New York Law Review

Tag: duty to investigate

  • Empire City Subway Co. v. Greater New York Mut. Ins. Co., 35 N.Y.2d 8 (1974): Enforcing Timely Notice Provisions in Insurance Policies

    Empire City Subway Co. v. Greater New York Mut. Ins. Co., 35 N.Y.2d 8 (1974)

    An insured’s duty to notify an insurer of an accident or claim “as soon as practicable” requires the insured to exercise reasonable diligence in investigating potential claims, and a good-faith belief of non-liability must be reasonable under all the circumstances.

    Summary

    Empire City Subway Company was insured under a liability policy issued by Greater New York Mutual Insurance Company. After an individual, Vitaliano, sued Empire for injuries allegedly sustained due to Empire’s contractor’s negligence, Empire notified Greater New York of the claim 16 months after being served with a third-party complaint by the City of New York. Greater New York disclaimed coverage due to Empire’s failure to provide timely notice. The New York Court of Appeals held that Empire failed to provide notice “as soon as practicable” because it did not exercise reasonable diligence in investigating the claim after receiving the city’s third-party complaint, and its belief of non-liability was unreasonable given the circumstances.

    Facts

    Empire contracted with Delee to perform excavation, backfilling, and pavement replacement. Several months after the work was completed, Vitaliano allegedly sustained injuries when he tripped in an area where Delee had worked. Vitaliano sued the City of New York, who then filed a third-party complaint against Empire seeking indemnification based on Empire’s negligence in performing the work. Vitaliano later amended his complaint to include Empire as a direct defendant. Empire notified Greater New York about the lawsuit approximately 16 months after receiving the third-party complaint, claiming it only became aware of the policy’s applicability after Vitaliano’s deposition.

    Procedural History

    Empire brought a declaratory judgment action seeking to compel Greater New York to defend and indemnify it in the Vitaliano lawsuit. Special Term ruled in favor of Empire, finding that timely notice was given. The Appellate Division affirmed without opinion. Greater New York appealed to the New York Court of Appeals.

    Issue(s)

    Whether Empire complied with the insurance policy’s condition requiring notice to the insurer “as soon as practicable” after the accident and “immediately” upon claim or suit, given a 16-month delay after receiving the City’s third-party complaint.

    Holding

    No, because Empire failed to exercise reasonable diligence in investigating the claim after being put on notice by the City’s third-party complaint, and its belief of non-liability was unreasonable under the circumstances.

    Court’s Reasoning

    The court emphasized that when Empire received the city’s third-party complaint, it was obligated to exercise reasonable care and diligence to ascertain the facts about the alleged accident. The court found that the third-party complaint, referencing the highway opening permit, should have alerted Empire to the possibility that the accident arose from Delee’s work. The court rejected Empire’s claim that it only discovered the accident’s location at Vitaliano’s deposition, citing the testimony of Empire’s supervising engineer, which indicated that the location in Vitaliano’s original complaint was within a few feet of Delee’s work area. While a good-faith belief of nonliability may excuse a seeming failure to give timely notice, the court stated, that belief must be reasonable. The court quoted Haas Tobacco Co. v. American Fid. Co., 226 N.Y. 343, 347 stating that “where, as here, an accident occurs which may fall within the coverage of an insurance policy the insured may not, without investigation, gratuitously conclude that coverage does not exist.” Since Empire failed to offer a credible explanation for the delay, the court reversed the lower courts’ decisions and ruled in favor of Greater New York.

  • Security Mutual Insurance Company of New York v. Acker-Fitzsimons Corp., 31 N.Y.2d 436 (1973): Insured’s Duty to Investigate Potential Liability

    Security Mutual Insurance Company of New York v. Acker-Fitzsimons Corp., 31 N.Y.2d 436 (1973)

    An insured’s good-faith belief of nonliability may excuse a delay in providing notice to an insurer, but the belief must be reasonable under the circumstances, including the extent to which the insured investigated the incident.

    Summary

    This case addresses the “notice as soon as practicable” provision in a liability insurance policy. A fire occurred at the insured’s property, and later a newspaper article reported firemen were injured and potentially could sue the property owner. The insured notified the insurer 19 months after the fire when served with a summons. The New York Court of Appeals held that the insured failed to exercise reasonable care and diligence in ascertaining the facts and evaluating potential liability, therefore the late notice was not excused. The insured had a duty to investigate the possibility of liability after learning of the firemen’s injuries.

    Facts

    Fernley Realty Corp. held a liability insurance policy with Security Mutual, covering its president Norman Levy, and Acker-Fitzsimons Corp., the managing agent of the property. A major fire occurred on the insured premises on May 23, 1965, and a second fire on October 4, 1965, allegedly injured three firemen (Adams, Harrington, and Manning). Levy learned of the second fire the same day. On November 9, 1965, Levy heard rumors of firemen being injured and instructed his insurance broker, Kannar, to notify the insurer. Kannar did not notify Security Mutual, believing there was no duty until a concrete claim was made and opining firemen assume their own risk. On December 19, 1965, a newspaper reported the firemen filed claims against the City of New York and mentioned the potential liability of the property owners. Levy sent the article to Kannar, who again took no action. Security Mutual received notice of the firemen’s claims 19 months after the fire.

    Procedural History

    The firemen (Adams, Manning, and Harrington) initiated a lawsuit, initially serving only the City of New York in October 1966. Fernley and Acker-Fitzsimons were served via the Secretary of State on April 28, 1967, and Levy was personally served on June 23, 1967. Acker-Fitzsimons then notified Security Mutual. The Supreme Court, Bronx County, ruled in favor of Security Mutual. The Appellate Division reversed, finding the notice timely. The Court of Appeals reversed the Appellate Division and reinstated the Supreme Court’s judgment, holding the notice was not timely.

    Issue(s)

    Whether the insured complied with the liability insurance policy provision requiring notice to the insurer “as soon as practicable” after the “occurrence”.

    Holding

    No, because the insured failed to exercise reasonable care and diligence in ascertaining the facts about the alleged accident and in evaluating their potential liability after receiving information that should have prompted an investigation.

    Court’s Reasoning

    The court emphasized that providing timely notice is a condition precedent to the insurer’s liability, giving the insurer the opportunity to protect itself. While circumstances like lack of knowledge may excuse delays, the insured bears the burden of proving reasonableness. The court stated, “[T]he insured must exercise reasonable care and diligence to keep himself informed of accidents out of which claims for damages may arise.” The court acknowledged a good-faith belief of nonliability may excuse delay, but “the insured’s belief must be reasonable under all the circumstances, and it may be relevant on the issue of reasonableness, whether and to what extent, the insured has inquired into the circumstances of the accident or occurrence.” The court found the insured had sufficient information (the newspaper article) to trigger a duty to investigate, especially considering the existing structural violations on the property. The court distinguished 875 Forest Ave. Corp. v. Aetna Cas. Corp., where delayed notice was excused because the accident (a child falling out of a window) did not suggest liability on the insured’s part. Here, the firemen’s injuries, coupled with the building code violations, created a reasonable possibility of liability that the insured failed to investigate. The court concluded the 19-month delay was unreasonable because it could not be excused by lack of knowledge or belief of nonliability, as the insured failed to diligently investigate after being put on notice of a potential claim.

  • S. & E. Motor Hire Corp. v. New York Indemnity Co., 255 N.Y. 69 (1931): Insurer’s Duty to Investigate Driver’s Age

    S. & E. Motor Hire Corp. v. New York Indemnity Co., 255 N.Y. 69 (1931)

    An insurer is not automatically deemed to have waived a policy exclusion based on a driver’s age merely because it undertook the defense of a lawsuit without first independently verifying the driver’s age, especially when the insured provided information indicating the driver met the age requirements.

    Summary

    S. & E. Motor Hire Corp. sued New York Indemnity Co. to recover settlement costs for an accident involving their vehicle. The indemnity policy excluded coverage for accidents when the vehicle was driven by someone under the legal age. The insurer initially defended the lawsuit but withdrew upon discovering the driver’s underage status. The Court of Appeals held that the insurer did not waive its right to invoke the policy exclusion simply by initially defending the suit, as the insured had provided information suggesting the driver was of age, and the insurer wasn’t obligated to investigate the driver’s age before providing a defense.

    Facts

    S. & E. Motor Hire Corp. had an insurance policy with New York Indemnity Co. that excluded coverage for accidents occurring while the vehicle was operated by someone violating age laws. An accident occurred while an employee of S. & E. Motor Hire Corp., who was under 18, was driving. The employee had a license belonging to another person and used that name for employment. The insured provided the insurance company with a statement from the chauffeur claiming he was 18. The insurance company acted on this statement until the trial date, when they learned the chauffeur’s actual age.

    Procedural History

    S. & E. Motor Hire Corp. sued New York Indemnity Co. to recover the settlement amount. The trial court ruled in favor of the insurance company, finding no waiver. The Appellate Division reversed, holding that the insurance company had sufficient knowledge to inquire about the chauffeur’s age. The New York Court of Appeals then reviewed the Appellate Division’s decision.

    Issue(s)

    Whether the insurance company, by initially undertaking the defense of the lawsuit against S. & E. Motor Hire Corp., waived its right to invoke the policy exclusion for accidents involving underage drivers, even if it did not have actual knowledge of the driver’s age but possessed information that might have prompted further inquiry?

    Holding

    No, because the insurance company was entitled to rely on the information provided by the insured, which indicated that the driver met the legal age requirements, and was not under a duty to investigate the driver’s age before providing a defense.

    Court’s Reasoning

    The court reasoned that waiver is the intentional relinquishment of a known right. While constructive notice (where a party is deemed to know facts they should have discovered through reasonable inquiry) can sometimes establish knowledge, it does not automatically apply in insurance contexts. The court distinguished this case from situations where an insurance company has a duty to inquire, such as when the applicant for insurance directs the company to a source of information and the company chooses to remain ignorant.

    The court emphasized that the insurance company was contractually obligated to defend the suit unless the policy exclusion applied. They were entitled to rely on the information provided by the insured, specifically the chauffeur’s statement that he was 18. Suspicion of the statement’s falsity might require inquiry if the insurer was asserting rights against the insured, but in this case, the insured had to prove the insurer waived its rights. The court stated, “Upon the information furnished to the insurer it would have breached its contract if it had failed to defend the suit. It was not, at peril of losing its contractual rights, required to inquire whether the information so furnished was false before it undertook the defense.” Therefore, the court held that the insurer did not waive its right to invoke the policy exclusion.