New York Law Review

Tag: Duty to Cooperate

  • Auswin Realty Corp. v. Harleysville Ins. Co., 56 N.Y.2d 834 (1982): Insured’s Duty to Cooperate After Loss

    Auswin Realty Corp. v. Harleysville Ins. Co., 56 N.Y.2d 834 (1982)

    An insured cannot avoid its duty to cooperate with an insurer’s investigation by commencing an action before the insurer has repudiated liability; unexcused and willful refusal to comply with requests for proof of loss or examination warrants unconditional dismissal of the insured’s claim.

    Summary

    Auswin Realty Corp. sued Harleysville Ins. Co. on a fire insurance policy. The insurer demanded proof of loss and an examination of the insured, but the insured did not comply, claiming the demand was made too late (10 months after the loss) and after the insured had already filed suit. The New York Court of Appeals held that the insured’s unexcused and willful refusal to cooperate with the insurer’s investigation, by failing to provide proof of loss or submit to examination, warranted unconditional dismissal of the complaint because the insurer had not yet repudiated liability.

    Facts

    Auswin Realty Corp. sustained a loss covered by a fire insurance policy issued by Harleysville Ins. Co. Ten months after the loss, Harleysville demanded that Auswin provide proof of loss and submit to an examination as required by the policy. Auswin had already commenced an action against Harleysville to recover under the policy, believing this was necessary to protect itself against the policy’s 12-month limitation period (later shown to be a 2-year period based on state law). Auswin failed to comply with Harleysville’s demands.

    Procedural History

    Auswin Realty Corp. brought an action against Harleysville Ins. Co. to recover under a fire insurance policy. The lower court dismissed Auswin’s complaint due to its failure to file proof of loss or submit to an examination as requested by Harleysville. The Appellate Division affirmed. The New York Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether an insured’s unexcused failure to comply with an insurer’s demand for proof of loss and examination, made after the insured commenced an action on the policy but before the insurer repudiated liability, warrants unconditional dismissal of the insured’s claim.

    Holding

    Yes, because the insured cannot insulate itself against cooperation by commencing an action before the insurer has repudiated liability, and the insured offered no valid excuse for its noncompliance.

    Court’s Reasoning

    The Court of Appeals reasoned that while an insurer cannot create grounds for refusing to pay a claim by demanding compliance with policy provisions after repudiating liability, the insured also cannot avoid its duty to cooperate by filing suit before the insurer has repudiated liability. The court distinguished this case from cases where the insured had attempted to comply with the policy requirements but had fallen short due to minor omissions or defects. The court emphasized that Auswin offered no reason for its noncompliance with Harleysville’s demands. Citing Do-Re Knit v National Union Fire Ins. Co., the court stated that an insured cannot prevent cooperation by starting a lawsuit before there has been a repudiation of liability by the insurer. The court noted, “neither can the insured insulate itself against co-operation by commencing an action before there has in fact been repudiation of liability by the insurer.” Because there was no attempt to comply or valid excuse for noncompliance, the court found summary judgment dismissing the complaint unconditionally was appropriate. The Court distinguished the holding from other cases where there was partial compliance from the insured.

  • 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”.