Notice Of Suit From Another Carrier Triggers The Noticed Carrier's Duty To Promptly Disclaim Coverage Under NY Insurance Law § 3420
June, 2009
This insurance coverage dispute arose out of a trip and fall accident that occurred at a construction site involving a subcontractor's employee. The site was owned by the New York City Industrial Development Agency and Magen David Yeshiva ("Owners"). The Owners hired plaintiff JT Magen as their construction manager, which, in turn, hired William Erath & Son ("Erath") as one of its subcontractors. The injured worker was employed by Erath.
Erath agreed in its contract with JT Magen to indemnify and hold JT Magen harmless for personal injuries arising out of Erath's work. The contract required Erath to provide liability coverage naming JT Magen and the Owners as additional insureds. Erath obtained liability coverage under a policy from Hartford Fire Insurance Company ("Hartford"). JT Magen, meanwhile, was the named insured under a commercial general liability policy issued by St. Paul Travelers Insurance ("Travelers").
After the injured worker commenced a personal injury action against JT Magen and the Owners, JT Magen notified its insurance carrier, Travelers, of the lawsuit. By letter dated June 24, 2005, Travelers advised Hartford of the underlying action and requested that Hartford defend and indemnify JT Magen and the owners as additional insureds under the policy Hartford issued to Erath. Hartford responded by letter dated August 10, 2005, stating that Travelers' tender did not include a copy of the underlying summons and complaint. Although Travelers disagreed that it omitted the pleadings, Travelers mailed Hartford another set of the pleadings on August 16, 2005.
Fifty-one days later, by letter dated October 6, 2005, Hartford informed Travelers and the putative additional insureds that it was disclaiming coverage on the ground that JT Magen and the Owners failed to comply with the Hartford policy's timely notice requirements. JT Magen then commenced litigation against Hartford, seeking a judicial declaration that Hartford owed JT Magen and the owners defense and indemnification with respect to the underlying personal injury action. JT Magen v Hartford Fire Ins. Co., 879 N.Y.S.2d 100 (1st Dep't 2009).
Hartford and JT Magen brought a motion and cross-motion for summary judgment. Hartford argued that JT Magen failed to comply with the insurance policy's notice provisions, and JT Magen contended that Hartford was estopped from disclaiming coverage pursuant to Insurance Law § 3420(d) on the ground that Hartford's disclaimer was untimely. Id. Hartford responded that § 3420(d) does not apply as between insurers, relying on prior case law which holds that Insurance Law § 3420(d) is not intended to benefit or protect insurers, but rather, is intended to protect insureds, injured persons and other claimants. Id.
The trial court found the case law making Insurance Law § 3420(d) inapplicable to insurers to be inapposite, since Travelers' tender was made on behalf of the additional insureds and not on behalf Travelers itself. The trial court held in favor of JT Magen, concluding that Hartford was precluded from disclaiming coverage since Hartford's disclaimer was untimely. Id.
Citing the need to clarify "the apparent confusion on this issue", and referring to its prior holding in Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 A.D.3d 84 (1st Dep't 2005), the First Department affirmed the lower court's decision. Although noting that an insurer's duty to timely disclaim "is not triggered until an insured satisfies a notice of claim provision in an insurance contract, because that provision is a condition precedent to coverage", the Court held that "the tender letter insurer Travelers wrote on behalf of plaintiff and others to insurance carrier Hartford - asking that their mutual insureds be provided with a defense and indemnity, as additional insureds under the policy issued to Erath - fulfills the policy's notice-of-claim requirements so as to trigger the insurer's obligation to issue a timely disclaimer pursuant to Insurance Law § 3420(d)." JT Magen, 879 N.Y.S.2d at 102. The Court distinguished between an insurer's own claim for indemnity or contribution to another insurer - to which § 3420(d) does not apply - and an insurer's tender on behalf of its insured to another insurer - to which § 3420(d) does apply, noting that Travelers' tender to Hartford on behalf of JT Magen fell in the latter scenario.
Learning Point: JT Magen clarified and reaffirmed that Insurance Law § 3420(d)'s timely disclaimer provisions are triggered if tender is made to the insured's carrier on behalf of the insured by another carrier. Indeed, carriers are well-advised to comply with § 3420(d)'s timely disclaimer requirements when a tender is made on behalf of its insured regardless of the source
For more information contact Mark J. Pastuszak at elindemann@clausen.com.
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