Appellate Court Tightens Late Disclaimer Rule and Finds Against Insurer
On January 17, 2012, the New York State Appellate Division, First Department, issued a lengthy decision ruling that an excess insurer must disclaim coverage “as soon as is reasonably possible” and may not rely on a reservation of rights to conduct an investigation into other possible grounds for disclaimer or coverage. Campbell Painting v. National Union Fire Insurance Company of Pittsburgh, 2012 NY Slip Op. 00254 (1st Dep’t 2012). In doing so, the Court specifically overruled its own prior decision in DiGuglielmo v. Travelers Property & Casualty Co., 6 A.D.3d 344 (1st Dep’t 2004), leave denied, 3 N.Y.3d 608 (2004)
The Court found DiGuglielmo to be inconsistent with the express provisions of Insurance Law § 3420(d) and with prior decisions of the New York Court of Appeals interpreting that statute.
The matter arose out of an accident which occurred in August 2003 when James Conklin, an employee of Safespan Platform Systems (“Safespan”) was injured while working on the renovation of the Henry Hudson Bridge. The structure was owned by the Triborough Bridge and Tunnel Authority (“TBTA”) and was being renovated by George Campbell Painting (“Campbell”), the general contractor which employed Safespan as a subcontractor.
The subcontract required Safespan to obtain liability insurance coverage, including both TBTA and Campbell as additional insureds for the project. Safespan obtained a primary liability policy with a $1,000,000 limit issued by Gulf Insurance Company which contained an additional insured endorsement covering any person or organization for which Safespan was performing operations pursuant to a written agreement requiring that such person or organization be added as an additional insured to the policy. Safespan also procured an umbrella policy with National Union Fire Insurance Company of Pittsburgh (“NUFIC”) with a $10,000,000 limit providing excess coverage to any person included as an additional insured in the underlying Gulf policy.
Conklin brought suit in December 2003 against Campbell and TBTA. Gulf Insurance provided a defense to both Campbell and TBTA. NUFIC was not notified of the Conklin action when the defense was tendered to Gulf in 2003.
In August 2004, counsel for Campbell/TBTA reported to Gulf that the plaintiff had sustained a severe injury, including three herniated discs, a bulging disc and had undergone spinal fusion. The report also pointed out that the future lost wage claim was $9,000,000.
Notwithstanding the foregoing, NUFIC was not given notice of the claim until November 2005. NUFIC responded on December 23, 2005, acknowledging the existence of potential excess coverage and reserved its rights under the policy stating that the notice to NUFIC may have been untimely. NUFIC requested that Campbell/TBTA provide a copy of the Gulf policy and contracts between the defendants in the Conklin action, counsel’s evaluations of liability and damages and an explanation as to why notice had been delayed. On January 19, 2006, Campbell/TBTA forwarded a response to the request, not including the Gulf policy itself and indicating that the policy would be forwarded under separate cover. NUFIC received a copy of the Gulf policy on or about May 1, 2006.
On May 17, 2006, NUFIC rejected the claim based on late notice, pointing out that Campbell/TBTA was aware no later than August 2004 of the serious nature of the claim and that the first notice of the suit was not given to NUFIC until November 2005 “almost two years after the complaint was filed on January 9, 2004.”
Ultimately, the Conklin action was settled for the sum of $5,500,000 in July 2008 with Gulf contributing its full $1,000,000 policy limit and Campbell’s primary insurer contributing $1,000,000, and its excess insurer agreeing to contribute $3,500,000.
Thereafter, Campbell/TBTA commenced a declaratory judgment action against NUFIC seeking a declaration that NUFIC’s late notice disclaimer was untimely under Insurance Law § 3420(d) and recovery from NUFIC of approximately $1,000,000 as NUFIC’s alleged prorata share of the settlement.
Campbell/TBTA moved for summary judgment and NUFIC cross-moved for summary judgment on the basis of the alleged late notice to it. The lower court granted summary judgment to Campbell/TBTA. NUFIC appealed. The Appellate Division modified the lower court’s order by denying Campbell/TBTA summary judgment as to the amount of the settlement and otherwise affirmed.
The Appellate Court noted that the specific language of Insurance Law § 3420(d) requires the insurer to disclaim “as soon as is reasonably possible.” (emphasis added)
The Court emphasized that NUFIC’s May 17, 2006 disclaimer letter demonstrated that as of January 19, 2006, NUFIC had all the information necessary to disclaim on late notice grounds and that no further information came into its possession upon which it relied for its disclaimer.
The Court also pointed out that a possible basis for denial of coverage on the grounds that Campbell and TBTA were not additional insureds under the NUFIC excess policy and thus not covered at all, would not have invoked the requirements of § 3420(d) based upon Zappone v. Home Insurance Company, 55 N.Y.2d 131 (1982) since that would involve a situation where there was no liability insurance coverage in effect.
The Court expressly repudiated its own 2004 holding in DiGuglielmo which held:
An insurer is not required to disclaim on timeliness grounds before conducting a prompt, reasonable investigation into other possible grounds for disclaimer; in fact, a ‘reasonable investigation is preferable to piecemeal disclaimers.
In DiGuglielmo the insurer had agreed with the insureds to postpone its investigation upon the condition that the insureds waived any claim with respect to late notice of disclaimer.
The Court’s decision in Campbell Painting highlights the necessity to disclaim on late notice grounds expeditiously regardless of other potential coverage issues. This, of course, is problematical in that by disclaiming, the insured is no longer obligated to cooperate with the insurer in its investigation which will complicate and possibly frustrate determination as to other coverage issues. It also raises the specter of the necessity for piecemeal disclaimers and the possibility of issues relating to waiver and estoppel.
The Campbell Painting decision could potentially be appealed to the Court of Appeals which may have the final word on the issue of the timeliness of a late notice disclaimer. It is noteworthy that the DiGuglielmo decision, which the Appellate Court has repudiated, was presented to the Court of Appeals by way of leave to appeal in 2004 and the Court of Appeals refused to hear the appeal. While this is not a formal finding on the issue, it is an indication that the Court of Appeals did not believe it was worthy of consideration at that time.
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