On January 17, 2012, the Appellate Division of the Supreme Court of the State of New York, First Department, in George Campbell Painting v. National Union Fire Insurance Co. of Pittsburgh, PA, 2012 NY Slip Op 00254, overruled its earlier decision in DiGuglielmo v Travelers Prop. Cas., 6 A.D.3d 344 (1st Dep’t 2004), wherein the court held, notwithstanding the statutory language of Insurance Law § 3420(d), that an insurer is not required to disclaim on timeliness grounds (i.e., late notice) before conducting a prompt, reasonable investigation into other possible grounds for disclaimer (hereinafter “the DiGuglielmo rule”). Instead, the First Department held, in agreement with the Appellate Division of the Supreme Court of the State of New York, Second Department, that the plain language of the statute requires an insurer to give “prompt notice” of a disclaimer based upon late notice grounds after the decision to do so and not withhold issuance of said disclaimer while investigating other grounds for rejecting the claim.
In Campbell, the insurance dispute arose out of an underlying personal injury action wherein a construction worker sustained severe injuries while working on renovations to the Henry Hudson Bridge when he fell down a makeshift hillside ramp. In December 2003, the construction worker commenced an action for personal injuries against the owner of the renovation project and the general contractor. The owner and general contractor tendered their defense to the primary insurer for responsible subcontractor in January 2004; however, they did not notify the excess insurer at that time. Nevertheless, by August 2004, when the owner and general contractor received the construction worker’s bill of particulars alleging severe injuries, they were aware that the damages could exceed the subcontractor’s primary insurance; however, notice was not given to the excess insurer until it received a letter from the owner and general contractor’s counsel dated November 16, 2005.
In response, the excess carrier wrote in a letter dated December 23, 2005, that the excess policy conditions require timely notice of claim and that the owner and general contractor’s request for coverage may have breached the conditions and requested that certain documents, among them, all status reports to the primary carrier regarding liability and damages evaluations. In a letter dated January 19, 2006, counsel for the owner and general counsel enclosed, among other things, an August 2004 status report analyzing the severity of the construction worker’s injuries based upon the bill of particulars. As such, the excess carrier had sufficient information to disclaim coverage on the ground of late notice no later than January 19, 2006, but did not issue a disclaimer issued on late notice grounds until nearly four months later on May 17, 2006, because it was undertaking investigation into other grounds for denying the claim.
The First Department affirmed the lower court’s holding on summary judgment and found that the excess insurer’s disclaimer was ineffective as a matter of law. The First Department reasoned that “[t]he literal language of th[e] statutory provision requires prompt notice of disclaimer after decision to do so, and by logical and practical exclusion, there is imported the obligation to reach the decision to disclaim liability or deny coverage promptly too, that is, within a reasonable time.” In sum, the First Department rejected its holding in DiGuglielmo, which found that a delay in issuing a disclaimer on late notice grounds was acceptable where the insurer was investigating other grounds for denial, and found that where the basis for the denial is late notice and readily apparent from the first notice of claim, the disclaimer on such grounds should be issued “promptly” thereafter.
The First Department’s determination means that insurers issuing disclaimers on late notice grounds in New York cannot wait to issue their late notice disclaimer until all other possible grounds have been investigated and thereafter determined; as such, a disclaimer would be untimely under Insurance Law § 3420(d) and prove ineffective. Thus, as a rule of thumb, insurers issuing late notice disclaimers in New York should do so immediately upon determination that notice of claim is late, i.e., where it is clear from the first notice of claim that said notice is late, insurers should issue their denial upon receipt of such notice or else risk waiving their late notice grounds.