Opinion ID: 6985048
Heading Depth: 2
Heading Rank: 2

Heading: HARRG’s Disclaimer of Liability

Text: In Thrasher, the New York Court of Appeals explained that an insurance company bears a heavy burden in seeking to disclaim liability, because an innocent third party often will suffer. See 278 N.Y.S.2d at 800, 225 N.E.2d 503. The test the court articulated has three parts: In order to disclaim coverage on the ground of an insured’s lack of cooperation, the carrier must demonstrate (1) that it acted diligently in seeking to bring about the insured’s cooperation, (2) that the efforts employed by the insurer were reasonably calculated to obtain the insured’s cooperation, and (3) that the attitude of the insured, after his cooperation was sought, was one of willful and avowed obstruction. Pawtucket Mut. Ins. Co. v. Soler, 184 A.D.2d 498, 584 N.Y.S.2d 192, 193 (2d Dep’t.1992) (citing Thrasher, 278 N.Y.S.2d at 800, 225 N.E.2d 503). Although time constraints required HARRG to act quickly, its actions did not comport with these stringent requirements.
On February 24, 1997, NYCHA objected to HARRG’s first attempt to settle the case and articulated its view that Sanchez had no reasonable chance of prevailing. Without explaining why it disagreed, HARRG again tried to settle the case through NYCHA’s attorney. When NY-CHA reiterated its position in a February 25 letter and explained that it could not allow the attorney to convey HARRG’s settlement offer, HARRG disclaimed its coverage. It made no attempt to persuade NYCHA that there was a reasonable chance of success, nor did HARRG so much as give NYCHA the opportunity to reconsider its position.
For the reasons noted above, HARRG’s actions were not reasonably calculated to elicit NYCHA’s cooperation. HARRG’s disclaimer did not suggest that NYCHA could change its mind, allow the settlement, and thereby restore coverage. The tone of the disclaimer was final: “[d]ue to your obstructive conduct of this date relative to the above matter, this is to advise that the Housing Authority Risk Retention Group must hereby disclaim any and all coverage obligations to you in this matter.”
Since HARRG never attempted to persuade NYCHA to cooperate, NYCHA’s failure to cooperate falls short of willful and avowed obstruction. However, HARRG argues that there is a difference between passive and active obstruction, and that only in the former circumstance must an insurance company take steps to seek further cooperation. In cases where the insured made material misrepresentations, for instance, New York courts have allowed the insurer to disclaim without diligently seeking cooperation. See, e.g., State Farm Mut. Auto. Ins. Co. v. Brown, 21 A.D.2d 742, 250 N.Y.S.2d 244 (4th Dep’t 1964) (holding that insured’s false statements “prejudiced the insurer” and constituted “ ‘willful and avowed obstruction’ ”) (citation omitted). However, HARRG does not cite any case recognizing a difference between passive and active obstruction as a general matter, and the cases it cites can easily be distinguished because the insured’s action prejudiced the insurer. Here, had HARRG quickly persuaded NY-CHA to alter its position, settlement negotiations might still have taken place.