Demanding Additional Insured Coverage and Insurance Law 3420(d)

JT Magen v. Hartford Fire Ins. Co., --- N.Y.S.2d ----, 2009 WL 1326359 (1st Dept., 2009).

In Jt. Magen, the First Department revisited the issue which it first addressed in Bovis Lend Lease LMB, Inc. v. Royal Surplus Lines Ins. Co. (27 AD3d 84 [2005]), to wit, whether a letter sent from one insurance company to another on behalf of a mutual insured(s)triggers the recipient carrier's duty to disclaim within a reasonable period of time pursuant to New York Insurance Law 3420(d)?

As the reader may be familiar, 3420(d) is a unique provision of New York law that will preclude a carrier from relying upon a policy exclusion if the carrier fails to issue a disclaimer within a reasonable period of time after obtaining sufficient basis to disclaim. While there is no exact period of time, carriers are expected to respond within thirty (30) days or less to avoid problems.

The Court in JT Magen, reminded us that 3420(d) has no application to an insurance carrier's demand to another carrier to defend its own insured or for contribution. See Tops Mkts. v. Maryland Cas., 267 A.D.2d 999, 1000 [1999]; Thomson v. Power Auth of State of New York, 217 A.D.2d 495 [1995]). As a result of this rule, the defendant in JT Magen, the Hartford, claimed that the letter sent by JT Magen's carrier's on its behalf did not trigger 3420(d) since the statute did not apply to demands made by insurance companys. Also, as noted by the dissent, it is well settled that notice given by a third party is not effective to satisfy the notice requirement in an insurance policy.

The First Department rejected the Hartford's argument, citing Bovis supra as well as Bovis Lend Lease LMB Inc. v. Garito Contr., Inc., 38 AD3d 260 [2007], in which it had held that a letter sent by an insurance carrier on behalf of their insured would trigger 3420(d) with respect to the mutual insured's request for coverage.

However, the court also held that with respect to the claims of one insurance carrier against another carrier, 3420(d) would not preclude the recipient from relying on an exclusion it had failed to provide a timely disclaimer with respect to.