When the New York State legislature abolished the no-prejudice rule in 2009, it greatly increased the burden on insurers to establish prejudice as an element of the late notice defense. But a recent decision in the Supreme Court, New York County, serves as an important reminder to insurers that, in pollution cases, New York’s no-prejudice rule often still applies when the insured gives late notice.
For policies issued before January 17, 2009, a failure to satisfy the notice requirement of an insurance policy vitiates the policy, and the insurer is not required to demonstrate that they were prejudiced by the late notice. Whether late notice was provided to an insurer is of particular relevance in pollution cases, because claimants often commence lawsuits with actual or constructive knowledge of the problem.
In Travelers Indemnity v. Orange and Rockland Utilities, Index No. 603601/02, the insured sought coverage for the investigation and remediation of pollution and contaminates at gas plants owned or previously owned by the insured from 1852 through 1965. Travelers or its predecessors afforded coverage to the insured under policies issued between 1955 through 1978. The Travelers policies required that notice be provided “as soon as practicable.” Although the insured was aware of its potential liability as far back as 1981, it did not provide notice to Travelers until 1995.
Justice Eileen Bransten — applying the no-prejudice rule — held that notice is a condition precedent to coverage, and therefore Travelers properly disclaimed coverage based on receiving late notice of the underlying pollution and contamination. The breach of the condition vitiated coverage, relieving Travelers of any duty to defend the insured.
As such, in pollution cases, an insurer should always consider whether late notice is a viable defense to coverage, and, if so, immediately disclaim coverage.