural History

    Sunset Park filed a third-party claim against LM and Scottsdale, asserting Scottsdale’s duty to defend and indemnify them.
    The Supreme Court granted summary judgment against Scottsdale.
    The Appellate Division affirmed, finding Scottsdale failed to comply with Insurance Law § 3420(d)(2) by not notifying the additional insureds.
    The New York Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    Whether, under Insurance Law § 3420(d)(2), an insurer’s disclaimer of liability is effective when notice is provided to the additional insured’s own insurance carrier but not directly to the additional insured themselves.

    Holding

    No, because Insurance Law § 3420(d)(2) requires an insurer to provide written notice of a disclaimer of liability directly to the insured, and notice to the insured’s own insurance carrier does not satisfy this requirement.

    Court’s Reasoning

    The court emphasized the explicit language of Insurance Law § 3420(d)(2), which mandates written notice of disclaimer “to the insured.” The court reasoned that GNY, as another insurer, was not an insured under Scottsdale’s policy, and therefore, notice to GNY was insufficient. It stated that while GNY notified Scottsdale on behalf of Sunset Park, this didn’t make GNY Sunset Park’s agent for receiving a disclaimer notice. The court noted the potential for conflicting interests between GNY and Sunset Park, especially regarding coverage disputes or policy limits. Because Sunset Park had their own interests at stake, they were entitled to direct notice. The court cited Greater N.Y. Mut. Ins. Co. v Chubb Indem. Ins. Co., 105 AD3d 523, 524 [1st Dept 2013], stating that the obligation is “to give timely notice of disclaimer to the mutual insureds . . . not to . . . another insurer.” The court distinguished cases cited by Scottsdale, such as Excelsior Ins. Co. v Antretter Contr. Corp., 262 AD2d 124 [1st Dept 1999], noting that where those cases suggest notice to an additional insured’s carrier is sufficient, they should not be followed, as they undermine the statute’s clear requirement of direct notice to the insured.

  • Hartford Insurance Company v. County of Nassau, 46 N.Y.2d 1028 (1979): Timeliness Requirement for Insurer Disclaimer

    Hartford Insurance Company v. County of Nassau, 46 N.Y.2d 1028 (1979)

    An insurer must provide written notice of disclaimer of liability or denial of coverage under an automobile liability insurance policy as soon as is reasonably possible, and failure to do so precludes effective disclaimer or denial.

    Summary

    Hartford Insurance sought a declaration regarding its obligations under a policy. The insurer was notified of an accident more than 45 months after it occurred. Two months later, Hartford commenced an action seeking a declaration of its obligations, without providing any explanation for the delay. The Court of Appeals held that a two-month delay in disclaiming liability, without explanation, was unreasonable as a matter of law, preventing the insurer from disclaiming coverage. The court emphasized the insurer’s responsibility to explain delays in disclaiming coverage.

    Facts

    An accident occurred, and Hartford Insurance Company, the insurer, was notified of the accident on November 4, 1976, which was more than 45 months after the accident date. Instead of sending a disclaimer, Hartford commenced an action on January 5, 1977, seeking a declaration of its obligations under the policy. Hartford sent a letter agreeing to defend the insured but reserved its rights. The insurer provided no explanation for the two-month delay between being notified of the accident and initiating the declaratory judgment action.

    Procedural History

    Hartford Insurance Company brought an action seeking a declaration of its obligations under the insurance policy. The lower court ruled in favor of the County of Nassau. The Appellate Division reversed. The Court of Appeals reversed the Appellate Division’s order and reinstated the Supreme Court’s judgment.

    Issue(s)

    Whether a two-month delay by an insurer in disclaiming liability or denying coverage, without any explanation for the delay, is unreasonable as a matter of law, precluding the insurer from effectively disclaiming coverage.

    Holding

    Yes, because under New York Insurance Law, an insurer must give written notice of disclaimer “as soon as is reasonably possible,” and a two-month delay with no explanation is unreasonable as a matter of law.

    Court’s Reasoning

    The Court of Appeals relied on Insurance Law § 167(8), which requires insurers to provide written notice of disclaimer as soon as reasonably possible. Citing Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, the court reiterated that failure to provide timely notice precludes effective disclaimer. The court found that Hartford’s two-month delay, without any explanation, was unreasonable. The letter reserving rights was deemed irrelevant to the timeliness of the disclaimer. The court stated, “A reservation of rights letter has no relevance to the question whether the insurer has timely sent a notice of disclaimer of liability or denial of coverage.” The court emphasized that while the reasonableness of a delay is typically a question of fact, a delay is unreasonable as a matter of law when no explanation is provided. The Court placed the onus on the insurer to explain the delay, stating, “It is the responsibility of the insurer to explain its delay; it is not the function of the courts to engage in speculation as to what might have happened in order to remedy a failure of proof.”

  • In re Empire Mutual Insurance Co., 36 N.Y.2d 719 (1975): Insurer’s Burden to Prove Non-Cooperation for Disclaimer

    In re Empire Mutual Insurance Co., 36 N.Y.2d 719 (1975)

    An insurer seeking to disclaim liability based on the insured’s non-cooperation bears a heavy burden to prove that it acted diligently to secure the insured’s cooperation and that the insured’s attitude amounted to willful and avowed obstruction.

    Summary

    This case addresses the standard for an insurer to disclaim liability due to the insured’s alleged non-cooperation. The New York Court of Appeals held that Boston Old Colony Insurance Company was not justified in disclaiming liability based on the non-cooperation of its insureds. The court emphasized that the insurer bears a heavy burden to demonstrate both diligent efforts to obtain the insured’s cooperation and a willful and avowed obstruction by the insured. Mere non-action by the insured is generally insufficient to establish non-cooperation unless the inference of non-cooperation is practically compelling.

    Facts

    Empire Mutual sought arbitration under the uninsured motorist provision of its policy, due to an accident involving an alleged tortfeasor insured by Boston Old Colony. Boston Old Colony attempted to disclaim liability, alleging non-cooperation by its insureds (the tortfeasors) after the accident. The claimant’s attorney provided timely notice of the accident. The insurer’s adjuster sent multiple letters to the owner and operator of the other vehicle over five months. Registered mail copies were returned undelivered, while regular mail copies were not returned. The adjuster visited the insureds’ addresses, left cards, and communicated with the insured’s broker and the Motor Vehicle Department. Independent investigators located the insureds’ address and left messages, but received no response.

    Procedural History

    The case reached the Appellate Division, which the Court of Appeals affirmed. The lower courts found that Boston Old Colony had not met its burden to prove non-cooperation justifying a disclaimer of liability. The Court of Appeals reviewed the evidence presented by the insurer and determined it was insufficient to demonstrate the insured’s willful obstruction.

    Issue(s)

    1. Whether the issue of whether the alleged tort-feasors were insured falls within the scope of arbitration?
    2. Whether Boston Old Colony Insurance Company presented sufficient evidence to justify disclaiming liability based on the insured’s non-cooperation?

    Holding

    1. No, because under New York precedent, the claimant’s insurance company was entitled to a prior judicial determination as to the validity of the disclaimer before arbitration.
    2. No, because the insurer failed to demonstrate both diligent efforts to obtain the insured’s cooperation and a willful and avowed obstruction by the insured.

    Court’s Reasoning

    The court emphasized the heavy burden placed on the insurer to prove non-cooperation, citing Insurance Law § 167(5) and Thrasher v. United States Liab. Ins. Co., 19 N.Y.2d 159, 168. The court stated that the insurer must demonstrate both diligent efforts to bring about the insured’s cooperation and that the insured’s attitude was one of “willful and avowed obstruction.”

    The court found that the insurer’s efforts, while extensive, did not establish non-cooperation. The court reasoned, “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.”

    The court acknowledged that non-action could, in some circumstances, evidence a lack of cooperation, but emphasized that “the inference of non-co-operation must be practically compelling.” The court concluded that the evidence presented was insufficient to meet this high standard. The court also noted that the fact that the risk was an assigned risk did not relieve the insurer of its burden of proof.

  • General Accident Fire & Life Assurance Corp. v. Goss, 41 N.Y.2d 813 (1977): Estoppel Based on Conduct in Court

    General Accident Fire & Life Assurance Corp. v. Goss, 41 N.Y.2d 813 (1977)

    Parties to a lawsuit can define the scope of the issues to be litigated, and a party’s silence in the face of explicit statements by the court and opposing counsel can constitute a tacit agreement to exclude certain issues from consideration.

    Summary

    This case addresses whether an insurer’s disclaimer of liability was timely. The Court of Appeals held that the Appellate Division erred in deciding the disclaimer was unreasonable because the parties had effectively agreed to exclude the issue of reasonableness from the trial. The plaintiffs’ silence when the court and opposing counsel stated that reasonableness was not an issue was deemed tacit acceptance. Because the Appellate Division did not resolve a factual issue (owner’s consent), the case was remitted for further review.

    Facts

    General Accident Fire & Life Assurance Corp. disclaimed liability in a case. The specifics of the underlying accident and the reason for the disclaimer are not detailed in the Court of Appeals decision, but it concerned whether the operator of a vehicle had the owner’s permission to operate it. At the start of the trial, a colloquy occurred where the court and the insurer’s counsel stated that the reasonableness of the disclaimer was not at issue.

    Procedural History

    The trial court initially determined that the insurer was not privileged to disclaim liability. The Appellate Division affirmed this determination but without affirming the trial court’s findings of fact regarding consent. Two Appellate Division justices concluded the operator had the owner’s permission, and two found no evidence supporting consent. The Court of Appeals then reviewed the Appellate Division’s decision.

    Issue(s)

    Whether the Appellate Division could properly rule that the insurer’s disclaimer was invalid due to unreasonableness when the parties appeared to have agreed to exclude the issue of reasonableness at trial.

    Holding

    No, because the parties are free to define the issues to be litigated, and the plaintiffs’ silence when the court and the insurer stated that reasonableness was not an issue constituted a tacit acceptance of that position.

    Court’s Reasoning

    The Court of Appeals reasoned that parties can chart their own course in a trial and determine the basis upon which a controversy will be resolved. The court emphasized the importance of the colloquy at the trial’s commencement, where the judge and the insurer’s counsel indicated that reasonableness would not be an issue. The plaintiffs’ counsel remained silent during this exchange. The court held that this silence constituted tacit acceptance of the limitation on the issues. The court cited precedent such as Stevenson v. News Syndicate Co., 302 N.Y. 81 and Mann v. Simpson & Co., 286 N.Y. 450, to support the principle that parties can shape the scope of litigation. The court stated, “From the colloquy occurring in open court and placed on the record at the commencement of the trial, it is clear that it was the judgment of the parties that reasonableness was not to be an issue in this litigation.” Because the Appellate Division did not resolve the factual issue of the owner’s consent, the Court of Appeals remitted the case to the Appellate Division for further review of the facts based on CPLR 5613 and Cohen and Karger, Powers of the New York Court of Appeals.

  • Knickerbocker Ins. Co. v. Faison, 22 N.Y.2d 554 (1968): Insurer’s Disclaimer Does Not Convert ‘Insured’ to ‘Qualified’ Person

    22 N.Y.2d 554 (1968)

    An insurer’s disclaimer of liability under the main policy does not retroactively change the status of passengers in the insured vehicle from “insured persons” to “qualified persons” under the New York Automobile Accident Indemnification Endorsement.

    Summary

    Patricia Faison and others were injured while passengers in a vehicle insured by Knickerbocker Insurance Company. Knickerbocker disclaimed liability due to the insured’s failure to cooperate. Faison then sought arbitration under the “New York Automobile Accident Indemnification Endorsement.” Knickerbocker argued that its disclaimer converted Faison from an “insured person” to a “qualified person,” thus relieving it of responsibility. The court held that a disclaimer under the main policy does not change an “insured person” to a “qualified person” and that the endorsement remained viable despite the disclaimer. This decision ensures that individuals initially covered as insureds retain their protection, even if the primary policy coverage is later disclaimed, furthering the statute’s purpose of compensating victims of uninsured motorists.

    Facts

    • On March 5, 1966, Patricia Faison and other respondents were injured while passengers in a car owned and operated by Knickerbocker’s insured.
    • In December 1966, Knickerbocker disclaimed liability due to the insured’s failure to provide notice of the accident and cooperate with the investigation.
    • Respondents served a notice of claim and demand for arbitration on Knickerbocker and the Motor Vehicle Accident Indemnification Corporation (MVAIC) under the “New York Automobile Accident Indemnification Endorsement”.
    • MVAIC opposed the claim and obtained a stay of arbitration in a separate proceeding.

    Procedural History

    • Special Term denied Knickerbocker’s application for a stay of arbitration, holding that the disclaimer did not change the respondents’ status from insured to qualified persons.
    • The lower court reasoned that because the policy’s effective date was after June 30, 1965, Knickerbocker was obligated to assume responsibilities formerly held by MVAIC, as required by section 605 of the Insurance Law.
    • Knickerbocker appealed this decision to the Court of Appeals of New York.

    Issue(s)

    1. Whether an insurer’s disclaimer of liability under the main insurance policy retroactively alters the status of individuals who were initially “insured persons” under the policy to “qualified persons” under the New York Automobile Accident Indemnification Endorsement.
    2. Whether the exclusionary language in the endorsement, which excludes vehicles owned by the named insured from the category of uninsured automobiles, applies when the insurer has disclaimed liability for a particular accident.

    Holding

    1. No, because the endorsement required by section 167 (subd. 2-a) of the Insurance Law exists independently from the standard policy and remains viable even after a disclaimer under the main policy. A disclaimer cannot retroactively change an “insured person” to a “qualified person.”
    2. No, because the exclusionary language should be construed in favor of coverage, particularly when a disclaimer of liability has been issued. The exclusion does not apply when the insurer disclaims liability for the accident.

    Court’s Reasoning

    The court reasoned that the purpose of the statute requiring the endorsement is to ensure compensation for victims as if the at-fault driver were insured. Depriving an insured person of coverage due to a future act by the named insured or insurer is inconsistent with this purpose.

    The court stated, “Thus, the endorsement required by section 167 (subd. 2-a) of the Insurance Law should be considered to exist independently from the standard policy to which it is annexed and should remain viable even though liability under the main policy has been disclaimed by the insurer.”

    The court emphasized that the Insurance Law establishes mutually exclusive categories of “insured” and “qualified” persons. A disclaimer cannot retroactively reclassify someone from one category to the other.

    Regarding the exclusionary language, the court held that it should be construed in favor of the insured to provide coverage, rather than deny it. The court stated that “the negatively stated exclusionary language should not be held to encompass an automobile owned by the named insured where a disclaimer or liability for a particular accident has been interposed.” This ensures that the endorsement provides the intended protection even when the main policy is disclaimed.