Policy Issued for Delivery in New York?

Recently, I was faced with the prospect of a plaintiff excess insurance company seeking to amend its complaint to rely on the employee exclusion provision in the policy. They had neither relied on it in the disclaimer nor pleaded it in the complaint. The injured plaintiffs were not employees of my client, an additional insured on the policy, but rather were employees of the named insured. Notwithstanding, the Second Department has held that if the plaintiff is an employee of the named insured, there is no coverage under the policy for the additional insureds, notwithstanding the general rule that "separation of insureds" doctrine. Bassuk Bros., Inc. v. UTICA First Ins. Co., 1 A.D.3d 470 (2d Dep't 2003); but see, U.S. Underwriters Ins. Co. v. City Club Hotel, LLC, 2003 WL 2006621.

The principal issue was whether the amendment was futile given the plaintiff's failure to give notice of its reliance on this exclusion within a reasonable period of time pursuant to New York Insurance Law 3420(d). New York is distinct in the draconian penalty of waiver if insurance carriers fail to assert exclusions within a reasonable period of time, which is generally considered to be sixty days.

It was however unclear whether 3420(d) applied since by its own terms it only is applicable with respect to insurance policies "delivered or issued for delivery" in New York. The subject policy however, was issued by a Connecticut insurance company to a named insured with a principal place of business in New Jersey. Upon initial discussions with the court, the presiding judge opined that 3420(d) would not apply and thus, would not bar the amendment.

However, upon further research, I came to a different conclusion. While the policy at issue was not delivered in New York, the question remained whether it was issued for delivery in New York. The Court of Appeals addressed this issue in Preserver Insurance Co. v. Ryba, 10 N.Y.3d 635 where it stated that a policy is "issued for delivery" in New York if it "covers both insureds and risks located in this state." Preserver, 10 N.Y.3d at 642. Also see, Columbia Casualty Company, v. National Emergency Services, Inc., 282 A.D.2d 346 (1st Dep't 2001); American Ref-Fuel Company of Hempstead v. Employers Ins. Co. of Wausau, 265 A.D.2d 49 (2d Dep't 2000).

Although the plaintiff did not pursue the amendment, I was prepared to argue that the policy was in fact issued for delivery in New York because the named insured used a New York address when purchasing its underlying primary insurance policy. In addition, the named insured was revealed in the underwriting file to be working on jobs mainly in New York. When the carrier would have reviewed the named insured's loss history, it would have seen that the only two former claims had occurred in New York.

Presumably, the plaintiff would have countered that the policy itself does not list any New York based insured and did not specifically insure any New York locations. It also would have argued that most of the evidence of the insured's New York work was added to the underwriting file after the effective date of the policy. It is unclear how the court would have framed the issue...would it have looked at the totality of the evidence in deciding whether the policy was issued for delivery in New York, or would it have only looked at the evidence that was available to the carrier at the time the policy was issued? Also unclear is to what degree the carrier had a duty to inquire whether an insured worked in New York. Here, the insured's principal place of business was just outside New York City and accordingly, the carrier had reason to suspect that it would be insuring New York risk.