George Campbell Painting v. National Union Fire Ins. Co. of Pittsburgh, PA (N.Y. App. Div. January 17, 2012)
Following settlement of a personal injury lawsuit brought by a subcontractor’s employee against the general contractor and owner, Plaintiffs, the general contractor and owner, sued the subcontractor’s excess insurer (“Insurer”), seeking a declaration that Insurer’s disclaimer of coverage was untimely under former Insurance Law § 3420(d) (current version at § 3420(d)(2)), and seeking recovery, as additional insureds, of Insurer’s alleged pro rata share of the employee’s personal injury settlement. On appeal, the First Department determined that Plaintiffs did not provide Insurer with notice of the employee’s personal injury suit against them until two years after it was filed and over a year after they learned that the employee’s claim, if successful, would far exceed the subcontractor’s primary insurance.
According to the court, pursuant to § 3420(d) of the Insurance Law, once Insurer had all the information it needed to determine that Plaintiffs had failed to give it timely notice of the claim as required by the policy, it had no right to delay disclaiming on the ground of late notice while it continued to investigate whether Plaintiffs were in fact additional insureds. In coming to its decision, the court overruled the case of DiGuglielmo v. Travelers Prop. Cas., which had held that under § 3420(d), an insurer was not required to disclaim on timeliness grounds before conducting a prompt, reasonable investigation into other possible grounds for disclaimer.
The court reasoned that the DiGuglielmo rule was inconsistent with the text of § 3420(d), which requires that a disclaimer be issued “as soon as is reasonably possible.” To follow the DiGuglielmo rule would permit an insurer to delay deciding whether to disclaim on grounds known to it while pursuing an investigation of other potential grounds for disclaiming liability or denying coverage. The court noted that the Court of Appeals specifically rejected an insurer’s argument that § 3420(d) should be read to require speed in giving notice once the decision to disclaim has been made, but to permit delay in making the decision. According to the Court of Appeals, the literal language of the statutory provision requires prompt notice of disclaimer after decision to do so, and obligates the insurer to reach the decision to disclaim liability or deny coverage within a reasonable time.
Furthermore, the Court of Appeals has also made it clear that the determination of whether the disclaimer was issued as soon as was reasonably possible is made with reference to the time when the insurer first acquired knowledge of the ground upon which it disclaimed. The timeliness of an insurer’s disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage. When the basis for denying coverage was or should have been readily apparent before the onset of the delay of disclaimer, the insurer has no excuse for its delay.
In the opinion of the court, adhering to the DiGuglielmo rule would be tantamount to deliberately setting aside the rule promulgated by the Court of Appeals and flowing naturally from the language of the statute. Additionally, the court concluded that the policy behind § 3420(d) is best served by applying the rule articulated by the Court of Appeals rather than the DiGuglielmo rule. Delay on the part of the insurer to disclaim may detrimentally delay the policyholder’s own search for alternative coverage. Thus, the court held that § 3420(d) precludes an insurer from delaying issuance of a disclaimer on a ground that the insurer knows to be valid while investigating other possible grounds for disclaiming.
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