NY Appellate Division Issues Several Decisions as to Liability Insurers' Denials of Coverage Based on Late Notice of Claims

Recently, the Appellate Division, Second Department issued three decisions involving a late notice of claim in New York State, and a liability insurer's denial of coverage on this ground. See Evanston Ins. Co. v. P.S. Bruckel, Inc., 150 A.D.3d 693 (2d Dep't 2017); Glanz v. New York Mar. & Gen. Ins. Co., 150 A.D.3d 704 (2d Dep't 2017); and Ramlochan v. Scottsdale Ins. Co., 150 A.D.3d 1166 (2d Dep't 2017). These decisions contain good statements of the law for policyholders and insurers as to the requirements of timely notice and disclaimers of coverage.

In Evanston Ins. Co., a liability insurer denied coverage to its insured for a lawsuit which was filed against the insured in March 2012. The insured did not notify its insurer of the lawsuit until March 2013. The Court held that the insured failed to comply with a policy condition that required it to "immediately" forward to the insurer copies of all legal papers received in relation to a lawsuit. Notably, since the subject policy was issued prior to a 2009 amendment of New York Insurance Law § 3420, the insurer was not required to show that it was prejudiced by the insured's delayed notice of the lawsuit. The Court, however, held that there was an issue of fact for trial as to whether the insurer timely denied coverage since the insurer was aware of the lawsuit by October 2012 (at the latest) and did not deny coverage until March 2013.

The Glanz decision involved a slightly different scenario. In that case, an injured claimant sued a liability insurer directly to recover an unsatisfied default judgment in a personal injury lawsuit filed against the insured property owner in October 2010. The insured did not notify the insurer of the lawsuit until November 2011, and the insurer disclaimed coverage in December 2011 based on late notice. Five days later, the injured claimant provided the insurer with notice of his claim. The Court held that the insurer proved that the injured claimant failed to act diligently in identifying and providing timely notice to the insurer and that the denial of coverage was effective as against the claimant.

Finally, in the Ramlochan case, an injured claimant sued a liability insurer for the amount of an unsatisfied judgment against its insured. The insured was aware of a potential claim against him in June 2008 but did not notify the insurer until September 25, 2009, failing to comply with the policy's notice requirement. On November 3, 2009, the insurer disclaimed coverage based on late notice. The Court held that the insurer's disclaimer was effective against the claimant and that it established that its delay in issuing the disclaimer was due to the completion of a necessary investigation into issues affecting its decision to disclaim. As in the Evanston Ins. Co. case above, since the subject policy was issued prior to the 2009 amendment of § 3420, the insurer was not required to show that it was prejudiced by the insured's delayed notice.

Several aspects of these decisions are important. First, policyholders and claimants should be reminded that notice of liability claims must be provided to the insurer immediately, or else the insurer may deny coverage based on late notice. Second, under Insurance Law § 3420(d)(2), for claims involving bodily injury or death, an insurer's denial based on late notice must be issued "as soon as is reasonably possible," meaning within 30 days of the insurer's receipt of the information forming the basis of its denial of coverage, unless the insurer can demonstrate that its delay in disclaiming coverage is due to a diligent investigation affecting its decision. Finally, practitioners must be aware of the above-mentioned amendment to § 3420, which provides that for policies issued after January 17, 2009, a liability insurer disclaiming coverage for a claim of bodily injury or death on the basis of untimely notice must show that it was prejudiced by the untimely notice, i.e., that the delayed notice of a claim affected the insurer's ability to adequately investigate the claim, and defend or represent its insured.