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.