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New York Court Applies No-Prejudice Rule to Late Notice Claim

Blogs, Insurance Coverage

The United States District Court for the Southern District of New York recently held the “notice prejudice” rule set forth in New York Insurance Law §3420(a)(5) did not apply to a policy “issued or delivered” outside of New York, even though the policy contained a New York choice of law provision. In doing so, the District Court determined that the term “issued” in the insurance context means where the policy is “sent out or distributed” and not where it is signed. Indian Harbor Ins. Co. v. The City of San Diego, 2013 WL 5340380 (S.D.N.Y. Sept. 25, 2013).

The underlying case involved three pollution claims made against the City of San Diego (“City”). The City sought coverage from its insurer, Indian Harbor Insurance Company (“Indian Harbor”) under its pollution and remediation legal liability policy (“Policy”). The policy in question was issued on July 2009, was underwritten in Pennsylvania, delivered to a broker in California, and contained New York choice of law and forum selection clauses. 

The policy included the requirement that the City give notice “as soon as practicable.” Notice in the underlying actions was not given until 31 months, 12 months and 2 months after the City received notice of the claims and Indian Harbor denied the claims under the notice provision. The City argued that New York Insurance Law § 3420(a)(5) required Indian Harbor to show prejudice from the late notice. Specifically, under §3420(a)(5),

“failure to give the notice required…shall not invalidate any claim made…unless the failure to provide timely notice has prejudiced the insurer.” 

Indian Harbor argued that §3420(a)(5) did not apply because the no-prejudice common law rule-governed policies that were issued prior to January 17, 2009, and those that are “issued and delivered” outside of New York. Indian Harbor contended that the policy was “issued” when it was officially “sent out or distributed,” which in this case was Pennsylvania. Alternatively, the City argued the policy was “issued” in New York because it was signed by and Indian Harbor representative in New York. 

The court agreed with the Indian Harbor, holding that under New York law, a policy is not issued when signed, but rather when it is “sent out or distributed officially.” Therefore, New York statutory law did not apply, and, instead, New York’s common law “no prejudice” rule applied.

A complete copy of the final order can be viewed here