Appellate Court Holds That NY Disclaimer Statute Does Not Apply to Disclaimer Based Upon Limitation of Scope of Coverage for Classifications of Work

New York Insurance Law 3420(d)(2) provides that an insurer must disclaim coverage under a liability policy for claims of death or bodily injury "as soon as is reasonably possible." The New York Court of Appeals has held, however, that section 3420(d)(2) is inapplicable when a claim falls outside the scope of the policy's coverage. Requiring otherwise would create coverage where it never existed. See generally Matter of Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 189 (2000).

Recently, the New York State Appellate Division, First Department held that an insurer's untimely disclaimer of coverage for a claim arising from a construction accident was not subject to section 3420(d)(2) because the work did not fall within one of four classifications provided in the policy and thus was outside the scope of coverage in the first instance. Black Bull Contr., LLC v. Indian Harbor Ins. Co., 2016 NY Slip Op 00002, ¶ 1, ____ A.D.3d ___ (1st Dep't 2016).

In Black Bull, Indian Harbor Insurance Company ("Indian Harbor") issued a commercial general liability policy ("the Policy") to Black Bull Contracting, LLC ("Black Bull"). The Policy provided coverage for liability for "bodily injury" or "property damage" and further stated that it "applies only to operations that are classified or shown on the Declarations or specifically added by endorsement to this Policy." The declarations page set forth four classifications, with associated code numbers for the covered operations.

Black Bull was engaged to perform certain construction work on a building in Long Island City. On August 26, 2011, an employee of Black Bull was injured when he was struck by a piece of concrete while performing certain jackhammering work. Mora sued the owner of the property, who commenced a third-party action against Black Bull. Black Bull tendered the lawsuit to Indian Harbor for a defense in the Mora action. Indian Harbor delayed more than two months after its receipt of the notice of the claim and then disclaimed coverage on the ground that the demolition work that gave rise to Mora's injury was not within any of the four classifications of work covered by the Policy.

Black Bull commenced a separate lawsuit seeking a declaration that Indian Harbor is obligated under the Policy to provide a defense and indemnification in Mora's lawsuit. Indian Harbor moved to dismiss the complaint, and Black Bull cross-moved for summary judgment. Supreme Court, Kings County granted Indian Harbor's motion and denied Black Bull's cross motion, and Black Bull appealed.

The First Department affirmed, concluding that Indian Harbor did not owe coverage to Black Bull and that its disclaimer was not untimely. The Court agreed with Indian Harbor that the Policy's classifications of operations merely defined the scope of coverage in the first instance and did not constitute exclusions from coverage. Thus, timeliness requirement of Insurance Law § 3420(d)(2) did not apply.

Black Bull serves as a reminder to insurers and their attorneys in two respects. First, insurers must provide coverage determinations regarding claims of bodily injury or death in a prompt manner (i.e., no more than 30 days). Second, in writing policies, insurers must consider whether any limitations in coverage could be construed as exclusions, so as to trigger New York's strict disclaimer statute.