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New York’s Highest Court Rejects Application of NY Insurance Law § 3420(d)(2)’s Prompt Disclaimer Standard to Property Damage Claims

Blogs, Insurance Coverage

The New York Court of Appeals recently held that Insurance Law § 3420(d)(2) only applies to “insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy” and may not be extended to property damage claims. KeySpan Gas East Corp. v. Munich Reinsurance America, Inc. et al., 23 N.Y.3d 583 (N.Y. 2014). 

In late 1994, Plaintiff Long Island Lighting Company (“LLICO”) notified Defendants Munich Reinsurance of America, Inc., Century Indemnity Company, and Northern Assurance Company of America (“Defendants”) about environmental concerns at retired Manufactured Gas Plant (“MGP”) sites. The following year, Defendants sent LLICO letters, reserving all rights and coverage defenses – including that of late notice. In 1997, LLICO commenced suit in the New York state court in which it sought a declaration that the Defendants had a duty under their excess CGL policies to defend and indemnify LLICO for the investigation and remediation of environmental damage arising from contamination found in seven of the MGP sites. Defendants moved for summary judgment based on LLICO’s failure to give timely notice. The trial court granted summary judgment for one out of seven of the MPG sites. Defendants appealed with respect to the remaining sites, and KeySpan Gas East Corporation (as LLICO’s assignee) cross-appealed.

Although the Appellate Division found that LLICO failed to provide timely notice under the policies with respect to one of the sites, the Appellate Division reversed the trial court’s summary judgment ruling in favor of the Defendants “because issues of fact remain[ed] as to whether defendants waived their right to disclaim coverage based on late notice” by “fail[ing] to timely issue a disclaimer.” Without specifically referencing § 3420(d)(2), the Appellate Division adopted the standard set forth § 3420(d)(2) by holding that Defendants had a duty to disclaim coverage “as soon as reasonably possible” after learning that the insured’s notice was untimely. 

NY Insurance Law § 3420(d)(2) provides, in relevant part that: “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 coverage to the insured . . . .” N.Y. Ins. Law § 3420(d)(2) (McKinney 2013).

The Court of Appeals rejected the Appellate Division’s application of the heightened standard for disclaimer of coverage, holding that NY Insurance Law § 3420(d)(2) is limited to cases involving death and bodily injury resulting from an accident in New York and under a New York policy and may not be extended to claims involving property damage. It reasoned that “it is not for the courts to extend the statute’s prompt disclaimer requirement beyond its intended bounds.” Concluding that the environmental contamination claims at issue were not within the scope of the § 3420(d)(2) purview, the Court of Appeals remanded the case back to the Appellate Division, where it must determine whether– under common-law principals – Defendants waived a late notice defense.

Importantly, the Court’s decision clarifies that in evaluating the timeliness of an insurer’s disclaimer in other contexts, such as claims involving property damage, the more liberal standards of common law waiver and estoppel govern.