Court Of Appeals Addresses Timing Of Insurer's Disclaimer
December, 2008
New York’s Highest Court, the Court of Appeals, reversed the Appellate Division, in part, and held that Continental Casualty Company’s (“Continental”) disclaimer of coverage was not untimely as a matter of law and that further questions of fact remained. Continental Cas. Co. v. Stratford, 2008 NY Slip Op 9256 at *11 (November 25, 2008).
The underlying litigation stems from two medical malpractice cases in which Continental agreed to defend its insured, Terrance Stradford (“Stradford”). Throughout the defense, Continental claimed that Stradford ignored written correspondence and telephone calls, refused to provide requested documents and information essential to his defense, and failed to meet with the assigned defense counsel for prearranged meetings. Continental repeatedly warned Stradford that his continued non-compliance would lead to a disclaimer of coverage. Although Stradford was mostly uncooperative, he did, at times, indicate that he was aware of his duty to cooperate and even expressed a willingness to do so. At various times, Stradford promised to provide the outstanding requested information and, after several failed attempts, appear for a deposition. Later, Stradford contacted Continental and requested new defense counsel because he had lost his faith in current defense counsel’s ability to zealously defend him. Continental granted Stradford’s request, but when the requisite paperwork was sent to Stradford to finalize the change of counsel, Stradford was again unresponsive. In general, Stradford’s cooperation in his defense consisted of acts that were few and far between.
On July 8, 2004, Continental sent Stradford two letters in connection with the underlying medical malpractice actions indicating that he “risked a disclaimer of coverage in the underlying actions if he continued to fail to cooperate.” These letters were returned to Continental on August 11, 2004, marked “unclaimed.” Two months later, on October 13, 2004, Continental sent Stradford two disclaimer letters based on his non-cooperation, and brought the instant declaratory judgment action.
In analyzing the unique facts of this litigation, the Second Department affirmed the trial court’s determination that Continental had effectively satisfied its heavy burden to disclaim coverage for Stradford’s lack of cooperation. However, the Second Department further held that Continental failed to make out a prima facie case that its October 13, 2004 disclaimer letters were timely under the circumstances. As a result, not only was Continental prohibited from disclaiming coverage for lack of cooperation, but the Second Department also granted Stradford’s cross-motion for summary judgment based on Continental’s unreasonable delay in disclaiming coverage pursuant to Insurance Law §3240(d). Continental Cas. Co. v. Stradford, 46 A.D.3d 598, 847 N.Y.S. 631 (2d Dep’t 2007). The Second Department reasoned that at the very latest, Continental possessed sufficient information to disclaim coverage to Stradford on August 11, 2004, when it received back the “unclaimed” letters because, at that point, it became apparent that any effort to obtain Stradford’s cooperation was futile. That Continental waited until October 13, 2004, over two months after receiving back the “unclaimed” letters, to disclaim coverage to Stradford was not “as soon as reasonably possible” as called for under Insurance Law §3240(d).
In reversing the Second Department’s order granting Stradford’s cross-motion, the Court of Appeals reasoned that the “reasonableness of an approximately two-month delay to analyze the pattern of obstructive conduct that permeated [Continental’s] relationship with [Stradford] for almost six-years presents a question of fact that precludes the entry of summary judgment for either [Continental] or [Stradford].” Continental Cas. Co., at *11. The Court noted that fixing the time from which an insurer’s obligation to disclaim runs is difficult, and is especially difficult where the insured’s non-cooperative attitude is not readily apparent. First Fin. Ins. Co. v. Jetco. Constr. Corp., 1 N.Y.3d 64, 68-69, 801 N.E.2d 835, 769 N.Y.S.2d 459 (2003), quoting, Matter of Allcity Ins. Co., 78 N.Y.2d 1054, 1056, 581 N.E.2d 1342, 576 N.Y.S.2d 87 (1991). “The challenge of setting an appropriate date is only heightened by the heavy burden that an insurer seeking to establish a non-cooperation defense must carry.” Thrasher v. U.S. Liab. Ins. Co., 19 N.Y.2d 159, 168-69, 225 N.E.2d 503, 278 N.Y.S.2d 793 (1967). The Court went on to state that where an insured has “punctuated periods” of non-cooperation mixed with sporadic cooperation and/or promises to cooperate, “some reasonably longer period for analysis may be warranted.” Continental Cas. Co., at *10. In fact, an insurer’s investigation into whether it should disclaim coverage to its insured may excuse a delay in notifying the insured, and a “two-month delay may often be easily justified ….” Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028, 1030, 389 N.E.2d 835, 416 N.Y.S.2d 459 (2003).
Learning Point
Although Insurance Law §3240(d) has a strict requirement that an insurer disclaim coverage to its insured “as soon as reasonably possible,” a court cannot unilaterally determine as a matter of law at what point an insurer must complete its evaluation and determine that its insured was uncooperative in its defense. Questions of reasonableness of a disclaimer based on non-cooperation are questions of fact which should be left for the trier of fact to determine.
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