New York courts are strict when it comes to disclaimers. In addition to being timely, disclaimers must unequivocally and unambiguously advise the insured of the grounds upon which they are based. One insurer’s “sloppy” disclaimer resulted in a legal battle fought all the way up to the New York Court of Appeals.
In QBE Ins. Corp. v. Jinx-Proof, Inc., the insured owned a tavern. In the underlying action, a patron claimed she was injured when one of the tavern’s employees threw a glass in her face. Upon notice of the claim, the insurer sent two letters to the insured. The first stated that the insurer would not defend or indemnify the insured “under the General Liability portion of the policy for assault and battery allegations” but wrongly asserted that there was no liquor liability coverage. The second letter acknowledged that there was liquor liability coverage but read:
“[W]e are defending this matter under the Liquor Liability portion of the [general commercial liability] coverage, and under strict reservation of rights for allegations of Assault and Battery. Your policy excludes coverage for assault and battery claims . . . Therefore, should this matter proceed to verdict, any awards by the Court stemming from allegations of Assault and Battery will not be covered under your Commercial General Liability policy.”
After the negligence and Dram Shop causes of action were dismissed, the insurer filed a declaratory judgment action to be relieved of its duty to defend and indemnify. The trial court, and later the Appellate Division, upheld the disclaimer, notwithstanding the insured’s claim of ambiguity. Over Justice Piggott’s instructive dissent, the top Court agreed. The Court acknowledged that the letters “contained some contradictory and confusing language,” but upheld the disclaimer nonetheless because it was “sufficient” to apprise the insured the disclaimer was based on exclusion for assault and battery.
The takeaway here is that great care must be taken to draft clear and comprehensive disclaimers. As Justice Piggott wrote in his sharply-worded dissent: “As the majority concedes, both letters contained contradictory and confusing language. Language such as this simply cannot serve to properly advise an insured of his rights and remedies under the policy.” QBE Ins. Corp. v. Jinx-Proof, Inc. was a significant victory, but the battle was hard-fought, and the margin of victory, slim. The moral? Write clearly and use overwhelming force.
Thanks to Michael Gauvin for his contribution to this post. For more information, please email Dennis Wade at email@example.com.