Anyone who wants to know how stringent New York can be when it comes to the issuance of disclaimers need look no further than New York Insurance Law Section 3420(d)(2).  In cases involving bodily injury and death, that statute requires insurers to provide notice of the grounds for disclaimer to the insured, the injured party, and any other claimant “as soon as is reasonably possible.”  In recent years, some courts have expanded the scope of that statute by applying its rationale outside the context of death and bodily injury claims.  With the Court of Appeals recent decision in KeySpan Gas East Corp. v. Munich Reinsurance America, Inc.., however, insurers seeking to disclaim coverage for claims not based on death or bodily injury can breathe somewhat easier.

In KeySpan, the insured was the former owner of gas plant sites that had suffered environmental contamination.  After receiving notice of the claim at the end of 1994, the insurer sent a series of Reservation of Rights letters while its investigation continued – – and while the insured continued to provide additional information.  In 1997, the insured filed a declaratory judgment action in which the insurer raised, as an affirmative defense, the insured’s failure to provide timely notice.  In a series of summary judgment motions, the trial court held that the insurer did not waive its late notice defense by failing to issue disclaimers prior to the commencement of the coverage action.  The First Department, however, reversed, and held that there were questions of fact as to whether the insurer disclaimed “as soon as reasonably possible.”

According to the Court of Appeals, the First Department erred when it held the insurer to the stringent standard of Insurance Law Section 3420(d)(2) by requiring it to issue a disclaimer “as soon as reasonably possible.”  In doing so, the court reasoned that “[b]y its plain terms, section 3420(d)(2) applies only in a particular context:  insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy.”  In other words, the statute means exactly what it says.

Despite this victory, insurers need to remain vigilant. Keyspan may have held that the strict standard of Insurance Law Section 3420(d)(2) does not apply outside the context and death and bodily injury, but it did not enter judgment in favor of the insurer.  Rather, the Court of Appeals remanded the case to the First Department to determine whether the insurer manifested an intent to waive its coverage defenses. Keyspan may have given insurers some breathing room by relaxing the standard for timely disclaimers outside the context of death and bodily injury, but property/commercial risk insurers must remain vigilant and publish disclaimers if and when facts supporting those positions come to light.

Thanks to Michael Gauvin for his contribution to this post.  For more information, please contact Dennis Wade at .