Editor’s Note: The following decision is an important development concerning to the timeliness of disclaimer letters for bodily injury or wrongful death claims under Insurance Law §3420(d). We believe the decision imposes a greater burden on insurers and their claims professionals to act expeditiously in protecting insurer’s rights to deny coverage based on policy exclusions and breaches of policy conditions. If you have questions about the impact of this case on your claims handling practices and procedures, please contact Dan Kohane ([email protected]) or Kevin Merriman ([email protected]) to discuss.
11/20/03 FIRST FINANCIAL INS. v JETCO CONTRACTING CORP.
New York Court of Appeals
Unexcused 48-day Delay in Denying Coverage under Liability Policy Unreasonable; Searching for Alternative Insurance Does Not Justify or Excuse Delay
In questions certified to it by the Second Circuit, New York’s high court was asked to clarify whether an insurer’s 48-day delay in notifying its insured of a denial of coverage was unreasonable as a matter of law under Insurance Law §3420(d), where the purpose of the delay was to investigate the existence of other sources of insurance. The court held that an investigation into the existence of other coverage did not constitute valid excuse for delay, and that an unexcused 48-day delay was unreasonable as a matter of law.
Section 3420(d) requires liability carriers to disclaim or deny coverage as soon as reasonably possible in cases involving bodily injury or wrongful death. Under the doctrine of “waiver,” an insurer who fails to timely disclaim coverage loses the right to do so when disclaimer is based on policy exclusions or the breach of a policy condition (e.g., late notice of occurrence or suit, or failure to cooperate).
In this case, the insured learned of the accident the day it occurred, but failed to inform its insurer. The insurer’s agent initially advised the insured by letter that this was “a late notice situation,” and reserved its right to deny coverage because the insured had failed to comply with the policy’s notice requirements. The insurer then failed to notify its insured of its decision to deny coverage until 48 days after the insurer’s agent confirmed the grounds for disclaimer. The insurer claimed that delay was excusable because it resulted from an investigation into other sources of insurance, but witnesses testified that the insurer’s investigation into other sources of insurance did not affect insurer’s decision to deny coverage.
The Court observed that §3420(d) was intended to expedite the disclaimer process, thus enabling a policyholder to pursue other avenues of coverage. Timeliness under §3420(d) is measured from the point in time when the insurer first learns of the grounds for disclaimer, and an insurer’s explanation is insufficient as a matter of law where the basis for denying coverage was or should have been readily apparent before the onset of delay. Here, the insurer was aware that the claim was untimely when it first learned of the accident, or, at the latest, when its agent confirmed the insured had known of the accident. While investigation into issues affecting an insurer’s decision whether to disclaim may excuse delay, the court declined to excuse delay simply to explore other sources of insurance, which was unrelated to the insurer’s decision.
With respect to the timing of the disclaimer in the absence of excuse, the court concluded that 48 days was unreasonable. In reaching its conclusion, the court relied on an earlier decision in Hartford Ins. Co. v County of Nassau, 46 NY2d 1028 (1979), where it found that an unexplained 62-day delay was unreasonable. “Clearly,” the court held, “a delay of 48 days in those circumstances would have been as well.” We note that the court declined to impose a fixed time period to measure the timeliness of disclaimer, as this is most often a question of fact, dependent on all of the circumstances of a case, and cited with tacit approval several appellate court decisions holding that periods of less than 48 days were unreasonable, including one case involving as few as 30 days (see West 16th Street Tenants Corp. v Public Service Mut. Ins. Co., 290 AD2d 278 (1st Dept. 2002). Thus, unexplained or unexcused delays of less than 48 days, and maybe as few as 30 or less, may be deemed untimely, as well.
Across Borders
Visit the HOT CASES section of the Federation of Defense and Corporate Counsel website for cases covering a broad range of legal issues from other jurisdictions.
11/18/03 MCMAHON v NEW JERSEY MANUFACTURERS INS. CO.
New Jersey Appellate Division
“Offer of Judgment” Costs Applies to Underinsured Motorist Award even if Amount Exceeds Policy Limits
In an Underinsured Motorist (“UIM”) case, claimant received an award, which obligated respondent insurer to pay the policy limits. Earlier, claimant had propounded a statutory “Offer of Judgment” which the UIM award exceeded. Pursuant to the “Offer of Judgment” rule the trial court awarded plaintiff her litigation expenses, interest and attorney fees. The insurer argued these costs could not be awarded pursuant to contract law because the costs exceeded policy limits. The Court disagreed and reasoned UM and UIM cases, by their nature, are hybrid claims. Although contractual underpinnings provide the standing to bring an UM or UIM claim, in order to succeed the insured must establish the elements of negligence. The insurer is thus responsible for paying “Offer of Judgment” costs even if such costs exceed policy limits.
Peter S. Doody, Higgs, Fletcher and Mack
11/17/03 PROGRESSIVE PREFERRED INS. CO. v RAMIREZ
Supreme Court of Georgia
When Policy Lapses Before Incident Giving Rise to Liability and Before Notice of Cancellation to the Public Service Commission, Insurer’s Liability to Injured Third Party is Based on the Policy, not Minimum Coverage Imposed by Law
Progressive issued a policy covering trucks used in a business and filed a required certificate of insurance with the Public Service Commission (PSC). The policy was subsequently cancelled due to the insured’s failure to make premium payments, but no notice of cancellation was filed with the PSC until after a third party was killed in an accident involving one of the trucks. The court held that, when an endorsement is filed with the PSC providing that a policy has been issued, and that policy lapses without proper notice of the lapse to the PSC, any liability to third parties is based on the policy itself as opposed to the minimum coverage imposed by law.
Bruce D. Celebrezze and Erin Adrian, Sedgwick, Detert, Moran & Arnold LLP
11/17/03 CRESCENT HILL APARTMENTS v ADMIRAL INS. CO.
Supreme Court of Georgia
Notice by Insured of Receipt of Cancellation Notice not Sufficient to Meet Statutory Cancellation Requirements
Admiral Insurance issued a commercial property insurance policy covering the Crescent Hill Apartments. Admiral decided to cancel the policy after learning that the apartments were in poor condition. An admiral employee asserted that she mailed notice that the policy would be cancelled on by taping it to a mailbox with a note requesting that the postal service date and sign a certified mail receipt with the date it was picked up for delivery. The certified mail receipt was returned to Admiral undated, but Admiral received a certified return mail receipt from Crescent. The president of Crescent did not open the letter with the notice of cancellation until nearly two months later, two days after the apartments were destroyed by fire. The court held that the policy was not effectively cancelled because 1983 Ga. Const., Art. VI, Sec. VI, Para. IV; OCGA § 15-2-9 (a) requires that an insurer have a receipt from the postal service showing evidence of mailing, not evidence of the addressee’s receipt.
Bruce D. Celebrezze and Erin Adrian, Sedgwick, Detert, Moran & Arnold LLP
11/14/03 NATIONWIDE MUT. INS. CO. v JEWELL
Second District Court of Appeal of Florida
No-fault Law does not Prohibit the Payment of Reduced PPO Rates by Insurers for PIP Benefits
Medical care providers brought action against insurance company claiming that the personal injury protection (PIP) insurers are required to pay the full amounts due for covered expenses under the no-fault law, rather than reduced PPO rates. The insurers asserted the right to pay reduced rates because the providers had entered into provider agreements with at least one PPO network with which the insurers had a payor contract. The court held that, although the no-fault statute does set forth a specific circumstance under which PPO rates are applicable, it does not prohibit the payment of PPO rates under these circumstances.
Bruce D. Celebrezze and Erin Adrian, Sedgwick, Detert, Moran & Arnold LLP
11/14/03 ALLSTATE INS. CO. v GINSBERG
Eleventh Circuit (applying Florida law)
Personal Injury Coverage for Invasion of Privacy Does Not Cover Sexual Battery Claim
Eleventh Circuit affirmed summary judgment for Allstate that it did not have a duty to defend the underlying plaintiff’s claim for sexual battery which occurred in the workplace. Under Florida law, the tort of invasion of privacy, which is defined as an intrusion into “one’s private quarters,” is not construed so broadly as to encompass unwelcome conduct to one’s physical person absent an intrusion into a place where the victim has a reasonable expectation of privacy.
Bruce Celebrezze and Joseph Pelochino, Sedgwick, Detert, Moran & Arnold LLP
11/12/04 PHEN v PROGRESSIVE NORTHERN INS. CO.
South Dakota Supreme Court
Other Insurance Clause In UM Coverage Void as Against South Dakota Public Policy
Peggy Phen received injuries while riding on the back of a motorcycle when the motorcycle collided with another vehicle. The collision was the result of the other driver’s negligence, who was not insured. Phen recovered from the motorcycle driver’s insurer for the full amount of the driver’s uninsured motorist coverage, which did not cover the amount of her medical bills. Phen then sought to recover uninsured motorist coverage from her own carrier. This coverage excluded coverage for injury sustained by any person while using or occupying: “a vehicle, other than a covered vehicle, if uninsured motorist coverage or underinsured motorist coverage applicable to such vehicle is available.” The court affirmed the trial court decision that the exclusion violated public policy and Phen was entitled to the coverage under her own policy. Under South Dakota public policy, every insurer must provide uninsured motorist coverage to every insured in the state. A policy clause that purports to eliminate an insurance company’s liability under an uninsured motorist provision violates that public policy.
Bruce Celebrezze and Joseph Pelochino, Sedgwick, Detert, Moran & Arnold LLP
11/12/03 PLY v NATIONAL UNION FIRE INS. CO.
Oklahoma Supreme Court
Employee May Recover UM Benefits from Employer’s Carrier When Employer Directs Employee’s Use of the Vehicle
The plaintiff Dale Ply suffered severe electric burns in an accident that occurred while he worked on overhead electric wires from the raised bucket of a bucket truck. Ply’s employer owned the truck. Ply recovered workers’ compensation benefits and sought to recover UM benefits under his employer's policy, which contained an uninsured motorist endorsement. National Union denied coverage on the basis that Ply’s injuries were not caused by the actual use of the bucket truck by another person. The court disagreed with National Union and found that an employer’s or supervisor’s instructions or directions to its employee regarding work to be performed by that employee, which involves the use of a company-owned vehicle, can constitute “use” of the vehicle by the employer or supervisor so as to give rise to potential liability under Oklahoma’s uninsured motorist laws. The court applied the rule that, if an insured can establish that his or her injury was caused by negligence on the part of the owner of an uninsured vehicle, he or she can recover UM benefits.
Bruce Celebrezze and Joseph Pelochino, Sedgwick, Detert, Moran & Arnold LLP
11/06/03 VALLEY FARMS, LTD. v TRANSCONTINENTAL INS. COMPANY
Arizona Court of Appeals
Prospective Insured Must Update Carrier on Claims
The court concluded that a prospective insured has a continuing duty to update the prospective insurer on claims made between the time the insurer's agent was first given information and the time the policy is issued. To avoid coverage of an insured risk in an insurance policy based on an insured's misrepresentation in the application, an insurer must prove the insured committed actual or legal fraud that was material to the insurer's accepting that risk. The Arizona Court of Appeals relied on the ruling expressed in Stipcich v. Metropolitan Life Insurance Co., 277 US 311, that changes materially affecting the risk to an insurer and about which the insurer had previously inquired that become known to the prospective insured between the time an application for insurance is completed and submitted and an insurance policy is issued must be disclosed to the insurer.
Michael Tanenbaum and Steven Singer, Sedgwick, Detert, Moran & Arnold LLP
And In Defense
11/20/03 ESPOSITO v NEW YORK CITY IDA
New York Court of Appeals
Repairing Components is Routine Maintenance under NY's Scaffolding Law
Labor Law §240(1) applies where an employee is engaged “in the erection, demolition, repairing, altering, painting, cleaning or pointing of a building or structure.” Although repairing is among the enumerated activities, it is distinguished from “routine maintenance”. The work here involved replacing components that require replacement in the course of normal wear and tear. It therefore constituted routine maintenance and not “repairing” or any of the other enumerated activities. As for Labor Law §241(6), it is inapplicable outside the construction, demolition or excavation contexts. Therefore, the court held that the maintenance work involved in this case fell outside that section’s reach.
11/20/03 DAVID v COUNTY OF SUFFOLK
New York Court of Appeals
Negligent Supervision Claim against School District for Gym Class Accident Dismissed as a Matter of Law
In support of its motion for summary judgment, defendant relied on the deposition testimony of the physical education teacher supervising the class, who explained that he instructed the students on net climbing, demonstrated proper techniques and was ten to twelve steps away from the infant plaintiff when she fell. The expert affidavit plaintiffs offered in response failed to establish the foundation or the source of the standards underlying the conclusion that defendant's supervision of the infant plaintiff was inadequate.
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