Coverage Pointers - Volume IX, No. 21a

Excuses, Excuses, Excuses

A Primer and Checklist on Late Notice Excuses

 

There are two very popular explanations given by insureds for failing to give timely notice of an accident. One is that there was no reasonable ground to believe that at the time of the accident, bodily injury would follow.  The related offering is that the insured had no reasonable ground to believe that he, she or it would be held liable for the accident or claim.  Under what circumstances will the courts give the insured a pass for breaching a notice provision when one of these excuses is offered?

 

§         Bad excuses are worse than none. Thomas Fuller

§         He that is good for making excuses is seldom good for anything else. Ben Franklin

 

Flash back to January 20^th, 1913, a Monday.  Famous for the day that concert pianist Ethel Leginska[1] made her debut in NYC at Aeolian Hall[2], it is less famous for an car accident involving a vehicle owned by the Hass Tobacco Company[3].  As the Court of Appeals wrote, on that day one of its machines[4] ran into and struck Joseph Bolger, causing him injuries which subsequently resulted in a judgment in his favor for over four thousand dollars.”  The auto policy issued to Hass required immediate notice.  Alas, notice was not given for a breathtakingingly long 10 days and the insurer denied coverage based on a breach of the policy condition.  

 

On the following day the accident was reported in the newspaper.  When a manager saw the story, he asked the driver what had occurred, and the driver indicated:

 

It didn't amount to anything. He was driving into a garage and the boy ran out from the curb and struck the machine and he was knocked down. The manager asked if the boy was hurt. The driver replied, “Only slightly, for I brushed off his clothes and he went away. There was a policeman right there. It wasn't necessary to report any accident. I don't think it amounts to much.”

 

The manager accepted that report, and did not advise the insurer.

 

Under these circumstances, the Court held that the insured was not absolved from making the report required by its policy.  The Court of Appeals was bothered that:

 

…no investigation was made. There was no assurance by the person struck that he was uninjured. There was no opportunity by later observations of determining that he was not in fact injured. The plaintiff relied wholly upon the driver's opinion, an opinion which as subsequent events showed was a mistaken one.

 

Hass Tobacco Co. v. American Fidelity Co., 226 N.Y. 343, 346-347 (N.Y. 1919)

 

The high court, relying on the precedent set forth in Hess, has revisited this excuse of “non-liability” in a number of key cases thereafter.  One on the most often cited, Security Mut. Ins. Co. v. Acker-Fitzsimons Corp. (31 NY2d 436 [1972]), is worth reviewing.

 

 

 

On May 23, 1965 and October 4, 1965, fires occurred at the same premises in New York City.  On December 19^th of that year, the Sunday News reported that two firemen had filed claims against the City of New York for injuries allegedly sustained in the October 4^th fire. Mention was also made in the article of the possible liability of the owners and operators of the premises. This article was brought to the attention of the insureds, Levy and Acker-Fitzsimons, the owner and managing agents of the building, respectively.

 

The owner was concerned enough to notify his broker, but the broker took no action apparently believing that absent some more substantial basis there was nothing to report to the carrier.  The Court of Appeals disagreed:

 

While this information was, in our view, sufficient to apprise the insureds of the occurrence, of itself, it probably was not a sufficient predicate for giving immediate notice. However, it seems to us that such information would cause a reasonable and prudent person to investigate the circumstances, ascertain the facts, and evaluate his potential liability (see Hass Tobacco Co. v. American Fid. Co., 226 N. Y., at p. 345), particularly where there were, at the time of the alleged injuries, existent violations against the premises involving structural deficiencies caused by the first fire (May 23, 1965). Similarly, although the belief that firemen go at their own risk generally accords with the law …under these circumstances, and absent an investigation of the facts, the insured's bare reliance on that belief would appear to be unreasonable.

 

Accordingly, the focus of the Court was clear: would a reasonably prudent person, receiving information about an accident, investigate the facts and evaluate his potential liability.  Absent an investigation, a reliance on a “good faith belief” will generally be considered “unreasonable.”

 

In 1974, the Court of Appeals had the chance to revisit the question again. In Empire City Subway Co. v. Greater New York Mut. Ins. Co. (35 N.Y.2d 8 [1974]), Empire was the named insured under a policy issued by Greater New York which covered highway excavation liability. On October 21, 1968, several months after the work was completed, a man sustained injuries when he fell in an area where the contractor had worked. The injured person brought suit against the City of New York, and on June 29, 1970 the city served third-party complaint against Empire alleging that the work was not properly completed. It was not until after a deposition was held some 16 months after the lawsuit was filed that Empire notified the insurer of the accident.  In response, the carrier promptly disclaimed.

 

The Court held that when the insured received the third party pleading, it was required to exercise reasonable care to ascertain facts about the accident:

 

While a good-faith belief of non-liability may excuse or explain a seeming failure to give timely notice (Security Mut. Ins. Co. of N. Y. v. Acker-Fitzsimmons Corp., supra, at p. 441) … A reasonably prudent person, faced with a complaint alleging injuries sustained because of defects in a highway at a place described only generally but still within "five to ten feet" from where that person had recently completed excavation work, would at least have taken measures to ascertain whether the situs of the accident was within the area where the work was performed before concluding that there was no basis for liability. Where, as here, an accident occurs which may fall within the coverage of an insurance policy the insured may not, without investigation, gratuitously conclude that coverage does not exist. (Hass Tobacco Co. v. American Fid. Co., 226 N. Y. 343, 347).

 

            Accordingly, it seems quite clear that a failure to conduct an investigation about the facts and circumstances of an accident, once placed on notice, is by its nature sufficient to prohibit an insured from relying on that excuse.

 

§         Hold yourself responsible for a higher standard than anybody else expects of you, never excuse yourself. Henry Ward Beecher

§         If you don't want to do something, one excuse is as good as another. Yiddish Proverb

§         Excuses are lies we tell ourselves to avoid dealing with unpleasant truths. Steve Palina[5]

 

That takes us to the next question:

 

What if the insured conducts an investigation and concludes that liability does not exist?  Is that a sufficient excuse not to notify an insurer?

 

            In AMRO Carting Corp. v. Allcity Ins. Co. (170 A.D.2d 394 [1^st Dept. 1991]), one Raul Torres, an AMRO employee, brought his 20-year old son Paul to his job on September 20, 1986.  While operating an AMRO truck, Paul sustained an injury to his face which required stitches.  AMRO’s president, Emile, learned of the accident the day it occurred. Two years later, Paul sued AMRO seeking $3,000,000 in damages.  When notified of the suit, Emile gave Allcity immediate notice.  However, this was Allcity’s first notice of the accident, and a late notice disclaimer followed.

 

Emile argued that he conducted an investigation surrounding the accident, but concluded that Paul had no intention of suing AMRO for damages. The court held that whether the insured reasonably believe that a claim would not be made would be an issue of fact.

 

More recently, the courts – using the AMRO analysis, have focused on the insured’s reasonable recognition of the possibility of a claim being made even if the insured did not believe it were liable for the accident.  For example, in SSBSS Realty Corp. v. Public Serv. Mut. Ins. Co. (253 A.D.2d 583, 584 [1^st Dept.1998]), notice to the insurer did not come until 91 days after the accident.  The court noted that the insured was aware of the accident, aware that someone was injured (in a fall down), and it could have easily located and noticed a defect in the sidewalk.

 

A reasonable belief in non-liability may excuse an insured's failure to give timely notice, but the insured has the burden of showing the reasonableness of such excuse, given all the circumstances (Security Mut. Ins. Co. v Acker-Fitzsimons Corp., (citation omitted). At issue is not whether the insured believes he will ultimately be found liable for the injury, but whether he has a reasonable basis for a belief that no claim will be asserted against him (see, AMRO Carting Corp. v Allcity Ins. Co., 170 AD2d 394 … Security Mut. Ins. Co. v Acker-Fitzsimons Corp…

 

Another recent affirmation of this approach can be found in Philadelphia Indem. Ins. Co. v. Genesee Val. Improvement Corp. (41 A.D.3d 44 [4^th Dept. 2007]).   A roofer, while working for a construction company hired by the insured to repair the insured's roof, was injured when he fell from the insured's building. It was not until the roofer filed suit (pursuant to Labor Law § 200, 240[1], 241[6]), against the insured some nine months later that the insured informed the insurer about the incident.  Not surprisingly, the insurer denied coverage on late notice. The insured claimed that it did not notify the insurer of the accident because the insured expected that a subcontractor’s insurer would cover the roofer's claims.   The court did not believe that a “reasonably prudent person would not have believed himself to be immune from potential civil liability under the circumstances.”  Even though the worker said he was “okay” and did not threaten suit against the insured, there was an obligation to give notice.  Why?  Because a claim could be made:

 

Although a good-faith belief in non-liability may excuse a failure to give timely notice (citations omitted) at issue under the policy provision [in this case] is not whether [GVIC had] a good-faith belief in non-liability, but whether [it] should have anticipated a claim" (citation omitted)  "[T]he insured's belief must be reasonable under all the circumstances, and it may be relevant on the issue of reasonableness, whether and to what extent, the insured has inquired into the circumstances of the accident or occurrence" (Security Mut. Ins. Co. of N.Y., supra. ….) In sum, "[a]t issue is not whether the insured believes he will ultimately be found liable for the injury, but whether he has a reasonable basis for a belief that no claim will be asserted against him" (SSBSS Realty Corp, supra.)

 

What if the claimant affirmatively states that he or she is not going to bring claim? 

 

The Courts are still struggling with this one, but at best, it appears that an affirmative statement by the insured that there is no significant injury, or that a claim will not be brought, may raise a question of fact about the reasonableness of the delay.  In Surgical Sock Shop II, Inc., v U.S. Underwriters Ins. Co. (2008 NY Slip Op 2827 [2^nd Dept. 3/25/08]), the injured party and the insured disagreed on what was said at the time of the accident.  However, with sworn proof by the insured (subject to a later fact-finder’s consideration) that the insured said she was not hurt and walked away, the court found that a question of fact existed about the reasonableness of the delay. Similarly, in D'Aloia v. Travelers Ins. Co. (85 N.Y.2d 825, 826 [1995]), the Court of Appeals affirmed an Appellate Division finding of reasonable excuse where the injured party's parents declined the insureds' offer to pay medical expenses and indicated no intention to sue.  See also Argentina v. Otsego Mut. Fire Ins. Co. (86 N.Y.2d 748 [1995] where late notice was excused when the injury did not appear permanent and the fact- finder believed that because of the familial relationship between the injured and the insured, the insured would have known if there were the likelihood of a claim to be made.

 

Check List:

 

When conducting a late notice investigation, follow the lead provided by the case law.  Find out:

 

·        When did the insured first receive notice of the accident?

·        What investigation did it conduct?

·        When did it learn where the accident took place?

·        Did it conduct an investigation to determine:

o       When did the accident take place?

o       Where did the accident take place?

o       How did the accident occur?

o       Was someone injured or did someone complain of pain?

o       What was the extent of the injuries?

o       Did the insured consider the possibility that something it did caused or contributed to the accident?

o       Even if it did not so consider the possibility that it did something wrong, did it consider the possibility of it being sued?

o       Even if it did not consider the possibility of it being sued, did it conduct an investigation to determine if it could be sued for the accident?

o       What was said then, or thereafter, about the possibility of a claim being made?

·        Are there witnesses who dispute what the insured indicates its excuse to be?

·        How does the claimant respond to the same questions?

·        How do witnesses, both party and non-party, respond to the same questions?

 

Having this information at hand will go a long way in assisting an insurer in making a sustainable determination on the possibility of a late notice disclaimer.