Under a New York statute, NY Insurance Law § 3420(d)(2), liability insurance companies denying coverage for claims involving bodily injury or death are required to issue a written notice of the denial to the insured and the claimant as soon as reasonably possible. While New York courts have not created a bright-line rule regarding the timing of a disclaimer, an insurer generally must issue a written notice of denial within 30 days of receiving information forming the basis for its denial; otherwise, the insurer’s denial of coverage may be invalid. As discussed in prior Barclay Damon alerts, this statute applies to policies issued and delivered in New York State and disclaimers based upon exclusions, breaches of policy conditions, or both.
In The Chapel v. GuideOne Mut. Ins. Co.1, the Appellate Division, Fourth Department (an intermediate appellate court), addressed key principles relating to the above disclaimer statute. The coverage dispute arose from an underlying tort case alleging sexual abuse allegations against a youth group leader employed by a church dating back to 1989. The church and youth group leader each sought a declaration that their liability insurer, GuideOne, which had disclaimed coverage, was obligated to defend and indemnify them both in the underlying tort lawsuit. A trial court ruled in their favor, requiring GuideOne to defend and indemnify both parties.
On appeal, the Fourth Department reversed as to the youth group leader, finding he was not covered because the policy covered employees “only for acts within the scope of their employment” and the alleged sexual abuse was not within the scope of his employment. Critically, the court held, since the claim fell outside the scope of coverage under the policy, the youth group leader was not an insured and GuideOne had no duty to issue a timely disclaimer under § 3420(d)(2). In other words, since the disclaimer was not based upon an exclusion or condition, the “strict disclaimer” statute did not apply.
However, the court upheld coverage for the church. First, the court reasoned that, from the standpoint of the church, the alleged abuse was an “accident” and therefore within the scope of coverage under the policy. The court held that GuideOne’s purported disclaimer based on a policy exclusion for misconduct was untimely under § 3420(d)(2) and thus invalid. Second, the court found that the insurer had all of the relevant facts supporting its disclaimer as of September 29, 2020, and did not issue its denial until 56 days later; as a result, that disclaimer was untimely as a matter of law and therefore ineffective under § 3420(d)(2). Notably, although GuideOne had sent an email to the church on October 7, 2020, noting the policy’s exclusions for misconduct, the court held that this email was insufficiently specific to operate as an appropriate disclaimer under the statute.
This decision is a reminder that insurers in New York State must promptly and carefully review liability claims involving bodily injury or death upon receiving notice of these claims. Insurers must be sure to include a detailed explanation for any denial of coverage, including all relevant facts supporting that disclaimer. Late or vague disclaimers based on a policy exclusion or condition may be found invalid.
If you have any questions regarding the content of this alert, please contact Benjamin Zakarin, counsel, at bzakarin@barclaydamon.com; Tony Piazza or Mark Whitford, Insurance Coverage & Regulation Practice Area co-chairs, at apiazza@barclaydamon.com and mwhitford@barclaydamon.com; or another member of the firm’s Insurance Coverage & Regulation Practice Area.
1234 A.D.3d 1341, 2025 N.Y. App. Div. LEXIS 555 (4th Dep’t, January 31, 2025).