Second Circuit Finds that Insured’s Notice to Broker Is Not Notice to the Insurer and Precludes Coverage for Property Owner’s Damage Claim

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[author: David Dolendi]

In Pfeffer v. Harleysville Group, Inc., No. 11-CV-4513, 2012 WL 5392933 (2d Cir. Nov. 6, 2012) (applying New York law), a panel of the U.S. Court of Appeals for the Second Circuit held that the insured’s notice of a property damage claim to his insurance broker did not constitute notice to his insurance carrier under New York law.

The insured owned a six-unit apartment building in Brooklyn.  In December 2006, the insured received complaints from his tenants about noise and vibrations caused by a nearby construction project.  The insured investigated the complaints and noticed minor cracks and wall shifts in his building and reported the incident to his insurance broker.  The broker advised him to “wait and see” if the damage became worse upon the completion of the neighboring construction before filing a claim.  The insured then proceeded to retain engineers to evaluate the damage and also hired an attorney to pursue legal action against the adjacent property owner.  The loss was eventually reported to the insurer in January 2008, which was more than a year after the insured first contacted the broker.

The insurer denied coverage for the claim based on the condition in the policy that required the insured to provide the insurer with “prompt notice of the loss or damage.”  The insured filed suit in New York state court seeking coverage for the loss.  The insurer removed the case to the federal district court and then immediately moved for summary judgment.  The district court granted the insurer’s summary judgment and held that the insured’s delay of more than a year to report the property damage claim was untimely and unexcused.  The Court of Appeals affirmed the decision, finding that the insured’s notice of the loss was not “prompt” because he consulted two engineers, took extensive notes regarding the damage, and retained an attorney to pursue litigation against his neighbor all before notifying the insurance carrier.  The Court of Appeals also rejected the insured’s argument that the untimely notice should be excused because he reasonably relied on the broker’s advice that he should wait to evaluate the damage before filing the claim with the insurer.  The court noted that New York courts have previously held that notice to a broker is not notice to the insurance carrier.

It does not appear from the court records that the insured also asserted a claim against the broker for professional negligence, but the Sedgwick Insurance Law Blog will be following any developments in this matter.