- New York Appellate Court Requires Prompt Disclaimer Despite Insurer's Ongoing Coverage Investigation
- February 8, 2012 | Author: Michael J. Case
- Law Firm: LeClairRyan - New York Office
Overruling its prior decisions, New York's Appellate Division First Department recently held that Section 3420(d) of New York Insurance Law precludes an insurer from delaying notice of disclaimer on a ground that the insurer knows to be valid, even if the insurer's coverage investigation is not complete.
The decision in George Campbell Painting v. National Union Fire Insurance Co. of Pittsburgh, PA arose from a claim by a general contractor (Campbell) on a public improvement project. The claim was asserted against a primary and excess insurer for workplace injuries suffered by a subcontractor's employee. Campbell, who claimed coverage, notified the primary insurer of the plaintiff's claim against Campbell in a timely manner, but failed to notify the excess insurer until more than one year later. Upon receiving Campbell's belated notice, the excess insurer promptly reserved rights to deny coverage on several grounds, including the possibility that the insured's notice may not have been submitted in compliance with the excess policy's notice requirements. The excess insurer also requested certain information regarding the claim, as it continued to investigate coverage issues. Ultimately, the excess insurer denied coverage on late-notice grounds in a letter issued approximately five months after the excess insurer received notice of the claim.
The First Department upheld a trial court decision granting summary judgment to Campbell on grounds that the excess insurer's coverage denial was untimely under Insurance Law Section 3420(d). That provision requires an insurer disclaiming coverage to do so "as soon as reasonably possible." According to the First Department, the excess insurer possessed the information necessary to assert a late notice defense as soon as the excess insurer received Campbell's notice. In so ruling, the court expressly overruled its 2004 decision in DiGuglielmo v. Travelers Property Casualty, 6 A.D.3d 344 (1st Dept. 2004), which had held that "an insurer is not required to disclaim on timeliness grounds before conducting a prompt, reasonable investigation into other possible grounds for disclaimer." The Campbell court concluded that DiGuglielmo was not consistent with Insurance Law Section 3420(d).
A Clear Message: Promptly Disclaim
The Campbell holding is a significant change among New York appellate authorities, and it brings the First Department into agreement with its sister court, the Second Department, on this point.1 Campbell represents a further limitation upon the late-notice coverage defense, the potency of which has been challenged on several fronts in recent years. For insurers, the lesson of Campbell is clear: where grounds for a coverage disclaimer are apparent, the insurer should promptly disclaim or risk forfeiture of the defense.
In the wake of the Campbell ruling, policyholders may argue that insurers who assert a late notice defense immediately upon receipt of a belated notice of claim have waived their right to later assert other defenses. In cases in which the insurer does not have sufficient facts to support additional defenses, it appears that no waiver would exist. However, it is likely that future disputes about when an insurer's information may be deemed sufficient to require confirmation of additional coverage defenses will arise.
1See City of New York v. Northern Insurance Co. of N.Y., 284 A.D.2d 291 (2d Dept. 2001).