New York High Court Holds that Totality of Circumstances Governs Whether Insurer Waived Late Notice Defense in Case Not Involving Bodily Injury or Death
The implication for failing to comply with New York’s “strict disclaimer statute,” Insurance Law § 3420(d), is well settled – in any case involving bodily injury or death, a liability insurer must disclaim coverage as soon as possible after learning of the grounds for disclaiming coverage, or it will be deemed to have waived that coverage defense. In cases not involving bodily injury or death, however, the statute is inapplicable, and the question is whether, under common law principles of waiver, the insurer clearly manifested an intent to abandon its defense. See KeySpan Gas E. Corp. v. Munich Reins. Am., Inc., 23 N.Y.3d 583 (2014).
Recently, in the long-running case of Estee Lauder Inc. v. OneBeacon Insurance Group LLC, ___ N.Y.3d ___, 2016 NY Slip Op 06012 (September 15, 2016), the New York Court of Appeals reiterated the above principles and clarified that the standard for waiver of a late-notice defense is not as strict when the loss does not involve bodily injury or death.
Estee Lauder faced multiple environmental damage claims arising out of dumping of hazardous wastes at two landfills and sued OneBeacon for a defense and indemnification under its liability insurance policy. Initially, OneBeacon successfully moved for summary judgment on the ground that Estee Lauder had failed to provide prompt notice of the loss. The trial court noted that OneBeacon, in its letters to Estee Lauder, had expressly reserved its right to assert any and all defenses of non-coverage and had noted specifically that Estee Lauder might not be entitled to coverage “to the extent that [OneBeacon] was not provided with notice of this claim in a timely manner….”
Estee Lauder appealed, and the Appellate Division, First Department reversed, holding that OneBeacon had waived its right to assert the late notice defense when it knew there were grounds for that defense but failed to disclaim on that basis. The Appellate Division granted summary judgment to Estee Lauder striking its late notice defense.
Meanwhile, in the unrelated Keyspan case (which involved a similar issue), the New York Court of Appeals discussed the Appellate Division’s decision in Estee Lauder and expressly stated that the Appellate Division, First Department had wrongly decided the issue since the case did not involve bodily injury or death. The Court of Appeals held that the insurer did not have a duty to disclaim coverage “as soon as reasonably possible” as required by the Insurance Law. The inquiry under the common law standard, rather, was whether the insurer “clearly manifested an intent to abandon [its] late-notice defense.”
In light of the Keyspan decision, OneBeacon moved to re-assert its late notice defense in the Estee Lauder action. The trial court granted OneBeacon’s motion, and on appeal, the Appellate Division again reversed, finding that OneBeacon had waived the late notice defense under common law principles by failing to assert the late notice defense it in letters to Estee Lauder when: (1) it was fully aware of the defense, and (2) had disclaimed on other grounds (specifically, Estee Lauder’s failure to establish that a policy existed).
OneBeacon appealed, and the Court of Appeals reversed, reinstating the trial court’s order allowing OneBeacon to maintain the late notice defense. The high court rejected the Appellate Division’s conclusion that OneBeacon had waived the late notice defense by failing to disclaim on that basis, noting that the late notice defense had been identified specifically in OneBeacon’s reservation of rights letters. As such, the Court held, examining all factors, it could not be said as a matter of law that OneBeacon waived its right to rely on that defense.
The takeaway for practitioners is that, for claims not involving bodily injury or death, insurers are not subject to the strict disclaimer requirements of Insurance Law § 3420(d)(2). A letter reserving the insurer’s right to assert all available defenses to coverage may suffice to defeat an argument that the insurer knowingly waived the right to disclaim on a particular ground. Nevertheless, assuming there are good faith grounds to do so, insurers should disclaim as soon as possible after the basis for the disclaimer is known, regardless of the type of loss, in order to avoid any argument that a coverage defense has been waived.
Should you have questions regarding the information presented in this alert, please contact Anthony J. Piazza, Chair of the firm’s Insurance Coverage & Regulation Practice Area, at (585) 295-4420 or firstname.lastname@example.org.