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]; 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 ). 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.