Appeals Court Holds That An Issue Of Fact Exists As To When An Insured Knows Of A Possible Claim
June, 2009
On October 28, 2004, two Marines were severely burned while wearing an item of camouflage clothing known as a ghillie suit. The ghillie suits were manufactured by Ghillie Suits.Com Inc. and sold with a small bottle of fire-retardant spray. The small bottle of fire-retardant spray was manufactured by New York Fire-Shield Inc. and known as "Inspecta-Shield."
New York Fire-Shield had no knowledge at the time of the accident that its product was being repackaged and sold by Ghillie Suits.Com. However, New York Fire-Shield was notified approximately two weeks after the accident that its product was sold by Ghillie Suits.Com and that two Marines were severely burned when their ghillie suits caught fire.
New York Fire-Shield did not advise either its insurance agent, Aversa Agency Inc. ("Aversa"), or its general and excess liability insurance carrier, Preferred Mutual Insurance Company ("Preferred Mutual"), of the incident until nearly two years later, when the two injured Marines filed suit, alleging strict liability, negligence and breach of implied warranty of fitness for a particular purpose against New York Fire-Shield.
Preferred Mutual denied coverage based on New York Fire-Shield's failure to comply with the notice provisions of its policies, which required New York Fire-Shield to notify Preferred Mutual "as soon as practicable" of an occurrence "which may result in a claim." Preferred Mut. Ins. Co. v. New York Fire-Shield, 2009 N.Y. Slip Op 4335 (3rd Dep't June 4, 2009). Preferred Mutual then filed suit in the Chenango County, N.Y., Supreme Court seeking a declaration that it was entitled to disclaim coverage based on the notice provisions of the policies. New York Fire-Shield filed a third-party action against Aversa, alleging breach of contract, negligence and negligent misrepresentation.
Preferred Mutual moved for summary judgment on the notice issue and Aversa moved to dismiss New York Fire-Shield's third-party action claiming that it played no role in the late notice provided by New York Fire-Shield. New York Fire-Shield opposed the motions and filed a cross-motion for summary judgment, arguing that it gave notice as soon as practicable. The trial court granted New York Fire-Shield's cross-motion, holding that Preferred Mutual's denial of coverage was invalid. Id. The court also dismissed the third-party complaint against Aversa.
Thereafter, Preferred Mutual appealed the trial court's ruling. The Appellate Court concluded that an issue of fact existed as to when New York Fire-Shield was aware of the accident. Id. In rendering its decision, the Court stated that in New York, where notice is required under an insurance policy, the insured bears the burden of proving that there was a reasonable excuse for the delay in providing notice to the insurer. See Great Canal Realty Corp. v. Seneca Ins. Co., Inc., 5 N.Y.3D 742, 744 (2005). Further, the issue of whether an insured has a good faith belief in non-liability, and whether that belief is reasonable, ordinarily presents an issue of fact. See Morehouse v. Lagas, 274 A.D.2d 791, 794 (2000); Reynold Metal Co. v. Aetna Cas. & Sur., 259 A.D.2d 195, 200 (1999). It is only where the facts are undisputed and not subject to conflicting inferences that an issue should be decided as a matter of law. See Greenwich Bank v. Hartford Fire Ins. Co., 250 N.Y. 116, 131 (1928).
The Court held that based on the facts of the case and the applicable case law, a fact finder may conclude that New York Fire-Shield knew two weeks after the aforementioned accident that two Marines were burned while wearing ghillie suits treated with Inspecta-Shield. Preferred Mut. Ins. Co. v. New York Fire-Shield, 2009 N.Y. Slip Op 4335 (3rd Dep't June 4, 2009). More specifically, the Court concluded that:
While defendant's president maintains that he did not "believe" that Inspecta-Shield was involved in the accident or that a claim would be made against it, the reasonableness of his belief and his credibility on this critical point is best reserved for resolution by a jury. In short, we find that Supreme Court erroneously decided the question of reasonableness as a matter of law and that this case should be governed by the general rule that the reasonableness of [defendant's] alleged good-faith belief of non-liability is a question of fact to be resolved by a jury. Id.
Thus, the Court ruled that the trial court erred in granting New York Fire-Shield's motion for summary judgment on the issue of notice. Id.
Learning Point: When an insurer is faced with notice of a claim by its insured, the reasonableness of the insured's timing in providing notice to the insurer is a question of fact.
For more information contact Thomas D. Jacobson at tjacobson@clausen.com
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