Timing Is Everything: NY Insurance Law ' 3420(d)

Gnaws iron, bites steel;

Grinds hard stones to meal;

Slays king, ruins town,

And beats high mountain down.

The answer, which Bilbo happens upon by luck, is “time.”

Gollum's riddle, while melodramatic, does not necessarily overstate time's power or importance. Indeed, considerations of time are unquestionably paramount in all walks of life, and insurance coverage is no exception ' in particular, the timing of notices and disclaimers.

One of the more well-known laws in this regard is New York Insurance Law ' 3420(d) (“' 3420(d)”). Section 3420(d), which by its express terms only applies to claims of death or bodily injury, states that if an insurer chooses to disclaim liability or deny coverage, it must do so in writing “as soon as is reasonably possible.” Not surprisingly, this subjective phrasing ' coupled with each coverage claim's unique facts and circumstances ' has resulted in a substantial amount of litigation over when “as soon as is reasonably possible” actually is.

For example, recently, in George Campbell Painting v. National Union Fire Ins. Co. of Pittsburgh, 92 A.D.3d 104, 937 N.Y.S.2d 164 (N.Y. App. Div. 1st Dep't 2012), the New York Appellate Division held that ' 3420(d) required an insurer to issue a disclaimer on late notice grounds before completing its investigation into other possible grounds to disclaim ' overruling prior case law to the contrary.

At first, this decision may appear to reject precedent on coverage notices in favor of a new rule. In truth, however, the court's ruling in George Campbell merely adheres to New York law on denial of coverage due to late notice of a claim. Namely, just as an insured should not delay in providing notice of a claim while investigating other possible sources of coverage, an insurer should not delay in disclaiming on late notice grounds ' a condition precedent to coverage ' while it investigates other possible grounds for disclaimer.

The History and Application of ' 3420(d)

Section 3420(d) provides, in relevant part:

If under a liability policy issued or delivered in [New York], 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.

Importantly, however, ' 3420(d) has limited application. First, by its express terms, the application of ' 3420(d) is strictly limited to claims of “death or bodily injury” and does not apply to any other types of claims. In particular, the rationale behind ' 3420(d), as well as New York case law, plainly bears out that its stated purpose is to protect individuals who suffer physical injury by requiring that they be promptly advised whether and to what extent the entity they are pursuing, i.e., the insured, has funds to satisfy their claims. In the seminal case of Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 265 N.E.2d 736 (N.Y. 1970), the New York Court of Appeals detailed the history behind the enactment of ' 3420(d) (then codified as ' 167, Subdivision 8) ' explaining that the statute's requirements were intended to “aid injured parties, for whose benefit, primarily, the statute was enacted.” 27 N.Y.2d at 267, 265 N.E.2d at 738. Specifically, the Court of Appeals explained that a delay in disclaimer under ' 3420(d) “may prejudice the injured party by misleading him into engaging in costly litigation against the insurer rather than negotiating or arbitrating a settlement” with an alternative source of compensation. Id. This underlying rationale ' to avoid prejudice to injured parties ' was recently reiterated by the Court of Appeals, stating that “Section 3420(d) was enacted to avoid prejudice to an injured claimant who could be harmed by a delay in learning the insurer's position.” Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 190, 734 N.E.2d 745, 748, 712 N.Y.S.2d 433, 436 (N.Y. 2000). Such considerations, focused on the avoidance of prejudice to individuals who are the victims of bodily injury or death, are inapplicable to other types of claims ' such as, for example, claims involving property damage. See, e.g., Travelers Indem. Co. v. Orange and Rockland Utilities, Inc., 73 A.D.3d 576, 905 N.Y.S.2d 11, 12 (N.Y. App. Div. 1st Dep't), motion for leave to appeal denied 15 N.Y.3d 834, 935 N.E.2d 799, 909 N.Y.S.2d 8 (N.Y. 2010) (rejecting application of ' 3420(d) to claim involving environmental contamination because “Insurance Law ' 3420 applies only to claims for death and bodily injury ' “). Indeed, the New York Court of Appeals and every New York Appellate Department have unambiguously confirmed on numerous occasions that ' 3420(d) only applies to denials of coverage for death or bodily injury and nothing more. See, e.g., Preserver Ins. Co. v. Ryba, 10 N.Y.3d 635, 642, 893 N.E.2d 97, 101, 862 N.Y.S.2d 820, 824 (N.Y. 2008) (“Insurance Law ' 3420(d) requires timely disclaimer only for denials of coverage 'for death or bodily injury.'”); Fairmont Funding v. Utica Mut. Ins. Co., 264 A.D.2d 581, 694 N.Y.S.2d 389, 390 (N.Y. App. Div. 1st Dep't 1999) (“Insurance Law ' 3420(d) is inapplicable to insurance claims not based on 'death or bodily injury.'”); Doyle v. Siddo, 54 A.D.3d 988, 989, 865 N.Y.S.2d 126, 127 (N.Y. App. Div. 2d Dep't 2008) (“The requirements of Insurance Law ' 3420(d) are expressly limited to claims for bodily injury or death arising out of accidents and have no application to other claims ' “); J. Lucarelli & Sons, Inc. v. Mountain Valley Indem. Co., 64 A.D.3d 856, 881 N.Y.S.2d 708, 711 (N.Y. App. Div. 3d Dep't 2009) (“Insurance Law ' 3420(d) ' by its terms is limited to disclaimers 'for death or bodily injury' ' “); Vecchiarelli v. Continental Ins. Co., 277 A.D.2d 992, 993, 716 N.Y.S.2d 524, 526 (N.Y. App. Div. 4th Dep't 2000) (“Where ' the underlying claim does not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in [' 3420(d)] are inapplicable ' “).

Second, notice under ' 3420(d) is not required where there is no coverage “by reason of lack of inclusion.” Rather, in Zappone v. Home Ins. Co., 55 N.Y.2d 131, 432 N.E.2d 783, 447 N.Y.S.2d 911 (N.Y. 1982), the New York Court of Appeals held that ' 3420(d) requires notice only for a “denial of liability predicated upon an exclusion set forth in a policy which, without the exclusion, would provide coverage for the liability in question.” 55 N.Y.2d 134, 432 N.E.2d 785, 447 N.Y.S.2d 913. Thus, for example, in cases where a party seeking coverage is not an insured under the policy at issue or “[w]here a clause limits the circumstances in which a party is an additional insured under an insurance policy and the underlying claim falls outside the limited coverage provided, disclaimer pursuant to Insurance Law ' 3420(d) is not required.” National Union Fire Ins. Co. of Pittsburgh, PA v. Utica First Ins. Co., 6 A.D.3d 681, 682, 775 N.Y.S.2d 175, 176 (N.Y. App. Div. 2d Dep't 2004).

The George Campbell Painting Decision

The dispute in George Campbell Painting arose out of injuries suffered during renovation work in 2003 on the Henry Hudson Bridge, owned by Triborough Bridge and Tunnel Authority (“TBTA”). George Campbell Painting (“GCP”) was the general contractor for the project, while Safespan Platform Systems (“SPS”) was a subcontractor.

On Aug. 11, 2003, James Conklin, an SPS employee, was injured when he lost his footing and fell down a ramp that provided access to an office at the work site. Conklin sustained both herniated and bulging discs that required spinal fusion surgery, as well as an injury to his shoulder.

Conklin sued GCP and TBTA, which tendered its defense to Gulf, SPS's primary insurer, in January 2004 pursuant to an “Additional Insured” endorsement to the Gulf policy. Gulf accepted the tender. SPS's excess insurer, National Union, however, was not notified of the claim at that time. Instead, National Union was notified in November 2005, after a status report estimated Conklin's lost wage claim to be in excess of the Gulf policy's limits. National Union responded with a reservation of rights letter in December 2005 in which, among other things, it raised the possibility that the notice of claim may have been untimely. National Union also requested additional information to aid in its investigation ' in particular on the issue of why notice was apparently delayed ' and, by its own admission, it received that information in January 2006. National Union did not disclaim coverage on the basis of late notice at that time, however. Rather, it waited until May 2006 ' upon the conclusion of its additional investigation into whether GCP and TBCA were insureds under its policy (which they were) ' to issue its rejection of the claim on the basis of late notice.

Two years later, Conklin's case settled for $5.5 million. GCP and TBCA then brought suit against National Union, seeking a declaration that National Union's disclaimer was untimely under ' 3420(d) and that National Union must contribute its pro rata share of the settlement. The trial court granted summary judgment to GCP and TBCA, and National Union appealed.

On appeal, the New York Appellate Division held that National Union possessed all the information it needed to disclaim on late notice grounds in January 2006. To that end, the court reasoned that the plain language of ' 3420(d), i.e., disclaimer must take place “as soon as is reasonably possible,” “cannot be reconciled with allowing the insurer to delay disclaiming on a ground fully known to it until it has completed its investigation (however diligently conducted) into different, independent grounds for rejecting the claim.” 92 A.D.3d at 111, 937 N.Y.S.2d at 171. Moreover, and importantly, the court noted that ' 3420(d) did not even apply to the different, independent grounds for disclaimer that National Union investigated; namely, whether and to what extent GCP and TBCA qualified as insureds under the policy (“lack of inclusion”). Accordingly, the court held that National Union's disclaimer on the basis of late notice was untimely under ' 3420(d).

Late Notice and ' 3420(d)

In holding that National Union's disclaimer was untimely, the New York Appellate Division expressly overruled its own prior decision in DiGuglielmo v. Travelers Property Casualty, 6 A.D.3d 344, 776 N.Y.S.2d 542 (N.Y. App. Div. 1st Dep't 2004) ' notably (and perhaps ironically), a case in which two of the five justices would later comprise part of the court in George Campbell. In DiGuglielmo, the court had held that “[a]n insurer is not required to disclaim on timeliness grounds before conducting a prompt, reasonable investigation into other possible grounds for disclaimer; in fact, a reasonable investigation is preferable to piecemeal disclaimers.” 6 A.D.3d at 346, 776 N.Y.S.2d at 544 (quotes and citation omitted). The George Campbell court, however, found this rule to be inconsistent with ' 3420(d)'s “as soon as is reasonably possible” language and overturned it.

While overturning the DiGuglielmo rule may appear to usher in a substantial change to New York coverage law, it does not. To the contrary, the court in George Campbell made clear that DiGuglielmo was an anomaly ' not the standard ' and overturning it was simply in accordance with established New York late notice law.

In particular, an insured has an obligation to give prompt written notice to its insurer of any occurrence under the policy. Am. Home Assurance Co. v. Int'l Ins. Co., 90 N.Y.2d 433, 440, 684 N.E.2d 14, 16, 661 N.Y.S.2d 584, 586 (N.Y. 1997). To that end, the New York Court of Appeals has held that notice must be given “within a reasonable time under all the circumstances.” Security Mut. Ins. Co. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 441, 293 N.E.2d 76, 79, 340 N.Y.S.2d 902, 906 (N.Y. 1972); Great Canal Realty Corp. v. Seneca Ins. Co., Inc., 5 N.Y.3d 742, 743, 833 N.E.2d 1196, 1197, 800 N.Y.S.2d 521, 522 (N.Y. 2005). That is, notice is required when, from the circumstances known at the time, “an insured could glean a reasonable possibility of the policy's involvement.” Paramount Ins. Co., 293 A.D.2d at 239-40, 743 N.Y.S.2d at 62 (emphasis added) (citing Security Mut. Ins. Co.).

Similarly, New York late notice law holds that an insurer's duty to timely disclaim is not triggered until an insured satisfies a notice of claim provision in an insurance contract because that provision is a condition precedent to coverage and, absent a valid excuse, the failure to satisfy the notice requirement vitiates the policy. Security Mut. Ins. Co. of N.Y. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 440, 340 N.Y.S.2d 902, 293 N.E.2d 76 (N.Y. 1972); Paramount Ins. Co. v. Rosedale Gardens, 293 A.D.2d 235, 239, 743 N.Y.S.2d 59 (N.Y. 2002). Accordingly, it follows that when an insured fails to satisfy the notice requirement, i.e., when notice is late, an insurer's duty to timely disclaim is triggered.

It is within this context that the court in George Campbell sought to apply the disclaimer standard of ' 3420(d) to the late notice of a claim: 1) an insured must provide notice when it can glean the reasonable possibility of a claim; and 2) an insurer's duty to disclaim is triggered when an insured fails to do so.

The George Campbell court found guidance in the case First Fin. Ins. Co. v. Jetco Contracting Corp., 1 N.Y.3d 64, 801 N.E.2d 835, 769 N.Y.S.2d 459 (N.Y. 2003), which likewise dealt with late notice and disclaimer under ' 3420(d). In Jetco, the New York Court of Appeals stated that under ' 3420(d) the “timeliness of an insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage.” 1 N.Y.3d at 69, 801 N.E.2d at 838-39, 769 N.Y.S.2d at 462-63 (quoting In re Allcity Ins. Co. [Jimenez], 78 N.Y.2d 1054, 1056, 581 N.E.2d 1342, 576 N.Y.S.2d 87 (N.Y. 1991)). Combining this with the fact that the New York late notice law holds that the duty to disclaim
is triggered by knowledge of late notice, the court held accordingly that an insurer was not entitled to delay disclaimer on late notice grounds while investigating other potential grounds for disclaimer. As the court succinctly summarized:

[J]ust as we would not permit the insured to delay giving notice of claim while investigating other possible sources of coverage, we should not permit the insurer to delay issuing a disclaimer on a known ground while investigating other possible grounds for avoiding liability. Any uncertainty as to the existence of coverage is irrelevant to the insurer's ability to issue a timely disclaimer based on the insured's breach of a condition precedent to coverage, such as late notice of a claim, that is known to the insurer. George Campbell, 92 A.D.3d at 115, 937 N.Y.S.2d 173-74.

The George Campbell court also cited Jetco as noting, in keeping with the underlying rationale of ' 3420(d) discussed herein, that prompt disclaimer of coverage by an insurer when it is aware of late notice grounds for doing so assists the insured, since the insured is then “best motivated by its own interest to explore alternative avenues of protection.” Id.

This is not to say, of course, that an insurer is not entitled to investigate additional grounds for disclaimer. The court noted that an insurer's denial of coverage on late notice grounds “as soon as is reasonably possible” under ' 3420(d) would not necessarily prejudice an insurer's ability to raise additional defenses that have been properly reserved following a reasonable investigation. Indeed, ' 3420(d) is “not intended to be a technical trap that would allow interested parties to obtain more than the coverage contracted for under the policy.” Excelsior Ins. Co. v. Antretter Contracting Corp., 262 A.D.2d 124, 127, 693 N.Y.S.2d 100, 104 (N.Y. App. Div. 1st Dep't 1999).

Conclusion

New York late notice law cuts both ways. An insured must provide notice as soon as it can glean the reasonable possibility of a claim. By the same token, an insurer's responsibility to disclaim is triggered upon late notice of a claim.

With this as background, it seems axiomatic that, under New York Insurance Law ' 3420(d)'s requirement that an insurer must disclaim coverage “as soon as is reasonably possible,” an insurer must disclaim on late notice grounds once it has knowledge of those grounds, and should not delay by seeking out other potential bases for denying coverage. This, quite simply, is what the New York Appellate Division held in George Campbell.

Although the court overturned DiGuglielmo, it is clear that case was an anomaly and not in accordance with late notice law ' as opposed to Jetco, which adheres to the proper New York late notice standards. In the end, unlike in Gollum's cave, it seems that time is no riddle when it comes to New York late notice law and ' 3420(d).

Daren S. McNally is the managing partner, and Matthew I. Gennaro is a senior associate, in the New Jersey office of Clyde & Co US LLP. McNally, a member of this newsletter's Board of Editors, maintains a practice that is intensely focused on insurance coverage litigation and counseling, with an emphasis in complex insurance and reinsurance litigation, trials and arbitrations in both domestic and foreign arenas. Gennaro focuses his practice in the areas of insurance coverage law and litigation.

In J.R.R. Tolkien's “The Hobbit,” the creature Gollum poses the following riddle to the story's protagonist, Bilbo Baggins, during a life-or-death (for Bilbo) battle of wits:

This thing all things devours:

Birds, beasts, trees, flowers;

Gnaws iron, bites steel;

Grinds hard stones to meal;

Slays king, ruins town,

And beats high mountain down.

The answer, which Bilbo happens upon by luck, is “time.”

Gollum's riddle, while melodramatic, does not necessarily overstate time's power or importance. Indeed, considerations of time are unquestionably paramount in all walks of life, and insurance coverage is no exception ' in particular, the timing of notices and disclaimers.

One of the more well-known laws in this regard is New York Insurance Law ' 3420(d) (“' 3420(d)”). Section 3420(d), which by its express terms only applies to claims of death or bodily injury, states that if an insurer chooses to disclaim liability or deny coverage, it must do so in writing “as soon as is reasonably possible.” Not surprisingly, this subjective phrasing ' coupled with each coverage claim's unique facts and circumstances ' has resulted in a substantial amount of litigation over when “as soon as is reasonably possible” actually is.

For example, recently, in George Campbell Painting v. National Union Fire Ins. Co. of Pittsburgh , 92 A.D.3d 104, 937 N.Y.S.2d 164 (N.Y. App. Div. 1st Dep't 2012), the New York Appellate Division held that ' 3420(d) required an insurer to issue a disclaimer on late notice grounds before completing its investigation into other possible grounds to disclaim ' overruling prior case law to the contrary.

At first, this decision may appear to reject precedent on coverage notices in favor of a new rule. In truth, however, the court's ruling in George Campbell merely adheres to New York law on denial of coverage due to late notice of a claim. Namely, just as an insured should not delay in providing notice of a claim while investigating other possible sources of coverage, an insurer should not delay in disclaiming on late notice grounds ' a condition precedent to coverage ' while it investigates other possible grounds for disclaimer.

The History and Application of ' 3420(d)

Section 3420(d) provides, in relevant part:

If under a liability policy issued or delivered in [New York], 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.

Importantly, however, ' 3420(d) has limited application. First, by its express terms, the application of ' 3420(d) is strictly limited to claims of “death or bodily injury” and does not apply to any other types of claims. In particular, the rationale behind ' 3420(d), as well as New York case law, plainly bears out that its stated purpose is to protect individuals who suffer physical injury by requiring that they be promptly advised whether and to what extent the entity they are pursuing, i.e., the insured, has funds to satisfy their claims. In the seminal case of Allstate Ins. Co. v. Gross , 27 N.Y.2d 263, 265 N.E.2d 736 (N.Y. 1970), the New York Court of Appeals detailed the history behind the enactment of ' 3420(d) (then codified as ' 167, Subdivision 8) ' explaining that the statute's requirements were intended to “aid injured parties, for whose benefit, primarily, the statute was enacted.” 27 N.Y.2d at 267, 265 N.E.2d at 738. Specifically, the Court of Appeals explained that a delay in disclaimer under ' 3420(d) “may prejudice the injured party by misleading him into engaging in costly litigation against the insurer rather than negotiating or arbitrating a settlement” with an alternative source of compensation. Id. This underlying rationale ' to avoid prejudice to injured parties ' was recently reiterated by the Court of Appeals, stating that “Section 3420(d) was enacted to avoid prejudice to an injured claimant who could be harmed by a delay in learning the insurer's position.” Worcester Ins. Co. v. Bettenhauser , 95 N.Y.2d 185, 190, 734 N.E.2d 745, 748, 712 N.Y.S.2d 433, 436 (N.Y. 2000). Such considerations, focused on the avoidance of prejudice to individuals who are the victims of bodily injury or death, are inapplicable to other types of claims ' such as, for example, claims involving property damage. See, e.g., Travelers Indem. Co. v. Orange and Rockland Utilities, Inc. , 73 A.D.3d 576, 905 N.Y.S.2d 11, 12 (N.Y. App. Div. 1st Dep't), motion for leave to appeal denied 15 N.Y.3d 834, 935 N.E.2d 799, 909 N.Y.S.2d 8 (N.Y. 2010) (rejecting application of ' 3420(d) to claim involving environmental contamination because “Insurance Law ' 3420 applies only to claims for death and bodily injury ' “). Indeed, the New York Court of Appeals and every New York Appellate Department have unambiguously confirmed on numerous occasions that ' 3420(d) only applies to denials of coverage for death or bodily injury and nothing more. See, e.g., Preserver Ins. Co. v. Ryba , 10 N.Y.3d 635, 642, 893 N.E.2d 97, 101, 862 N.Y.S.2d 820, 824 (N.Y. 2008) (“Insurance Law ' 3420(d) requires timely disclaimer only for denials of coverage 'for death or bodily injury.'”); Fairmont Funding v. Utica Mut. Ins. Co. , 264 A.D.2d 581, 694 N.Y.S.2d 389, 390 (N.Y. App. Div. 1st Dep't 1999) (“Insurance Law ' 3420(d) is inapplicable to insurance claims not based on 'death or bodily injury.'”); Doyle v. Siddo , 54 A.D.3d 988, 989, 865 N.Y.S.2d 126, 127 (N.Y. App. Div. 2d Dep't 2008) (“The requirements of Insurance Law ' 3420(d) are expressly limited to claims for bodily injury or death arising out of accidents and have no application to other claims ' “); J. Lucarelli & Sons, Inc. v. Mountain Valley Indem. Co. , 64 A.D.3d 856, 881 N.Y.S.2d 708, 711 (N.Y. App. Div. 3d Dep't 2009) (“Insurance Law ' 3420(d) ' by its terms is limited to disclaimers 'for death or bodily injury' ' “); Vecchiarelli v. Continental Ins. Co. , 277 A.D.2d 992, 993, 716 N.Y.S.2d 524, 526 (N.Y. App. Div. 4th Dep't 2000) (“Where ' the underlying claim does not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in [' 3420(d)] are inapplicable ' “).

Second, notice under ' 3420(d) is not required where there is no coverage “by reason of lack of inclusion.” Rather, in Zappone v. Home Ins. Co. , 55 N.Y.2d 131, 432 N.E.2d 783, 447 N.Y.S.2d 911 (N.Y. 1982), the New York Court of Appeals held that ' 3420(d) requires notice only for a “denial of liability predicated upon an exclusion set forth in a policy which, without the exclusion, would provide coverage for the liability in question.” 55 N.Y.2d 134, 432 N.E.2d 785, 447 N.Y.S.2d 913. Thus, for example, in cases where a party seeking coverage is not an insured under the policy at issue or “[w]here a clause limits the circumstances in which a party is an additional insured under an insurance policy and the underlying claim falls outside the limited coverage provided, disclaimer pursuant to Insurance Law ' 3420(d) is not required.” National Union Fire Ins. Co. of Pittsburgh, PA v. Utica First Ins. Co. , 6 A.D.3d 681, 682, 775 N.Y.S.2d 175, 176 (N.Y. App. Div. 2d Dep't 2004).

The George Campbell Painting Decision

The dispute in George Campbell Painting arose out of injuries suffered during renovation work in 2003 on the Henry Hudson Bridge, owned by Triborough Bridge and Tunnel Authority (“TBTA”). George Campbell Painting (“GCP”) was the general contractor for the project, while Safespan Platform Systems (“SPS”) was a subcontractor.

On Aug. 11, 2003, James Conklin, an SPS employee, was injured when he lost his footing and fell down a ramp that provided access to an office at the work site. Conklin sustained both herniated and bulging discs that required spinal fusion surgery, as well as an injury to his shoulder.

Conklin sued GCP and TBTA, which tendered its defense to Gulf, SPS's primary insurer, in January 2004 pursuant to an “Additional Insured” endorsement to the Gulf policy. Gulf accepted the tender. SPS's excess insurer, National Union, however, was not notified of the claim at that time. Instead, National Union was notified in November 2005, after a status report estimated Conklin's lost wage claim to be in excess of the Gulf policy's limits. National Union responded with a reservation of rights letter in December 2005 in which, among other things, it raised the possibility that the notice of claim may have been untimely. National Union also requested additional information to aid in its investigation ' in particular on the issue of why notice was apparently delayed ' and, by its own admission, it received that information in January 2006. National Union did not disclaim coverage on the basis of late notice at that time, however. Rather, it waited until May 2006 ' upon the conclusion of its additional investigation into whether GCP and TBCA were insureds under its policy (which they were) ' to issue its rejection of the claim on the basis of late notice.

Two years later, Conklin's case settled for $5.5 million. GCP and TBCA then brought suit against National Union, seeking a declaration that National Union's disclaimer was untimely under ' 3420(d) and that National Union must contribute its pro rata share of the settlement. The trial court granted summary judgment to GCP and TBCA, and National Union appealed.

On appeal, the New York Appellate Division held that National Union possessed all the information it needed to disclaim on late notice grounds in January 2006. To that end, the court reasoned that the plain language of ' 3420(d), i.e., disclaimer must take place “as soon as is reasonably possible,” “cannot be reconciled with allowing the insurer to delay disclaiming on a ground fully known to it until it has completed its investigation (however diligently conducted) into different, independent grounds for rejecting the claim.” 92 A.D.3d at 111, 937 N.Y.S.2d at 171. Moreover, and importantly, the court noted that ' 3420(d) did not even apply to the different, independent grounds for disclaimer that National Union investigated; namely, whether and to what extent GCP and TBCA qualified as insureds under the policy (“lack of inclusion”). Accordingly, the court held that National Union's disclaimer on the basis of late notice was untimely under ' 3420(d).

Late Notice and ' 3420(d)

In holding that National Union's disclaimer was untimely, the New York Appellate Division expressly overruled its own prior decision in DiGuglielmo v. Travelers Property Casualty , 6 A.D.3d 344, 776 N.Y.S.2d 542 (N.Y. App. Div. 1st Dep't 2004) ' notably (and perhaps ironically), a case in which two of the five justices would later comprise part of the court in George Campbell . In DiGuglielmo, the court had held that “[a]n insurer is not required to disclaim on timeliness grounds before conducting a prompt, reasonable investigation into other possible grounds for disclaimer; in fact, a reasonable investigation is preferable to piecemeal disclaimers.” 6 A.D.3d at 346, 776 N.Y.S.2d at 544 (quotes and citation omitted). The George Campbell court, however, found this rule to be inconsistent with ' 3420(d)'s “as soon as is reasonably possible” language and overturned it.

While overturning the DiGuglielmo rule may appear to usher in a substantial change to New York coverage law, it does not. To the contrary, the court in George Campbell made clear that DiGuglielmo was an anomaly ' not the standard ' and overturning it was simply in accordance with established New York late notice law.

In particular, an insured has an obligation to give prompt written notice to its insurer of any occurrence under the policy. Am. Home Assurance Co. v. Int'l Ins. Co. , 90 N.Y.2d 433, 440, 684 N.E.2d 14, 16, 661 N.Y.S.2d 584, 586 (N.Y. 1997). To that end, the New York Court of Appeals has held that notice must be given “within a reasonable time under all the circumstances.” Security Mut. Ins. Co. v. Acker-Fitzsimons Corp. , 31 N.Y.2d 436, 441, 293 N.E.2d 76, 79, 340 N.Y.S.2d 902, 906 (N.Y. 1972); Great Canal Realty Corp. v. Seneca Ins. Co., Inc. , 5 N.Y.3d 742, 743, 833 N.E.2d 1196, 1197, 800 N.Y.S.2d 521, 522 (N.Y. 2005). That is, notice is required when, from the circumstances known at the time, “an insured could glean a reasonable possibility of the policy's involvement.” Paramount Ins. Co., 293 A.D.2d at 239-40, 743 N.Y.S.2d at 62 (emphasis added) (citing Security Mut. Ins. Co.).

Similarly, New York late notice law holds that an insurer's duty to timely disclaim is not triggered until an insured satisfies a notice of claim provision in an insurance contract because that provision is a condition precedent to coverage and, absent a valid excuse, the failure to satisfy the notice requirement vitiates the policy. Security Mut. Ins. Co. of N.Y. v. Acker-Fitzsimons Corp. , 31 N.Y.2d 436, 440, 340 N.Y.S.2d 902, 293 N.E.2d 76 (N.Y. 1972); Paramount Ins. Co. v. Rosedale Gardens , 293 A.D.2d 235, 239, 743 N.Y.S.2d 59 (N.Y. 2002). Accordingly, it follows that when an insured fails to satisfy the notice requirement, i.e., when notice is late, an insurer's duty to timely disclaim is triggered.

It is within this context that the court in George Campbell sought to apply the disclaimer standard of ' 3420(d) to the late notice of a claim: 1) an insured must provide notice when it can glean the reasonable possibility of a claim; and 2) an insurer's duty to disclaim is triggered when an insured fails to do so.

The George Campbell court found guidance in the case First Fin. Ins. Co. v. Jetco Contracting Corp. , 1 N.Y.3d 64, 801 N.E.2d 835, 769 N.Y.S.2d 459 (N.Y. 2003), which likewise dealt with late notice and disclaimer under ' 3420(d). In Jetco, the New York Court of Appeals stated that under ' 3420(d) the “timeliness of an insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage.” 1 N.Y.3d at 69, 801 N.E.2d at 838-39, 769 N.Y.S.2d at 462-63 (quoting In re Allcity Ins. Co. [Jimenez], 78 N.Y.2d 1054, 1056, 581 N.E.2d 1342, 576 N.Y.S.2d 87 (N.Y. 1991)). Combining this with the fact that the New York late notice law holds that the duty to disclaim
is triggered by knowledge of late notice, the court held accordingly that an insurer was not entitled to delay disclaimer on late notice grounds while investigating other potential grounds for disclaimer. As the court succinctly summarized:

[J]ust as we would not permit the insured to delay giving notice of claim while investigating other possible sources of coverage, we should not permit the insurer to delay issuing a disclaimer on a known ground while investigating other possible grounds for avoiding liability. Any uncertainty as to the existence of coverage is irrelevant to the insurer's ability to issue a timely disclaimer based on the insured's breach of a condition precedent to coverage, such as late notice of a claim, that is known to the insurer. George Campbell, 92 A.D.3d at 115, 937 N.Y.S.2d 173-74.

The George Campbell court also cited Jetco as noting, in keeping with the underlying rationale of ' 3420(d) discussed herein, that prompt disclaimer of coverage by an insurer when it is aware of late notice grounds for doing so assists the insured, since the insured is then “best motivated by its own interest to explore alternative avenues of protection.” Id.

This is not to say, of course, that an insurer is not entitled to investigate additional grounds for disclaimer. The court noted that an insurer's denial of coverage on late notice grounds “as soon as is reasonably possible” under ' 3420(d) would not necessarily prejudice an insurer's ability to raise additional defenses that have been properly reserved following a reasonable investigation. Indeed, ' 3420(d) is “not intended to be a technical trap that would allow interested parties to obtain more than the coverage contracted for under the policy.” Excelsior Ins. Co. v. Antretter Contracting Corp. , 262 A.D.2d 124, 127, 693 N.Y.S.2d 100, 104 (N.Y. App. Div. 1st Dep't 1999).

Conclusion

New York late notice law cuts both ways. An insured must provide notice as soon as it can glean the reasonable possibility of a claim. By the same token, an insurer's responsibility to disclaim is triggered upon late notice of a claim.

With this as background, it seems axiomatic that, under New York Insurance Law ' 3420(d)'s requirement that an insurer must disclaim coverage “as soon as is reasonably possible,” an insurer must disclaim on late notice grounds once it has knowledge of those grounds, and should not delay by seeking out other potential bases for denying coverage. This, quite simply, is what the New York Appellate Division held in George Campbell.

Although the court overturned DiGuglielmo, it is clear that case was an anomaly and not in accordance with late notice law ' as opposed to Jetco, which adheres to the proper New York late notice standards. In the end, unlike in Gollum's cave, it seems that time is no riddle when it comes to New York late notice law and ' 3420(d).

Daren S. McNally is the managing partner, and Matthew I. Gennaro is a senior associate, in the New Jersey office of Clyde & Co US LLP. McNally, a member of this newsletter's Board of Editors, maintains a practice that is intensely focused on insurance coverage litigation and counseling, with an emphasis in complex insurance and reinsurance litigation, trials and arbitrations in both domestic and foreign arenas. Gennaro focuses his practice in the areas of insurance coverage law and litigation.