In KeySpan Gas East Corp. v. Munich Reinsurance America, Inc., et al., — N.Y.3d –, (N.Y. June 10, 2014), a case involving two environmental damage claims, the New York Court of Appeals reversed an appellate decision which found that three excess insurance carriers had waived their right to disclaim insurance coverage for failure to timely raise late notice as an affirmative defense, citing N.Y. Insurance Law § 3420(d)(2).
KeySpan arises out of the clean-up and remediation of two former manufactured gas plants (“MGP”) located in Bay Shore and Hempstead, New York which were operated by the Long Island Lighting Company (“LILCO”). LILCO initially notified its excess insurance carriers of potential environmental liabilities in connection with the two MGPs and sought indemnification for environmental damages. In response, the carriers issued broadly worded reservation of rights letters to LILCO, including the right to disclaim coverage based on late notice, and requested additional information regarding the MGP sites. LILCO provided additional information to the carriers in compliance with their request for information, but the carriers did not issue supplemental coverage position letters.
Later, LILCO filed a declaratory judgment action in New York state court seeking indemnity for damages arising out of the cleanup and remediation of the MGPs. Each carrier answered the complaint and asserted late notice as an affirmative defense – this defense had not previously been asserted as basis for a coverage disclaimer. On cross motions for summary judgment, the trial court found that the carriers had no duty to indemnify LILCO for the Bay Shore site because of LILCO’s late notice of an occurrence. But, as to the Hempstead site, the court denied the carriers’ motion because the reasonableness of LILCO’s notice was a disputed issue of fact. Further, the trial court rejected LILCO’s claim that the carriers’ late notice defense, as asserted for the first time in the answers to the complaint, was untimely. Following this decision, KeySpan received an assignment from LILCO to pursue the MGP claims and was added as a party to the litigation.
On appeal, the Appellate Division, Second Department, modified the trial court’s order by vacating the declaration in favor of no coverage for the Bay Shore site, but otherwise affirmed the order. In this regard, the Appellate Division noted that issues of fact existed regarding the carriers’ coverage investigation, including whether coverage disclaimers should have been issued to LILCO as soon as reasonably possible after LILCO provided additional information to the carriers as requested in their reservation of rights letters.
The carriers appealed to the New York Court of Appeals regarding whether the Appellate Division incorrectly applied the timeliness standard under section 3420(d)(2) when considering whether defendants had waived their rights to disclaim based on LILCO’s late notice of the MGP claims.
The Court of Appeals analyzed the plain language of section 3420(d)(2), its legislative history, and controlling New York case law interpreting the law, and held that the statute does not extend to environmental damage claims. The court noted that “[t]he environmental contamination claims at issue in this case do not fall within the scope of Insurance Law § 3420 (d)(2), which the Legislature chose to limit to accidental death and bodily injury claims, and it is not for the courts to extend the statute’s prompt disclaimer requirement beyond its intended bounds.” The court also mentioned, in a footnote, that certain cases that may have extended section 3420(d)(2) to apply to claims that were not based on death or bodily injury “were wrongly decided and should not be followed.” See Estee Lauder Inc. v. OneBeacon Insurance Group, LLC, 62 A.D.3d 33 (1st Dep’t 2009); Hotel des Artistes, Inc. v Gen. Accident Ins. Co. of Am., 9 AD3d 181, 193 (1st Dep’t 2004), leave dismissed 4 N.Y.3d 739 (2004); Malca Amit N.Y. v Excess Ins. Co., 258 A.D.2d 282,282 (1st Dep’t 1999).