• New York Appellate Court Provides Guidance on Rules Concerning Constructive Waiver of Late Notice Defense and Proving the Content of a "Lost" Renewal Policy
  • April 15, 2009 | Author: Carl J. Pernicone
  • Law Firm: Wilson Elser Moskowitz Edelman & Dicker LLP - New York Office
  • Overview

    In its recent ruling in Estee Lauder v. OneBeacon (2009 NY Slip Op 01313, Feb. 19. 2009), New York’s Appellate Division First Department confronted significant issues of New York law regarding the constructive waiver of a late notice defense and proving the material terms and conditions of a “lost” or disputed renewal policy. 

    Background

    In Estee Lauder, the insured sought coverage for claims relating to the release of contaminants from two landfills.  The insurer denied coverage for both claims based on the insured’s alleged failure to provide sufficient proof of the existence and content of the policies under which it was seeking insurance.  Significantly, the insurer never raised late notice as a defense to coverage in any of its coverage-related communications, even though the record demonstrates the insurer was well aware of facts that would have supported such an argument.

    Decisions

    A coverage action eventually ensued.  The trial court granted the insurer summary judgment on late notice grounds, reasoning that the carrier’s “sweeping reservation of rights” was broad enough to allow it to raise late notice at a later date – even if it had actual or constructive knowledge of the defense when it issued its earlier coverage letters.

    On appeal, however, the First Department reversed, finding the trial court erred as a matter of law when it found “[t]hat as long as an insurer claims or reserves the right to do so, it may disclaim coverage on one ground and thereafter disclaim coverage on another ground even though it had actual or constructive knowledge of the later ground at the time of the initial disclaimer.” Id. at 4.  In reaching this conclusion, the Estee Lauder court reasoned that, “As the duties to disclaim promptly and specifically are imposed by law (citation omitted), an insurer cannot unilaterally absolve itself of those duties.”  Continuing, the court stated, “Thus an insurer cannot avoid a waiver of a defense of which it has actual or constructive knowledge (i.e., avoid its duties to disclaim promptly and with specificity on the basis of that defense), by a unilateral assertion in a disclaimer notice that it is reserving or not waiving a right to disclaim on other, unstated grounds . . . (citations omitted)” Id. at 3. (Emphasis supplied).

    In reaching this decision, the First Department considered and specifically rejected an argument advanced by the carrier that the insurer was relieved of any obligation to promptly assert a late notice defense because the existence and content of the relevant policy was in dispute.  In so ruling, the Estee Lauder court held that an insurer’s obligation to provide timely notice is imposed by law and hence, “[k]nowledge of the policy’s actual terms is not necessary to assert such defenses to coverage.” Id. at 5.

    The court added, “Acceptance of [the] argument that an insurer is absolved of any duty to make timely, specific and nonselective disclaimers on the basis of defenses to coverage when the insurer denies a policy was issued would entail an extraordinary proposition: that if the insurer ultimately is found to have issued the policy – even after litigation over a period of years – the insurer nonetheless still can disclaim on the basis of defenses to coverage it could have asserted prior to or at the outset of the litigation.” Id. at 6.

    On the lost policy issue, the trial court denied the insured’s motion for summary judgment that it had offered sufficient evidence of the material terms and conditions of the disputed policy; however, the First Department reversed and entered summary judgment for the insured.  In so ruling, the court noted that the disputed policy was, in fact, a renewal policy and, under New York law, “[u]nless an agreement to the contrary is shown, a renewal policy is presumed to be on the same terms and conditions, and amounts as provided in the original policy.” Id. at 7 (emphasis supplied).  Here the record confirms that the material terms and conditions of the original policy were established and that the insurer failed to offer any evidence that any kind of change in those terms was intended for the renewal.

    Comment

    The practical lesson of Estee Lauder is twofold:

    First, under New York law, a dispute over the terms and conditions of a “lost” policy will not excuse an insurer’s failure to promptly raise a late notice defense, where an insurer has actual or constructive knowledge of facts supporting such a defense – even if, as here, an insurer issues a “sweeping reservation of rights” that purports to unilaterally reserve its rights to later disclaim on other unstated grounds.

    Second, in a case involving a “lost” or disputed renewal policy, a rebuttable presumption exists in New York that the terms and conditions of the renewal mirror those of the original policy, absent evidence from the insurer of some intent to change those terms on renewal.