Execution of Non-Waiver Agreement Did Not Protect Carrier From Insurance Law § 3420[d]

Mayer's Cider Mill, Inc. v. Preferred Mut. Ins. Co., --- N.Y.S.2d ----, 2009 WL 1565160, (4th Dept., 2009).

The above case involved a 12 year old injured 1999, while working at a cider mill. It was unclear whether the infant was an employee or an independent contractor. This was an important distinction as the mill’s general liability policy contained an employee exclusion. The mill gave prompt notice to its insurance carrier and signed a “Non-Waiver Agreement” in 1999 pursuant to which the carrier indicated it would investigate the claim and reserved its right to disclaim coverage.

The infant waited until 2007 to file a complaint, claiming to be an independent contractor. The carrier issued a letter advising that it was still investigating the matter and reasserting the policy did not cover the Mill for injury to employees.

On appeal, the Court found that the carrier had “failed to provide the requisite written notice of disclaimer to plaintiff “as soon as [was] reasonably possible” (Insurance Law § 3420[d][2]; cf. Zappone v. Home Ins. Co., 55 N.Y.2d 131, 136-137). The Court noted that “it is incumbent upon the insurance company to conduct its own prompt investigation ( see id. at 1286-1287), and “the burden is on the insurer to demonstrate that its delay [in disclaiming coverage] was reasonably related to its completion of a thorough and diligent investigation” (Tully Constr. Co., Inc. v. TIG Ins. Co., 43 AD3d 1150, 1152-1153).

The court rejected the carrier’s claim that its investigation into the employment status remained ongoing as well as the defense that the claim was initially reported “for informational purposes only.” Presumably, the carrier also argued that the non-waiver agreement protected it from waiving a policy defense. The Court however, did not address or acknowledge such a defense in the decision. Rather, it merely found that the record neither supported the claim was for “informational purposes” or that the carrier was still investigating the claim. Accordingly, it found that any disclaimer by the carrier was untimely as a matter of law (see Wood, 45 AD3d at 1287).

While this decision involved an extreme delay in time, it raises the question how effective are non-waiver agreements? Recently, the Second Department similarly disregarded a non-waiver agreement in Quincy Mut. Fire Ins. Co. v. Uribe, 45 A.D.3d 661, 845 N.Y.S.2d 434 (2d Dept.,2007), where the agreement set forth a need for additional investigation, but the carrier then could not justify the need for further investigation.

The narrow effectiveness of non-waiver agreements was also demonstrated in Greater New York Sav. Bank v. Travelers Ins. Co., 173 A.D.2d 521, 570 N.Y.S.2d 122 (2d Dept.1991) where the Court held that notwithstanding the existence of a non-waiver agreement, material issues of fact existed with regard to the reasonableness of the carrier’s delay in denying coverage. It held the non-waiver agreement executed by the plaintiff “was not dispositive of the claim inasmuch as it merely allowed [the carrier] to ascertain the actual value of the property, to determine the amount of the loss, and to investigate the cause of the fire, without waiving its rights under the policy. It did not permit [the carrier] to unreasonably delay the exercise of those rights, to the detriment of the insured (see, Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 269, 317 N.Y.S.2d 309, 265 N.E.2d 736).

It should be emphasized that non-waiver agreements and reservations of rights letters do provide carriers with much needed protection and rights. Indeed, in Federated Dept. Stores, Inc. v. Twin City Fire Ins. Co., 28 A.D.3d 32, 807 N.Y.S.2d 62 (1st Dept. 2006) the Court held that a reservation of rights prevented the insured from claiming detrimental reliance on the carrier’s defending the case, even where the insurer later disclaimed on a basis different from the ground originally asserted in the reservation of rights (see Village of Waterford v. Reliance Ins. Co., 226 A.D.2d 887, 640 N.Y.S.2d 671 [1996]). The key lesson to be learned here, is that non-waiver agreements and reservations of rights letters, will only protect a carrier to the extent they do not sit on their rights and/or fail to act in a timely manner.

11 Month Delay In Giving Notice Vitiated Coverage to Insured and Injured Party

Sputnik Restaurant Corp. v. United Nat. Ins. Co.
878 N.Y.S.2d 428, (2d Dept., May 5, 2009).

In this recently decided case, the Court reviewed the principals behind the requirement that both the insured and injured parties provide timely notice to insurance carriers. It emphasizes that the late notice defense is very much alive and well in New York. While much of the case merely rehashed well-settled principles, it is good to review them from time to time.

The Court noted: “‘[w]here an insurance policy requires that notice of an occurrence be given promptly, notice must be given within a reasonable time in view of all of the facts and circumstances'” (Zeldin v. Interboro Mut. Indem. Ins. Co., 44 A.D.3d 652, 652, 843 N.Y.S.2d 366, quoting Eagle Ins. Co. v. Zuckerman, 301 A.D.2d 493, 495, 753 N.Y.S.2d 128; see Argo Corp. v. Greater N.Y. Mut. Ins. Co., 4 N.Y.3d 332, 339, 794 N.Y.S.2d 704, 827 N.E.2d 762.

The requirement that an insured provide timely notice “operates as a condition precedent to coverage” (see 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; Quality Inves., Ltd. v. Lloyd's London, England, 11 A.D.3d 443, 782 N.Y.S.2d 761). Absent a valid excuse for a delay in furnishing notice, failure to satisfy the notice requirement vitiates coverage (see Great Canal Realty Corp. v. Seneca Ins. Co., Inc., 5 N.Y.3d 742, 743, 800 N.Y.S.2d 521, 833 N.E.2d 1196; Eagle Ins., 301 A.D.2d at 495.

“ ‘Where an insurance policy requires that notice of an occurrence be given promptly, notice must be given within a reasonable time in view of all of the facts and circumstances' ” (Zeldin, 44 A.D.3d at 652 quoting Eagle Ins., 301 A.D.2d at 495, see Argo Corp., 4 N.Y.3d at 339; White v. City of New York, 81 N.Y.2d 955, 957, 598 N.Y.S.2d 759, 615 N.E.2d 216). Absent a valid excuse for a delay in furnishing notice, failure to satisfy the notice requirement vitiates coverage (see Great Canal, 5 N.Y.3d at 743; Eagle Ins., 301 A.D.2d at 495).

Here, the defendant United National Insurance Co. (hereinafter United) established its prima facie entitlement to judgment as a matter of law by demonstrating that it was not notified of the accident until approximately 11 months had elapsed. Once United established its prima facie entitlement to judgment, the burden shifted to the plaintiffs to raise a triable issue of fact as to whether there existed a reasonable excuse for their delay in notifying United (see Argentina v. Otsego Mut. Fire Ins. Co., 86 N.Y.2d 748, 750, 631 N.Y.S.2d 125, 655 N.E.2d 166).

Moreover, the Court held that the injured party has an independent right to give notice to an insurer, even though it is not to be charged vicariously with an insured's delay (see Insurance Law § 3420[a]; Maldonado v. C.L.-M.I. Props., Inc., 39 A.D.3d 822, 823, 835 N.Y.S.2d 335; Seneca Ins. Co. v. W.S. Distrib., Inc., 40 A.D.3d at 1070, 838 N.Y.S.2d 99; Becker v. Colonial Coop. Ins. Co., 24 A.D.3d 702, 704, 806 N.Y.S.2d 720). The Court found that the injured defendants, failed to notify United of right claims in a timely manner.