New York Insurance Law §3420(d)(2), which requires written notice of coverage denials “as soon as is reasonably possible,” has vexed the insurance industry. Courts have ruled that delays as short as 30 days violate the statute’s reasonableness standard. A failure to give timely notice results in a waiver of the potential coverage defense.
But what happens if the occurrence giving rise to the claim is not covered at all under the policy form? Does late notice stymie the insurers ability to avoid a defense and indemnity obligation? Recently, the Second Circuit took up that issue in NGM Insurance Company v. Blakely Pumping, Inc., 593 F.3d 150 (2010). There, relying on the “auto” exclusion to a business owner’s policy, NGM disclaimed coverage to a company executive who crashed his pickup truck into plaintiff’s car.
After publication of the disclaimer, the executive reminded NGM that the policy contained an endorsement extending coverage for the use of a “Hired Auto” or “Non-Owned Auto.” With that pushback, NGM issued a supplemental disclaimer, contending that the executive’s personal pickup was neither a “Hired Auto” nor a “Non-Owned Auto.”
The trial court ruled that NGM had waived its right to disclaim coverage because, on the known facts, it had violated Insurance Law § 3420 (d)(2). But the Second Circuit, following Zappone v. Home Insurance Co., 55 N.Y.2d 131 (1982), determined that Insurance Law §3420(d)(2) applies only when the denial of liability is based upon an exclusion in the policy which, without the exclusion, would provide coverage. Then, the court determined that the definitions of “Hired Auto” and “Non-Owned Auto” did not qualify as exclusions, and thus held that NGM had not waived its right to assert that its policy did not cover the auto accident.
The question of what constitutes an “exclusion” is often fact sensitive. But the critical distinction between an exclusion and an occurrence that is simply not covered must be kept in mind when facing the jeopardy of “late notice” in New York.
If you would like more information about this decision, please contact Dennis Wade.