New York Law Review

Tag: Insurance Law § 3420(d)(2)

  • 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.

  • KeySpan Gas East Corp. v. Munich Reinsurance America, Inc., 23 N.Y.3d 582 (2014): Scope of Insurance Law § 3420(d)(2) Disclaimer Requirement

    KeySpan Gas East Corp. v. Munich Reinsurance America, Inc., 23 N.Y.3d 582 (2014)

    Insurance Law § 3420(d)(2), requiring timely disclaimer of liability, applies only to death and bodily injury claims arising from accidents, not to environmental contamination claims; for non-qualifying claims, common-law waiver and estoppel principles apply to determine the validity of a disclaimer.

    Summary

    KeySpan Gas East Corp. sought a declaration that its insurers had a duty to defend and indemnify it for environmental damage at former manufactured gas plant (MGP) sites. The insurers argued late notice of the potential claims. The Appellate Division applied Insurance Law § 3420(d)(2), requiring a disclaimer “as soon as reasonably possible.” The Court of Appeals reversed, holding that Section 3420(d)(2) applies only to death or bodily injury claims, not environmental damage claims. The Court remitted the case to the Appellate Division to determine if the insurers waived their late-notice defense under common-law principles.

    Facts

    Long Island Lighting Company (LILCO) notified its excess insurers, including Munich Reinsurance, in October and November 1994 about “environmental concern[s]” at retired MGP sites in Bay Shore and Hempstead. LILCO mentioned potential regulatory action and a property damage claim. Between 1995 and 1996, LILCO provided supplemental information to the insurers, including notice of a formal demand from the New York State Department of Environmental Conservation (DEC) to investigate and remediate the sites. The insurers reserved their rights but did not formally disclaim coverage. KeySpan acquired LILCO’s rights through assignment.

    Procedural History

    KeySpan commenced a declaratory judgment action in September 1997. The insurers asserted late notice as a defense and moved for summary judgment. Supreme Court granted summary judgment for the Bay Shore site but denied it for the Hempstead site, finding a question of fact regarding the reasonableness of the notice delay. The Appellate Division modified, finding that LILCO’s notice was untimely as a matter of law for both sites, but declined to award summary judgment to the insurers because of a potential waiver of their right to disclaim coverage based on late notice. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Insurance Law § 3420(d)(2) applies to environmental contamination claims, thus requiring an insurer to disclaim coverage “as soon as reasonably possible” after learning of grounds for disclaimer.

    Holding

    No, because Insurance Law § 3420(d)(2) applies only to insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy.

    Court’s Reasoning

    The Court of Appeals reasoned that the Appellate Division erred in applying the strict timeliness standard of Insurance Law § 3420(d)(2) to this case. The statute’s plain terms limit its application to cases involving death and bodily injury claims. The court emphasized that the statute was enacted to “aid injured parties” by encouraging prompt resolution of liability claims (citing Allstate Ins. Co. v Gross, 27 NY2d 263, 267 [1970]). Because the environmental contamination claims did not involve death or bodily injury, Section 3420(d)(2) was inapplicable. The court stated, “Where, as here, the underlying claim does not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in Insurance Law § 3420 (d) are inapplicable” (citing Vecchiarelli v Continental Ins. Co., 277 AD2d 992, 993 [4th Dept 2000]). The Court directed the Appellate Division to consider the issue of waiver under common-law principles, requiring a clear manifestation of intent to abandon the late-notice defense, rather than the heightened standard of Section 3420(d)(2). The Court cited Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P., 7 NY3d 96, 104 (2006), among other cases, regarding the elements of common law waiver. The court explicitly disapproved of appellate division cases to the contrary, stating: “To the extent Estee Lauder Inc. v OneBeacon Ins. Group, LLC (62 AD3d 33 [1st Dept 2009]), cited by the Appellate Division here, and other Appellate Division cases hold that Insurance Law § 3420 (d) (2) applies to claims not based on death and bodily injury… those cases were wrongly decided and should not be followed.” This makes the case significant because it clarifies and restricts the application of Section 3420(d)(2).