Last week the United States Second Circuit Court of Appeals ruled that an injured party (or its homeowner’s carrier) that provided separate — and timely — notice of a claim under the tortfeasor’s liability policy may be entitled to coverage, despite the fact that the tortfeasor’s own notice to the liability carrier was untimely.
In Continental Ins. Co. v. Atlantic Cas. Ins. Co., a contractor caused a fire while working on a home. The contractor did not provide its liability carrier with notice of the claim until five months later, and the liability carrier disclaimed coverage. The homeowner’s carrier (which had paid out the fire-related losses to the homeowner), sent its own notice of claim to the contractor’s liability carrier after learning of the liability carrier’s existence. After the homeowner’s carrier obtained a default judgment against the contractor in an underlying action, the homeowner’s carrier sued the liability carrier for the judgment pursuant to New York Insurance Law Section 3420(a), which allows an injured party to sue an insurer after obtaining a judgment against an insured. The lower court dismissed the homeowner’s carrier’s claim and ruled that the contractor’s untimely notice of claim extinguished the homeowner’s carrier’s rights under the contractor’s liability policy.
The Second Circuit reversed the lower court on the late notice grounds, although it upheld the dismissal on the grounds that the liability policy’s roofing limitation endorsement barred coverage. The Second Circuit held that the purpose of New York Insurance Law Section 3420(a) is to remedy the “common law inequity” under which an injured party possessed no cause of action against the insurer of the tort-feasor. Section 3420 therefore gives the injured party (or its carrier that stands in its shoes) the independent right to provide notice to the tortfeasor’s carrier as long as it pursues those rights with due diligence. Therefore, despite the fact that the contractor in Continental had provided late notice of the claim, the injured party (and its insurer) retained their rights under the liability policy when they provided notice to the liability carrier soon after learning of the policy’s existence.
Thanks to Mendel Simon for his contribution to this post. If you have any questions, please contact firstname.lastname@example.org.