On June 27, 2003, Merrimack Mutual Fire Insurance Company had an insurance policy in effect providing liability coverage to 25 Avenue C New Realty, LLC.  On June 27, 2005, Alea North America Insurance Company had an insurance policy in effect providing liability coverage to 25 Avenue C.

Eamonn Grimes filed a lawsuit against 25 Avenue C to recover for personal injuries sustained on 25 Avenue C’s property on June 27, 2005.  25 Avenue C gave timely notice of the claim to Alea.  Alea then undertook the defense of this case and assigned defense counsel.  In May 2007, an investigator discovered that the accident actually occurred on June 27, 2003, not June 27, 2005.  In August 2007, defense counsel received a bill of particulars from Grimes stating the accident occurred on June 27, 2003.  On October 4, 2007, defense counsel took the deposition of a nonparty witness who testified that Grimes’ accident occurred on June 27, 2003.

Inexplicably, it was not until May 15, 2008 that Alea’s third-party claims administrator spoke with 25 Avenue C and determined that Merrimack was the actual insurer on June 27, 2003.  At that point, defense counsel tendered the defense to Merrimack and notified them that Alea’s policy was not in effect at that time.  Thereafter, on July 8, 2008, Merrimack rejected Alea’s tender on the grounds that it was not given timely notice of the claim.  Alea then advised 25 Avenue C on August 11, 2008 that it was declining coverage because the actual date of the incident predated coverage.  25 Avenue C then brought this action seeking a declaration that either Alea or Merrimack was obligated to defend and indemnify them in the underlying personal injury action.

The Supreme Court granted 25 Avenue C’s motion for summary judgment against Merrimack, finding that Merrimack was obligated to defend and indemnify 25 Avenue C as Merrimack “was notified within a reasonable time under the facts and circumstances and there is no apparent prejudice, as discovery is ongoing.”  The court also granted Alea’s motion for summary judgment, allowing Alea to bow out.

The Appellate Division upheld the decision as to Alea, but reversed in favor of Merrimack, finding that under these facts, the five-year delay in notifying Merrimack was unreasonable.  The Appellate Division found fault in Alea, stating that Alea should have notified 25 Avenue C as early as May 2007, and that Alea’s attorneys were conclusively aware in August and October of 2007 that the correct date of the accident was June 27, 2003, not June 27, 2005.  Further, the court was critical of Alea’s third-party claims administrator for waiting until May 15, 2008 to contact 25 Avenue C to determine which insurer covered the premises in June 2003.

This decision leaves 25 Avenue C without coverage from either Merrimack or Alea in the underlying personal injury suit.  Given the mistakes made and the language in this decision, it will be interesting to see which party 25 Avenue C goes after.   

Thanks to Michael Nunley for his contribution to this post.

http://www.courts.state.ny.us/reporter/3dseries/2012/2012_04672.htm