NY’s Timely Disclaimer Requirements Apply to Third Party Claims

The strict requirements of timely disclaimer under New York Insurance Law Section 3420(d) for claims for death or bodily injury is well known. An insurer who fails to timely disclaim coverage will be estopped.

Usually, the “claimant” is usually the underlying plaintiff. But what about the other parties who seek indemnification from the insured? In a recent decision, the Appellate Division, Second Department, answered this question in the affirmative for a third-party defendant, determining that a defendant/third-party plaintiff is a “claimant” under 3420(d).

In Key Fat Corp. v. Rutgers Casualty Insurance Company, the underlying lawsuit arose out of injuries allegedly sustained by the plaintiff when he fell from a ladder while working as a construction worker for his employer, Bando Construction, at a property Bando leased from the Key Fat Corp. The underlying plaintiff sued Key Fat, who then commenced a third-party action against Bando. Key Fat’s insurer tendered its defense to Bando’s insurer, Rutgers Casualty.

Rutgers Casualty disclaimed coverage to Bando based upon an exclusion in the insurance policy it had issued to Bando, and also informed Seneca of the disclaimer. However, Key Fat was not informed of the disclaimer. Judgment was ultimately entered in favor of plaintiff and against Key Fat, awarding damages for his injuries, and Key Fat was awarded summary judgment on its third-party claims against Bando for common-law and contractual indemnification. Key Fat and Seneca then commenced a declaratory judgment action against Rutgers Casualty to recover the attorney’s fees and costs incurred in the underlying litigation and alleging that Rutgers Casualty was estopped from disclaiming coverage.

The Appellate Division held that § 3420(d)(2) is applicable where the coverage the insurer seeks to disclaim is for defense costs incurred in connection with an underlying personal injury action. The Court affirmed the trial court’s award of summary judgment in favor of Key Fat, and held that because Rutgers Casualty did not disclaim coverage to Key Fat, it was estopped and was obligated to reimburse Key Fat and Seneca attorney’s fees and litigation costs incurred in the underlying action.

Thanks to Jorgelina Foglietta for her contribution to this post.  Please write to Mike Bono for more information.