In a recent New York appellate decision, the court considered whether letters from attorneys representing an insured in an underlying lawsuit and investigation reports regarding statements made by an insured’s president can be considered on a motion for summary judgment following an insurer’s disclaimer on the grounds of noncooperation.

In DeLuca v. RLI Insurance Company, plaintiff sued RLI’s insured, ML Specialty Construction, Inc., alleging property damage caused by ML’s construction work on a neighboring property.  After ML Construction notified RLI of the plaintiff’s claim, RLI retained counsel to defend ML Construction.  RLI then disclaimed coverage after ML Construction allegedly stopped cooperating with counsel after five years of cooperating with the defense.  ML Construction then defaulted in the underlying action. After the plaintiff obtained a judgment against ML Construction, she commenced a declaratory judgment action against RLI seeking a declaration that RLI was obligated to pay her damages in connection with the judgment obtained against ML Construction.  RLI cross-moved for summary judgment.

The Second Department held that an insurer who seeks to disclaim coverage on the basis of a policy’s noncooperation clause faces a heavy burden.  The insurer must demonstrate that “(1) it acted diligently in seeking to bring about the insured’s cooperation, (2) its efforts were reasonably calculated to obtain the insured’s cooperation, and (3) the attitude of the insured, after its cooperation was sought, was one of willful and avowed obstruction.”  The court held that in this case, RLI failed to meet its burden, namely by failing to submit proof of its efforts and ML Construction’s refusal to cooperate in an admissible form.  The proof RLI submitted as evidence of ML Construction’s noncooperation were letters from ML Construction’s counsel and investigation reports and emails from an investigation services company.  The letters, emails, and reports purportedly contained statements from ML Construction’s president supporting RLI’s contention of ML Construction’s noncooperation, which the court held were offered for their truth and were therefore were hearsay, and not admissible.  Furthermore, an affidavit from the president of the investigation company containing a conclusory assertion that efforts to obtain ML Construction’s cooperation were not successful did not sufficiently meet the insurer’s heavy burden of proving noncooperation.  Accordingly, the denial of RLI’s cross-motion for summary judgment was affirmed.

This case serves as a reminder that an insurer’s burden of demonstrating an insured’s alleged noncooperation in connection with a disclaimer of coverage remains high.

Thanks to Rebecca Rose for her contribution to this post.