New York: Moving to a 'Prejudice' Standard for Late Notice?

In the Dec. 21, 2004 decision in Great Canal Realty Corp. v. Seneca Insurance Company, Inc., 787 N.Y.S.2d 22 (App. Div. 1st Dep't), a plurality ruling of the First Department of the Appellate Division observed that “the time has come” for New York to end its adherence to the “no prejudice” rule. 787 N.Y.S.2d at 27. Stating that “the egregious imbalance between insurer and insured needs to be corrected,” the court ruled that the insurer before it was not entitled to summary judgment because triable issues of fact existed as to whether the insurer was prejudiced by the policyholder's late notice of a potential claim. Id. at 28-29.

The Great Canal case is an interesting study in judicial activism and the process by which insurance law may evolve over time. The plurality decision (adopted by two of the five judges on the panel with a third judge joining in the result) recognizes the longstanding “no prejudice” rule set forth by the New York Court of Appeals, but expressly decides not to follow it. These two judges believe that the Court of Appeals is leaning toward repudiation of the “no prejudice” rule based on comments made in Brandon v. Nationwide Mutual Insurance Company, 97 N.Y.2d 491 (2002), and take the step of actually repudiating the rule in the First Department. The third judge joining in the judgment reaches it on the alternative ground that a fact issue exists regarding whether the policyholder had a reasonable and good faith belief in its non-liability. The two judges writing in dissent castigate the plurality for flouting established precedent and attempting to reverse decades of decisional law as an intermediate appellate court. We discuss the highlights of these opinions below. The First Department granted certification, and the Great Canal case is currently before the Court of Appeals. As of press time, a briefing schedule has not yet been set.