Under the revised law, the burden of proof of prejudice is on the carrier if the insured provides notice within two years of when the policy required it. The legislation is generally insured-friendly but has two bits of good news for carriers: the burden of proof shifts to insureds after delays of two years, and the new law establishes an irrefutable presumption of prejudice when insureds provide notice after they have been found liable or have settled the underlying case.
Two recent decisions by the New York Court of Appeals -- Briggs Avenue LLC v. Insurance Corporation of Hanover, and Sorbara Construction Corp. v. AIU Insurance Co. -- decide late-notice disputes involving policies issued under the old law and are instructive regarding policies issued prior to January 17. We will examine those cases below.
The New Law: Insurance Law Section 3420 Revised
In July, Gov. Patterson signed into law the bill, which requires that all liability policies -- issued or delivered in New York and covering injury to persons or injury to or destruction of property -- contain late notice provisions as outlined above. The more lenient late-notice provisions benefit insureds, injured persons or any other claimants. Those parties, however, must prove absence of prejudice if they delay by more than two years in providing notice to the carrier.
As a guide to the application of the prejudice requirement, the new law provides that an insurer's rights will be deemed prejudiced where the untimely notice "materially impairs the ability of the insurer to investigate or defend the claim." Under the new legislation, however, claims-made policies may still contain provisions that claims should be made during the policy period, any renewal thereof, or any extended reporting period.
The new law appears to also apply to insurance policies issued or delivered in New York on a surplus lines basis, and does not appear to be limited to domestic insurers. The law does not apply to claims-made policies.
Practical Implications for Insureds: Provide Notice Promptly
Despite a friendlier late-notice landscape, insureds should take steps to safeguard their receipt of timely notice of all claims and suits, and provide prompt notice to their insurance companies.
The mere shifting of the burden of proof to carriers hardly disposes of the issue of prejudice, and under the standard enunciated in the new law, establishing prejudice is not particularly difficult. An insurer can demonstrate that it has suffered prejudice by showing that witnesses are no longer available or that evidence relating to the claim has not been preserved or is otherwise unavailable. Therefore, insureds should still be proactive in making sure they learn of claims and notify their insurers in a timely fashion.
Two recent cases show how severe the consequences can be when the insured fails to give timely notice. Although both were decided under the old law, they describe the kinds of procedural failures that insureds should strive to avoid.
Case Law: Briggs Avenue LLC v. Insurance Corporation of Hanover
New York's highest court held in November 2008 that a liability insurer may disclaim coverage when the corporate insured was late in sending notice to the insurer. Briggs was nine months late in providing notice because it had not advised the Secretary of State of a change of address and, as a result, did not receive adequate notice of the underlying lawsuit in which it was a named defendant.
The Court held that the insurer's disclaimer was appropriate because Briggs failed to comply with the policy provision that required notice "as soon as practicable," regardless of whether the delay was prejudicial. The Court noted that the new legislation was soon to go into effect but would apply only to policies issued after January 17. Accordingly, the Court explained that the common law no-prejudice rule -- not the amended law -- applied.
Interestingly, if the new law had applied in Briggs, the insurer would have had the burden of proving that the nine-month delay prejudiced it, because the nine months would have fallen in the two-year window during which carriers shoulder the burden of proof.
Sorbara Construction Corp. v. AIU Insurance Co.
In October 2008, the same court held in Sorbara that an insured's notice under one policy does not constitute notice under a second policy issued by the same insurance company. The Court also held that where the policy required that notice of an occurrence be provided "as soon as practicable," a five year delay in providing notice of an accident is unreasonable as a matter of law, regardless of whether the insurer was prejudiced by the delay.
Sorbara notified its excess insurer of a workplace injury under its workers compensation policy, but did not provide notice of the accident under a liability policy issued by AIU until five years after the accident occurred, when it was sued in a third-party action. The Court rejected Sorbara's argument that notice provided under its workers compensation policy at the time of the incident constitutes notice under an excess liability policy written by the same insurer and held that "each policy imposes upon the insured a separate, contractual duty to provide notice." In affirming a lower court's granting of summary judgment to AIU, the Court further held that Sorbara's five-year delay in notifying its insurer was unreasonable as a matter of law, which relieved the insurer of its obligation to defend or indemnify Sorbara.
Had the issues in Sorbara been subject to the revised law and heard on the merits, the insured would have shouldered the burden of proving that AIU was not prejudiced by the five-year delay.
What This Means To You
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Copyright © 2009 Herrick, Feinstein LLP. This alert is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.