Notice to Broker not Notice to Insurer — and not a Valid Excuse for Lateness (NY)

Courts accept a lot of excuses for late notice — even in New York, prior to the prejudice rule — but a recent decision affirmed the concept that the insured’s notice to its own broker does not constitute notice to the insurer.

In Pfeffer v. Harleysville Group, Inc., the insured owned a building that was insured by Harleysville under a deluxe business owner’s insurance policy.  The insured’s building suffered property damage in December 2006.  The damage was allegedly caused by excavation and construction work performed on an adjacent property.  The insured promptly notified his insurance broker, but his broker advised him to “wait and see” the extent of the damage before reporting the claim to the insurer.  As such, the insured retained engineers to assess the damage to his building, and retained an attorney to commence a legal action against his neighbor.  The insured finally notified his insurer, Harleysville, in January 2008 — more than a year after he first received notice of the property damage.

Accordingly, Harleysville disclaimed coverage to the insured based on the insured’s breach of the policy’s notice of occurrence clause.  The insured commenced a declaratory judgment action, and the U.S. District Court for the Eastern District found in favor of Harleysville.

On appeal, the Second Circuit Court of Appeals noted that New York courts “uphold notice-of-occurrence provisions in insurance contracts to aid insurers in early investigations, detection of fraudulent claims, and proper capital allocation.” The Second Circuit rejected the insured’s contention that his late notice should be excused because he had a good faith belief in non-liability and did not know that the Harleysville policy provided coverage.  The panel found that the insured had a duty to notify its insurer even if it believed that a third-party was liable for the damage to the building.  Of significance, the Second Circuit also rejected the insured’s excuse that it relied on his broker’s advice to “wait and see” the extent of any damage.  The appellate panel ruled that the insured could not satisfy the policy’s notice requirements by giving notice of the loss to its insurance broker.

Thanks to Steve Kaye for his contribution to this post.  If you would like further information please write to mbono@wcmlaw.com.