Insured's Conduct Determines the Reasonableness of Insured's Belief of Non-Liability
March, 2009
The First Department recently decided two cases involving an insured's obligation to timely notify its insurer of an underling occurrence, and insured's reasonable belief of non-liability to excuse its unreasonable delay. Normally, in determining such issues, the court relies heavily on the facts and circumstances of the underlying occurrence.
In Kambousi Restaurant, Inc. v. Burlington Ins. Co., 58 A.D.3d 513, 871 N.Y.S.2d 129 (1st Dep't 2009), the First Department reversed the trial court's decision and concluded that the insured/restaurant established, as a matter of law, a good-faith belief in its non-liability for injuries sustained by a woman who fell in the restaurant's parking lot, and that the insured's six-month delay in notifying the insurer of the underlying occurrence was timely. On the other hand, the First Department in Tower Ins. Co. v. Jaison John Realty Corp., 874 N.Y.S.2d 91, 2009 WL511583 (1st Dep't 2009), determined that an insured's belief that a tenant had not been injured and would not make a claim was unreasonable, and therefore, its five-month delay in notifying the insurance company of the underlying occurrence was untimely as a matter of law.
In Kambousi, an insured restaurant commenced a declaratory judgment action against Burlington Ins. Co. ("Burlington"). The Insured/Plaintiff sought a judicial declaration that Burlington was obligated to defend and indemnify it in a pending personal injury action commenced by a woman who allegedly tripped and fell, injuring her ankle in the restaurant's parking lot.
Burlington issued a liability insurance policy to Plaintiff, which required it to notify Burlington as soon as practicable of an occurrence or an offense which may result in a claim. The manager of the restaurant testified that on October 25, 2003, an unknown person entered the restaurant and informed him that a woman fell in the parking lot. The manager went outside and saw a woman sitting on the ground with her husband next to her. When the manager asked the woman if she wanted help or if he should call an ambulance, the husband indicated that he already called, and told him "not to worry" because his wife tripped over her shoelaces. The injured wife said "she was clumsy and fell." The manager told the couple he needed to get a pen and paper from the restaurant to get information "to make a report," but when he returned they were gone and he "was never able to write a report."
On April 2, 2004, the injured wife commenced a personal injury action against the restaurant alleging that she injured her ankle by tripping on a defect in the parking lot pavement. On April 24, 2004, almost six months after the parking lot incident, the restaurant notified Burlington of the occurrence and claim.
Burlington subsequently disclaimed coverage to the restaurant on the ground of late notice. The trial court denied the restaurant's motion for summary judgment and granted Burlington's motion for summary judgment declaring that it was not obligated to defend and indemnify Plaintiff.
The First Department closely reviewed the facts surrounding the incident and held that the manager was reasonably lead to believe that the couple would not seek to hold the restaurant's owner liable for the incident. In sum, the Court found that what happened in the parking lot established, as a matter of law, the restaurant's good-faith belief of non-liability and declared that Burlington owed a duty to defend and indemnify the restaurant in the underlying action.
In Jaison John, Tower Ins. Co. ("Tower") brought a declaratory judgment action against its insured, Jaison John Realty Corp., to determine whether it was obligated to defend and indemnify an apartment building owner and property manager (collectively "John") in an underlying personal injury action brought by a tenant of the building. John was at the Premises on September 17, 2006, the date of the accident in the personal injury action, and observed that the stairway handrail was removed. While in the Premises, the police informed John that a person named Dias fell down the stairs and that the handrails were removed. John, however, did not undertake to obtain a copy of the police report. John saw Dias the day after the accident, spoke to her and she appeared fine, and she did not mention the accident. Dias called John several days later to complain about noise and hot water, but did not mention the accident. John never asked Dias what happened or whether she was injured.
On February 5, 2007, almost five months after the accident, John first notified Tower of the underlying occurrence and claim with a copy of the Summons and Complaint he received. The First Department affirmed the trial court's decision that John's belief that Dias was not injured and would not make a claim was unreasonable, and held that Tower had no duty to defend or indemnify John in the underlying Dias action.
Learning Point:
In many cases involving insured's reasonable belief of non-liability, the courts carefully review the facts and circumstances surrounding the underlying occurrence. There is no black and white rule when it comes to the reasonableness of an insured's belief for non-liability, but it appears that if the insured affirmatively attempted to obtain information as to the incident and/or injuries, then the courts will likely find a good-faith belief of non-liability.
For more information contact Yoko Yamamoto at yyamamoto@clausen.com.
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