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.