Insurer's Failure To Show Reasonableness Of Its Delay In Issuing A Timely Disclaimer Precludes Motion For Summary Judgment
December, 2007
In Those Certain Underwriters at Lloyds, London v. Gray, et al., 2007 WL 3380450 (1st Dep’t 2007), the Appellate Court held that Plaintiff/Insurer failed to establish, as a matter of law, that its delay in issuing a disclaimer of coverage for fifty-six (56) days was reasonable, with respect to an underlying personal injury lawsuit against Defendant/Insured, Cathy Gray.
On April 13, 2004, Gray obtained a commercial general liability policy from Plaintiff to insure a vacant brownstone that Gray owned and was about to have renovated. The Policy contained an exclusionary clause which excluded coverage for any claims involving personal injuries sustained on the Premises by “any employee of an independent contractor contracted by you or on your behalf.” On or about November 6, 2004, Elizaro Valdez, an employee of a subcontractor retained to perform work at the Premises, fell from a ladder and was injured. Valdez subsequently filed a lawsuit against Hoover Construction, Inc., the general contractor, and Gray, as owner of the Premises. In his Verified Complaint, Valdez claimed that at the time of his accident, he was “an independent contractor hired and/or retained by [Hoover] to perform work” at the Premises.
On or about April 13, 2005, Valdez’s Complaint was served on Gray. Plaintiff claimed that it first received the Complaint on May 16, 2005. Nine days later, on May 25, 2005, Plaintiff retained an investigator to review the claim and ascertain the facts surrounding Valdez’s accident, including whether Valdez was in fact an independent contractor retained by or on behalf of Gray. The investigator was finally able to conduct his interview with Gray on June 17, 2005, which confirmed that she hired Hoover to be the general contractor on the renovation project and that it was her understanding that Valdez was injured while working on the Premises for a subcontractor.
Nineteen days later, the investigator’s report and findings were forwarded to Plaintiff and as a result, on July 11, 2006, Plaintiff issued a disclaimer of coverage to Gray with respect to the Valdez lawsuit.
The Court, in denying Plaintiff’s motion for summary judgment on the timeliness of its disclaimer, stated that under section 3420(d) of New York’s Insurance Law, an insurer must serve written notice on the insured of its intent to disclaim coverage under the policy “as soon as reasonably possible.” Further, the Court held that the reasonableness of the timing of the disclaimer is measured from the date when the insurer knew or should have known that grounds for the disclaimer existed. See First Fin. Ins. Co. v. Jetco Contr. Corp., 1 N.Y.3d 64, 68-69, 759 N.Y.S.2d 459, 801 N.E.2d 835 (2003). The Court further held that if such grounds were, or should have been “readily apparent” to the insurer when it first learned of the claim, any subsequent delay in issuing the disclaimer is unreasonable as a matter of law. Id. Finally, the Court upheld a long line of cases which hold that if the grounds for the disclaimer are not readily apparent, the insurer has the right, albeit the obligation, to investigate, but any such investigation must be promptly and diligently conducted. See, e.g., Jetco, supra; Ace Packing Co., Inc. v. Campbell Solberg Assoc., Inc., 41 A.D.3d 12 (2007); Structure Tone v. Burgess Steel Prods. Corp., 249 A.D.2d 144, 145 (1998); Norfolk & Dedham Mut. Fire Ins. Co. v. Petrizzi, 121 A.D.2d 276, 278 (1986), lv denied, 68 N.Y.2d 611 (1986).
With respect to the issue of the timing of the disclaimer, the Court stated that there is no objective standard against which the time it takes an insurer to issue its disclaimer can be measured, thus rendering it a fact-sensitive inquiry that should be based upon all of the surrounding circumstances, focusing on the period between when the insurer first learns of the grounds for the disclaimer and when it ultimately issues its disclaimer. Only in an exceptional case will an insurer’s written disclaimer be determined to have been issued in a timely manner as a matter of law. See Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028, 1030 (1979).
Thus, the Court reasoned that in order for Plaintiff to prevail on the facts presented, it must have been able to establish as a matter of law that it was not “readily apparent” from the content of the Complaint that grounds for the disclaimer in fact existed, and that the investigation, which took a total of fifty-one (51) days to complete, was promptly and diligently conducted.
Applying the foregoing case law to the facts at issue, the Court ultimately determined that there were significant factual issues surrounding the 56 days it took Plaintiff to formally disclaim coverage to Gray and as a result, held that Plaintiff failed to establish as a matter of law that its disclaimer was timely, thus denying Plaintiff’s motion for summary judgment.
Learning Point:
Under New York law, an insurer is obligated to issue its disclaimer of coverage as soon as reasonably possible. Further, the reasonableness of the timing of a disclaimer is measured from the date when the insurer knew or should have known that grounds for disclaiming coverage existed. In the event that those grounds are not readily apparent, an insurer has the right to investigate the claim, but any such investigation must be conducted in a prompt and diligent matter. Further, because there is no objective standard in determining whether an insurer’s delay in issuing such a disclaimer is reasonable, it ultimately remains an issue of fact.
Insurers should learn from Gray that upon receipt of a claim that may be excluded from coverage under their policy, they should attempt to determine whether coverage exists based on the face of the claim and if so, immediately issue a disclaimer of coverage to their insured. In the event that the insurer needs additional information to ascertain the potential for coverage, it should promptly conduct its investigation and if that investigation results in a finding of no coverage, it should issue its disclaimer of coverage as soon as possible. However, in the event that an insurer fails to issue its disclaimer within a timely manner, any issue surrounding the timeliness of its disclaimer will ultimately become an issue of fact that will likely defeat a motion for summary judgment.
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