Insurer’s and their coverage counsel are well-aware that N.Y. § 3420 requires insurers to deny coverage or disclaim liability in any matter involving bodily injury or death must “as soon as is reasonably possible.” The lack of precision in the statute creates pressure for an insurer conducting an investigation, and some degree of vulnerability as any insured may challenge a disclaimer as untimely.
To that point, a recent decision from the SDNY, Netherlands Ins. Co. v. United Specialty Ins. Co., is a positive development in a line of New York cases finding that as long as there is no evidence of dilatory tactics, forty, fifty and even sixty days are a reasonable length of time for conducting an investigation into a claim and providing a response to tender.
Netherlands concerned additional insured coverage following a construction site accident. The underlying action, brought in New York Supreme, Bronx County, concerned injury to a subcontractor – later determined to be an employee of USI’s named insured – when the elevated platform he was working on collapsed. Netherlands Insurance provided a CGL policy to the general vontractor at the site and together as plaintiffs in the SDNY action they sought a declaration that USI owed defense and indemnity to the general contractor premised upon an allegation of untimely disclaimer.
The Netherlands Court granted summary judgment in favor of USI, holding that it had disclaimed coverage within a reasonable time pursuant to § 3420, and that it had not waived its right to disclaim on the basis of an endorsement it had not referenced in its initial disclaimer. The Court noted the timeline: Netherlands Insurance tendered to USI’s insured via a letter dated September 3, 2013, but postmarked October 29, 2013. USI received the tender from their insured on November 26, 2013. On December 27, 2013 USI denied coverage based on an Employee and Workers Compensation Exclusion. The Court held that this time was more than reasonable, particularly given that the underlying complaint contained no allegations that the injured party was an employee of USI’s named insured, and therefore denial based upon the Employee Exclusion necessitated investigation.
Following its denial of coverage, USI raised as an affirmative defense an additional endorsement it had not previously relied on, the Specifically Covered Operations Endorsement. Plaintiffs argued that reliance on that endorsement had been waived, but the Court disagreed, holding succinctly that “where the issue is the existence or nonexistence of coverage (e.g., the insuring clause and exclusions), the doctrine of waiver is simply inapplicable” because the endorsement “defines the scope of coverage in the first instance.”
Thus, while Netherlands does not provide a bright-line rule for an insurer’s response time, it does provide additional comfort in a reasonable, common-sense approach to review of an insurer’s timeline for investigation and provision of its substantive response.
Thanks to Vivian Turetsky for her contribution to this post.