Insurers are often faced with the difficult task of simultaneously defending an insureds while also investigating whether in fact coverage exists. A recent decision by the Appellate Division, Fourth Department, serves as a reminder that the coverage determination needs to be made sooner rather than later.
In Penn Millers Ins. Co. v. C.W. Cold Storage, Inc., Penn Millers Insurance Company issued C.W. Cold Storage, Inc. an Agribusiness Property and Commercial General Liability insurance policy. The insured was sued purely for economic damages, and as such, Insurance Law 3420, which sets strict time requirements for disclaiming coverage, did not apply.
Shortly after receiving notice of the claim, Penn Millers agreed to defend C.W. under a reservation of rights. Some four years later on the eve of trial — and while still defending C.W. — Penn Millers disclaimed coverage. It is not clear when Penn Millers received sufficient information to disclaim coverage, but it was presumably some time before the issuance of the disclaimer.
Penn Millers commenced a declaratory judgment action against C.W. seeking a judgment that it had no duty to defend or indemnify C.W. in the underlying action. C.W. argued that Penn Millers was estopped from denying coverage because Penn Millers provided an untimely disclaimer of coverage. The trial court denied summary judgment motions and found that C.W. failed to establish that it suffered prejudice from Penn Millers’ untimely disclaimer.
The Appellate Division, Fourth Department, modified the trial court’s order, finding that there was a issue of fact in regard to whether Penn Millers denial of coverage was effective. The Court ruled that Penn Millers untimely disclaimer plausibly prejudiced C.W., as the disclaimer was issued four years after notice of the claim and on the eve of trial. The court was unconvinced that the reservation of rights permitted Penn Millers to “unreasonably delay” its rights to the detriment of the insured.
Although the Court would not go as far as to hold that the disclaimer was ineffective as a matter of law, it left the matter to a jury. From a common sense standpoint, it seems that the insured will likely be able to establish prejudice, so the ruling was favorable to the policyholder.
Thanks to Steve Kaye for his contribution to this post. If you would like more information please e-mail Mike Bono at firstname.lastname@example.org