New York Appeals Court Overturns its Own Precedent Ruling an Insurer Must Disclaim Coverage on a Known Ground Even if its Investigation of Other Grounds for Rejecting the Claim is Incomplete
A unanimous five-judge panel of the New York Supreme Court, Appellate Division, First Department declined to follow and expressly overruled its own precedent, ruling that Insurance law § 3420(d) requires an insurer to immediately disclaim coverage on a known ground; it may not wait until it has completed its investigation into whether other reasonable grounds for denying coverage exist. George Campbell Painting v. National Union Fire Insurance Company of Pittsburgh, PA, 2012 N.Y. Slip Op. 00254 (N.Y.A.D. 1 Dept. Jan. 17, 2012).
Section 3420(d), as in effect when the subject policy was issued, provided: “If under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.” (Emphasis Added). In DiGuglielmo v. Travelers Property Casualty, 6 A.D.3d. 344 (2004), the First Department held that, notwithstanding this statutory language, “[a]n insurer is not required to disclaim on timeliness grounds before conducting a prompt, reasonable investigation into other possible grounds for disclaimer.”
In an about face on Tuesday, the First Department declined to follow and expressly overruled DiGuglielmo, holding, in agreement with the Second Department’s decision in City of New York v. Northern Insurance Company of N.Y., 284 A.D.2d 219 (2001), that § 3420(d) precludes an insurer from delaying issuance of a disclaimer on a ground that the insurer knows to be valid while investigating other possible grounds for disclaiming. The First Department reasoned that DiGuglielmo was inconsistent with the text of § 3420(d), with the decisions of the Court of Appeals interpreting that statute, and public policy.
Applying that interpretation to the facts at issue in George Campbell Painting, the First Department concluded, that the insurance company’s disclaimer was untimely: “where the record establishes that the insurer had sufficient information to disclaim coverage on the ground of late notice no later than January 19, 2006, a disclaimer issued on that ground nearly four months later . . . was ineffective as a matter of law. Once the insurer . . . possessed all the information it needed to determine that plaintiffs, which sought coverage as additional insureds, had failed to give … timely notice of the claim as required by the policy, [the insurer] had no right to delay disclaiming on the late-notice ground while it continued to investigate whether plaintiffs were, in fact, additional insureds. . . .”