Opinion ID: 145306
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Heading Rank: 1

Heading: New York Insurance Law Section 3420(a)

Text: Section 3420(a) requires all New York insurance contracts to contain[ ] in substance the following provisions or provisions that are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors: (2) A provision that in case judgment against the insured ... in an action brought to recover damages for injury sustained or loss or damage occasioned during the life of the policy or contract shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured, or upon the insured, and upon the insurer, then an action may... be maintained against the insurer under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract. (3) A provision that notice given by or on behalf of the insured, or written notice by or on behalf of the injured person or any other claimant, to any licensed agent of the insurer in this state, with particulars sufficient to identify the insured, shall be deemed notice to the insurer. (4) A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, an injured person or any other claimant if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as was reasonably possible thereafter. N.Y. Ins. Law § 3420(a). In short, Subsection (a)(2) allows an injured party with an unsatisfied judgment against an insured party to sue the insurer for satisfaction of the judgment in some circumstances. See, e.g., McCormick & Co., Inc. v. Empire Ins. Group, 878 F.2d 27, 28-29 (2d Cir.1989) (discussing Section 3420(a)(2)); Becker v. Colonial Co-op. Ins. Co., 24 A.D.3d 702, 704, 806 N.Y.S.2d 720 (2005) (same). Subsection (a)(3) permits the injured party to give notice to the insurer to protect that right of direct action, see, e.g., AXA Marine & Aviation Ins. (UK) Ltd. v. Seajet Indus. Inc., 84 F.3d 622, 626 (2d Cir.1996) (discussing Section 3420(a)(3)); Becker, 24 A.D.3d at 704, 806 N.Y.S.2d 720 (same), and Subsection (a)(4) sets the standard for reasonableness of that notice. See, e.g., State of N.Y. v. Blank, 27 F.3d 783, 795 (2d Cir. 1994) (citing Section 3420(a)(4)). Before the New York legislature enacted the precursors to Section 3420, [2] under the common law an injured party possessed no cause of action against the insurer of the tort-feasor. Jackson v. Citizens Cas. Co., 277 N.Y. 385, 14 N.E.2d 446, 447 (1938). If an injured party obtained a judgment against an insured party and the insured party failed to satisfy the judgment, the plaintiff could not sue the insurance company directly because there was no privity of contract between plaintiff and the insurance carrier. Lang v. Hanover Ins. Co., 3 N.Y.3d 350, 787 N.Y.S.2d 211, 820 N.E.2d 855, 857 (2004) (discussing Section 3420(a)(1)). So the injured party bore the loss. Id. The legislature recognized that an injured party had a genuine interest in [the liability insurance policy] and should be enabled to invoke its protection. Lauritano v. Am. Fid. Fire Ins. Co., 3 A.D.2d 564, 567, 162 N.Y.S.2d 553 (1957). So the legislature remedied th[e common law's] inequity by creating a limited statutory cause of action on behalf of injured parties directly against insurers, which is presently codified at Section 3420. Lang, 787 N.Y.S.2d 211, 820 N.E.2d at 857; see also Lauritano, 3 A.D.2d at 567-68, 162 N.Y.S.2d 553 (Section 3420 and its precursors profoundly altered what was once commonly acceptedthat the liability policy existed solely for the protection of the insured.). When an insured tortfeasor gives the insurer late notice first and the injured party provides subsequent notice under Section 3420(a), New York courts do not dismiss the injured party's notice simply because it came second. Courts have instead held that [w]here the insured fails to give proper notice, the injured party can give notice herself, thereby preserving her right to proceed directly against the insurer. Having been statutorily granted an independent right to give notice and recover directly from the insurer, the injured party or other claimant is not to be charged vicariously with the insured's delay. Appel v. Allstate Ins. Co., 20 A.D.3d 367, 368, 799 N.Y.S.2d 467 (2005) (internal quotation marks omitted) (insured notified insurer of dog bite after default judgment entered, then injured party sent subsequent notice). [3] When the insured gives late notice first and the injured party gives subsequent notice, courts determine whether the injured party's notice has effectively protected the injured party's right to sue not by looking at the order in which the insurer received that notice, but by examining whether the injured party pursued his rights to notify the insurer pursuant to Section 3420(a) with as much diligence as was reasonably possible under the circumstances. Malik, 60 A.D.3d at 1016, 877 N.Y.S.2d 114 (internal quotation marks omitted). This separate standard, used to determine the reasonableness of the injured party's notice, is more lenient than the standard for the insured party's notice. [4] Allowing an injured party to provide notice after an insured party provides untimely notice makes sense. First, it serves Section 3420(a)'s aforementioned purpose of allowing an injured party to sue an insurance company for satisfaction of an unpaid default judgment against an insured party. Since, by statute, the injured party has an independent right to recovery against the tortfeasor's liability insurer, it makes little sense to cut off that right, when the injured party has attempted with due diligence to identify and notify the insurer, because of a dereliction not by the injured party, but by the insured tortfeasor. Second, allowing an injured party to provide notice after an insured party provides untimely notice avoids the anomaly to which the district court alludes. Atlantic does not dispute, as it cannot under the New York caselaw, [5] that if it had never received any notice from Wodraska, Continental's notice to it would be effective, if that notice was reasonably timely in light of the circumstances facing Continental. It would be irrational if the injured party could provide effective notice to the insurer when the insured party entirely fails to do so, but the injured party could not notify the insurer and protect its right to sue after the insured provides notice (albeit untimely, in light of the circumstances of the insured and the terms of the policy) to the insurer. If the insurer may not escape liability when it receives no notice from the insured but it is notified by the injured party, there is no reason why the insurer should escape liability when it receives notice from the insured party before receiving notice from the injured party and is, therefore, better informed than it would be if it had received no notice from the insured. Finally, it makes sense to judge each party's notice by different standards. Each party stands in a different position relative to the insurer. The insured knows who its insurer is, and has entered into a contractual relationship that typically prescribes how quickly the insured must notify the insurer of any claims, often requiring something akin to the as-soon-as-practicable requirement here. If the insured does not notify the insurer within the prescribed time, then it has failed to meet a condition of its contract and it, therefore, cannot make a successful claim on its policy. By contrast, the injured party is a stranger. It may not know who the insurer is and it may, despite its best efforts, struggle to discover the insurer's identity, as Continental claims happened here. That a five-month delay in providing notice on the part of an insured who has contracted for indemnity on the condition that it provide notice of a covered occurrence to its own insurer as soon as practicable constitutes an unreasonable delay does not mean that it is similarly unreasonable for the injured party to provide notice at about the same time; despite due diligence, the injured party may, as asserted in this case, have only identified the insurer after the five-month period, and immediately provided notice on learning the insurer's identity. The fact that the insured party's prior notice is untimely to protect its contractual right to sue the insurer does not necessarily imply that the injured party's notice is untimely to protect its independent statutory right to sue the insurer. Atlantic attempts to distinguish the cases that allow injured parties to provide notice after the insured party provides untimely notice, arguing that those cases involve bodily injury claims rather than property damage claims. Atlantic says that Section 3420(d) and cases construing that provision treat bodily injury claimants different[ly] than property injury claimants because bodily injury claimants require special protections, and argues Continental improperly seeks to avail itself of those special protections in a mere claim for property damage. But this argument misses the mark. Section 3420(d) does indeed provide special rules governing personal injury claims. [6] But Continental does not invoke Section 3420(d), and the cases on which Continental relies do not, either. They invoke Section 3420(a), which is not limited to bodily injury or wrongful death claimants. Neither Section 3420(a) nor any of the cited cases suggest that the rules established by those cases would not apply in a property damage case. Atlantic also argues that the legislative intent behind Insurance Law § 3420 does not apply and its benefits are simply not available to claims by insurers, such as Continental. Atlantic relies on Bovis Lend Lease LMB, Inc. v. Royal Surplus Lines Ins. Co., 27 A.D.3d 84, 806 N.Y.S.2d 53 (2005), which addressed whether Section 3420(d)'s requirement that an insurer promptly issue any disclaimer to a bodily injury or death claimant also applies to co-insurers. 27 A.D.3d at 85, 806 N.Y.S.2d 53. In dicta, Bovis called Section 3420(a) an example of a provision of Section 3420 that does not protect co-insurers, but instead emphasi[zes] ... protecting the insured and those who have claims against the insured. Id. at 91, 806 N.Y.S.2d 53. Bovis does not help Atlantic. First, its comment regarding Section 3420(a) is dicta, and its discussion of 3420(d) is inapposite. Second, its suggestion that Section 3420(a) does not protect co-insurers is immaterial, because Continental is not a co-insurer. Continental stands in the shoes of the Swallows, an injured party with an unsatisfied judgment against the insured precisely the sort of litigant Bovis says Section 3420(a) protects. The district court erred when it held that Wodraska's notice extinguished Continental's ability to provide subsequent notice in order to protect its right to sue Atlantic. [7] To reach this conclusion, the district court relied on inapposite precedent that addresses an insurer's obligations when issuing its notice of disclaimerspecifically, when the insurer receives the insured's notice of claim before receiving the injured party's notice, and the insurer denies the insured's claim for lack of timely notice, must the insurer's notice of disclaimer to the insured party mention the injured party's notice? Courts have held that in such scenarios an insurer's disclaimer to the insured only needs to address the insured's notice and not the injured party's subsequent notice. Because the insurer's disclaimer to the insured need not address the injured party's subsequent notice, courts have called an injured party's subsequent notice superfluous in this context. [8] As Continental notes, this rule makes sense because the insurer might receive the insured's notice and send a disclaimer to the insured before the insurer receives any notice from an injured party or has any reason to know that an injured party will be providing independent notice. The precedent that the insurer may treat an injured party's subsequent notice as superfluous, however, only speaks to the scope of the insurer's obligation to the injured party after the injured party has triggered that obligation by providing notice. Webster v. Mount Vernon Fire Ins. Co., 368 F.3d 209, 217 n. 6 (2d Cir.2004). That precedent does not speak to the question of whether or not an injured party's subsequent notice protects its right to sue an insurer. Nor should we draw on that precedent to answer this question. As discussed above, if the injured party may provide notice to protect its right to sue the insurer when the insured party never gives notice, then it would make no sense to say that the injured party's notice becomes superfluous for the purpose of protecting its right to sue simply because the insured party gave the insurer prior notice. The district court erred, therefore, when it relied on that precedent from a different context to hold that any notice Continental provided after Wodraska provided notice was superfluous for the purpose of protecting Continental's right to sue Atlantic. Continental, 2009 WL 2476538, at . Here, the insured, Wodraska, gave its insurer, Atlantic, notice five months after the fire. The injured party, Continental, gave Atlantic notice a few days later, as soon as it discovered the insurer's identity, in order to protect its own right to bring a direct action against Atlantic under Section 3420(a). Continental was entitled to give Atlantic its independent notice. That notice was not ineffective simply because it came after Wodraska's. To determine whether Continental's notice effectively preserved Continental's right to sue Atlantic, we would have to examine whether that notice was reasonable under the standard for injured party notice, in light of Continental's claim that it was unable, despite due diligence, to identify earlier Atlantic as the relevant insurer. But we need not reach that question, since Atlantic is entitled to summary judgment on a separate ground.