In its recent decision in KeySpan Gas East Corp. v Munich Reinsurance America, Inc., 2014 N.Y. LEXIS 1319 (N.Y. June 10, 2014), the New York Court of Appeals – New York’s highest court – had occasion to consider the length of time afforded to insurers under common law for issuing disclaimers of coverage.
The coverage dispute in KeySpan centered on an insured’s right to coverage under a series of general liability policies for environmental cleanup costs at several manufactured gas plant sites. Notice was given to the insurers in 1994, and the insurers thereafter commenced a lengthy investigation under a reservation of rights to disclaim coverage on several grounds, including the insured’s failure to have provided timely notice under the policies. The insured ultimately commenced coverage litigation in 1997, prompting the insurers to assert late notice as a basis for non-coverage.
It was later determined by the trial court, and later an intermediate appellate court, that the insured had, in fact, breached the policies’ notice provisions with respect to two of the MGP sites. The appellate court further reasoned, however, that the insurers had an “obligation to issue a written notice of disclaimer as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability.” (Emphasis supplied.) The appellate court, therefore, held that an issue of fact was raised as to whether the insurers complied with this timeliness requirement in light of the lengthy interval between insured’s first notice and the insurers’ subsequent disclaimer.
In so concluding that the insurers were required to have disclaimed coverage “as soon as reasonably possible,” the appellate court relied on the language contained in New York Insurance Law §3420(d), which states, in part, that if “an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage.” For decades, New York courts have strictly construed the phrase “as soon as is reasonably possible” as used in this statute, to mean that an insurer must issue its disclaimer within a very short period of time or be subject to statutory estoppel. The appellate court in KeySpan suggested that disclaimers of coverage not otherwise governed by §3420(d) should nevertheless be governed by a similar timeliness requirement.
On appeal, the Court disagreed with the appellate court’s reasoning, stating that:
The 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.
While the Court agreed that common law waiver and estoppel could result from a delay in denying coverage, the Court imposed the burden on the insured to demonstrate that the insurers “clearly manifested an intent to abandon their late-notice defense.” The simple passage of time, explained the court, would not be sufficient to prove waiver or estoppel.