Matter of New York Central Mutual Fire Insurance Company v. Aguirre, 11 N.Y.3d 772 (2008)
An insurer must disclaim liability or deny coverage as soon as reasonably possible after learning of grounds for doing so, even if the insured’s actions provide a basis for denial.
Summary
This case addresses the timeliness of an insurer’s disclaimer of coverage. Aguirre and others were injured in a car accident involving an unidentified hit-and-run driver and sought supplementary uninsured/underinsured motorist (SUM) benefits under a policy issued by New York Central Mutual. The insurer requested completion of proof-of-claim forms but the claimants never returned them. The insurer then sought to stay arbitration based on this failure. The Court of Appeals held that the insurer’s delay in disclaiming coverage, after becoming aware that the forms were not returned, was unreasonable as a matter of law, precluding an effective disclaimer.
Facts
Jorge Aguirre, Rosa, and Amanda Alzate were injured on August 4, 2002, while in a parked car that was struck by another vehicle driven by an unidentified hit-and-run driver.
The injured parties sought benefits under the Supplementary Uninsured/Underinsured Motorists (SUM) coverage of the car owner’s insurance policy with New York Central Mutual Fire Insurance Company.
On August 15, 2002, the claimants’ attorney notified the insurer of the claim and enclosed no-fault insurance applications.
On September 3, 2002, the insurer acknowledged the claim and requested the immediate completion and return of “Notice of Intention to Make Claim” forms.
The claimants never returned the requested forms.
In May 2003, the claimants filed a request for uninsured motorist arbitration.
Procedural History
New York Central Mutual petitioned the Supreme Court to stay arbitration based on the claimants’ failure to return the completed proof-of-claim forms.
The Supreme Court granted the petition, finding that the return of the forms was a condition precedent to coverage.
The Appellate Division affirmed the Supreme Court’s decision.
The Court of Appeals granted leave to appeal.
Issue(s)
Whether New York Central Mutual disclaimed liability or denied coverage “as soon as reasonably possible” within the meaning of Insurance Law § 3420 (d), given that the basis for denial (failure to return proof-of-claim forms) was known to the insurer well before it sought to stay arbitration.
Holding
Yes, because the insurer had knowledge of the basis for denying coverage (failure to return the proof-of-claim forms) significantly before petitioning to stay arbitration and failed to disclaim coverage in a timely manner.
Court’s Reasoning
The Court of Appeals reasoned that the requirement to fill out and return a proof-of-claim form is a condition of coverage.
The court emphasized that under Insurance Law § 3420 (d), an insurer must disclaim liability or deny coverage “as soon as reasonably possible.” The timeliness is measured from when the insurer first learns of the grounds for disclaimer.
Quoting First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 67 (2003), the court stated, “An insurer’s failure to provide notice as soon as is reasonably possible precludes effective disclaimer, even [where] the policyholder’s own notice of the incident to its insurer is untimely.”
The court found that the insurer was aware of the claimants’ failure to return the forms, and thus the basis for denying coverage, well before it filed the petition to stay arbitration. The insurer’s letter demanding “immediate completion and return” of the forms indicated that the insurer expected prompt compliance.
The court concluded that the delay between the insurer’s awareness of the missing forms and its attempt to stay arbitration was unreasonable as a matter of law. The fact that the insurer did not set a precise deadline for the return of the forms did not excuse its delay.
The court noted that if the insurer suspected fraud, it could still contest the claim on that basis during arbitration.