Opinion ID: 786315
Heading Depth: 1
Heading Rank: 1

Heading: disclaimer of coverage

Text: 8 Under New York law, an insurer must notify an insured as soon as is reasonably possible of its intention to disclaim coverage for bodily injury under a policy. N.Y. Ins. Law § 3420(d). A failure by the insurer to give such notice as soon as is reasonably possible after it first learns of the accident or of grounds for disclaimer of liability or denial of coverage, precludes effective disclaimer or denial. Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028, 1029, 416 N.Y.S.2d 539, 389 N.E.2d 1061 (1979). We measure the reasonableness of the delay from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage. Allcity Ins. Co., 78 N.Y.2d 1054, 1056, 576 N.Y.S.2d 87, 581 N.E.2d 1342 (1991); see also Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 268, 317 N.Y.S.2d 309, 265 N.E.2d 736 (1970) (time for notice should be measured from the moment the insurer first learns of the accident or of grounds for its disclaimer and not from the time when it chooses to disclaim). 4 [W]here the grounds for disclaimer are not readily apparent, an insurer must be given reasonable time to adequately investigate a claim in order to determine whether it wishes to disclaim coverage, U.S. Underwriters Ins. Co. v. Roka, LLC, No. 99-CIV-10136, 2000 WL 1473607, at  5 (S.D.N.Y.2000), but the insurer also has an obligation to engage in a reasonably prompt, thorough, and diligent investigation of the claim, Prudential Prop. & Cas. Ins. Co., 213 A.D.2d 408, 408, 623 N.Y.S.2d 336 (N.Y.App. Div.2d Dep't 1995). 9 Lastly, [a]n insurer who delays in giving written notice of disclaimer bears the burden of justifying the delay. First Fin. Ins. Co. v. Jetco Contracting Corp., 1 N.Y.3d 64, 69, 769 N.Y.S.2d 459, 801 N.E.2d 835 (2003). While [n]ormally the question whether a notice of disclaimer of liability or denial of coverage has been sent `as soon as is reasonably possible' is a question of fact which depends on all the facts and circumstances, especially the length of and the reason for the delay, in the exceptional case this question may be decided without the benefit of a jury. Hartford Ins. Co., 46 N.Y.2d at 1030, 416 N.Y.S.2d 539, 389 N.E.2d 1061. And New York courts have concluded that an unexcused delay of 48 days or longer is unreasonable as a matter of law. First Financial, 1 N.Y.3d at 70, 769 N.Y.S.2d 459, 801 N.E.2d 835; see also Hartford Ins. Co., 46 N.Y.2d at 1029, 416 N.Y.S.2d 539, 389 N.E.2d 1061 (two month delay of disclaimer unreasonable as a matter of law). 10 Applying this law to the facts before us, we hold, first, that the district court was correct to dismiss Underwriters' complaint as regards City Club, Brighenti, and Zambetti, on the grounds that none of these defendants seek coverage under the policy. Indeed, none are being sued in the personal injury action that is the subject of this disclaimer suit. 11 a. Shelby 12 We further agree with the district court that Underwriters gave inexcusably late notice, as a matter of law, of its intention to disclaim coverage of Shelby. In July 2000, Underwriters received notice that Szpakowski was bringing a claim against Shelby, and that Szpakowski was employed by City Club. It was therefore in July — or at the latest, August, when it received the J & N report — that Underwriters  first learn[ed] of the grounds for disclaimer of liability or denial of coverage. Allcity, 78 N.Y.2d at 1056, 576 N.Y.S.2d 87, 581 N.E.2d 1342. Nonetheless, it waited four or five months longer to disclaim coverage. 13 Underwriters contends that it could not disclaim sooner because it did not have proper notice of Shelby's claim until December 13, 2000, when it received the verified complaint in the personal injury action. We are not persuaded. Although the Notice of Claim form that was filed in July 2000 listed City Club as the insured, attached to that form was the letter from Szpakowski's attorney, addressed only to Shelby, and clearly indicating that a claim was being asserted against Shelby. This was sufficient to fulfill Shelby's contractual requirement to see to it (as the policy put it) that Underwriters was notified of the claim. 5 14 Underwriters further argues that it did not have enough information to disclaim coverage of Shelby until December, because it was not aware until it received the verified complaint that there was a contract between Shelby and City Club for the renovations — namely, the lease between the two parties, which included several provisions related to the construction. This argument is unavailing. Throughout this suit, Underwriters has relied upon two grounds for disclaimer of Shelby, both derived from the employee exclusion clause in the policy. Underwriters contends that the clause excludes from coverage bodily injury (a) to any employee of any insured, and that Szpakowski is an employee of an insured (City Club), and (b) to any employee of [any] contractor of any insured, and that the lease makes City Club the contractor of Shelby for the purposes of this clause. As we noted above, Underwriters was in possession of all of facts necessary for their first ground of disclaimer in July or August of 2000. And although New York courts have expressed concern that [p]iecemeal denials of coverage would frustrate [the insurer's] right to investigate claims, Wilczak v. Ruda & Capozzi, Inc., 203 A.D.2d 944, 945, 611 N.Y.S.2d 73 (N.Y.App. Div. 4th Dep't 1994), to allow an insurer to delay a disclaimer for several months because additional arguments for exclusion might emerge over time is fatally inconsistent with New York's requirement of prompt notice. The existence of an additional ground for disclaimer is, after all, always a theoretical possibility. We note, moreover, that Underwriters offers no satisfactory explanation for its tardiness in discovering the terms of the lease, and hence the basis for the second disclaimer ground, even though it knew of the existence of the lease between Shelby and City Club by July or August, and had instructed its own claims investigator in July to secure copies of any relevant leases. 15 A four to five month delay in investigating the terms of that lease was therefore unreasonable as a matter of law, particularly where another ground for disclaimer existed. First Financial, 1 N.Y.3d at 70, 769 N.Y.S.2d 459, 801 N.E.2d 835 (noting that, for the purposes of summary judgment, there is no material difference between a delay that is unexplained and a delay that is unexcused, meaning the explanation is unsatisfactory). Accordingly, we agree with the district court that Shelby was entitled to have the complaint against it dismissed with prejudice, and to receive a declaration that Underwriters must defend and indemnify Shelby in the personal liability action. 16 b. Metropolitan and Forthright 17 We also affirm the district court's holding that Underwriters' notice of disclaimer to defendants Metropolitan and Forthright was untimely as a matter of law, insofar — and only insofar — as these entities claim coverage as members of City Club, and are being sued in the personal injury action in their capacity as members of City Club. 6 Underwriters argues that it had no notice of any claim from Metropolitan and Forthright until December 2000, when it received the verified complaint naming these two companies as defendants. We disagree. 18 Metropolitan and Forthright claim coverage solely as members of City Club. The policy requires only that a Named Insured give the insurer notice of claim. As a result, Metropolitan and Forthright were entitled to rely upon City Club's notice of claim. Similarly, under the terms of the policy, Underwriters' disclaimer of coverage of City Club would operate as a disclaimer of coverage of its member companies. 7 Because Underwriters failed, as a matter of law, to notify City Club in a timely manner of its intention to disclaim coverage of City Club, it also failed to notify City Club's members in a timely manner. 8 19 Finally, we note that the defendants only asked the district court to declare Underwriters' notice to Forthright and Metropolitan untimely, and did not assert a counterclaim that Underwriters has a duty to defend and indemnify these two defendants. We affirm no more than the district court held: Underwriters' notice was untimely as a matter of law as regards Metropolitan and Forthright, insofar as these entities are claiming coverage as members of City Club, and, hence, Underwriters' complaint against these two defendants must be dismissed with prejudice. 9