The United States District Court of the Southern District of New York ruled that an insurer ran afoul of the timeliness requirements of New York Insurance Law § 3420(d)(2) when it disclaimed coverage 10 months after receiving notice of the claim.
In Montpelier U.S. Insurance Co. v. 240 Mt. Hope Realty Co., the court held that the insurer’s late disclaimer failed to meet the law’s requirement that written notice of a denial for a bodily injury claim must be given as soon as is reasonably possible to the insured and the injured person. In addition, since the insurer had initially provided a defense without a reservation of rights and was aware at the time that grounds existed to disclaim coverage, the court found that the insurer was estopped from doing so at a later date.
In Montpelier, the commercial landlord insured was sued after a child was bitten by a dog owned by one of the building’s tenants. The insured failed to respond to the suit and a default judgment was entered against it. Approximately a month later, the insurer learned of the suit and default judgment from the insured’s retail agent. The insurer then retained counsel for the insured and counsel successfully moved to lift the default and filed an Answer.
An appeal followed and the Appellate Division reversed the trial court and reinstated the default judgment. A month after the default was reinstated, which was ten months after it received notice of the suit, the insurer sent a denial letter to the insured disclaiming coverage based on untimely notice of the lawsuit.
The court found that the time period under Insurance Law § 3420(d)(2) to advise the insured of a disclaimer “as soon as is reasonably possible” begins to run when the insurer knows the grounds for its entitlement to deny coverage. Looking at the undisputed facts, the court held that the insurer knew of sufficient facts to disclaim coverage when it received notice of the default judgment. The court recognized that the insurer would have indisputably have been entitled to deny the claim on the grounds that notice was untimely, since New York law provides for an irrrebutable presumption of prejudice that applies when an insurer receives a claim after the insured’s liability has been determined.
In this case, however, the insurer chose instead to provide a defense to the insured and delayed issuing a disclaimer for 10 months, which the court found to be an unexcused delay that was unreasonable as a matter of law. The court also held that the insurer was estopped from denying coverage because it had provided a defense to the insured. Accordingly, the insurer was ordered to provide a defense and indemnification to the insured.