Disclaimer Requirement of N.Y. Insurance Law § 3420(d)(2) Held Not to Apply to Property Damage Claims

by Cozen O'Connor

The New York Court of Appeals recently confirmed that the heightened timeliness of disclaimer requirement in New York Insurance Law § 3420(d)(2) does not apply to claims arising from property damage, in KeySpan Gas East Corp. v. Munich Reinsurance America, Inc., et al., 2014 N.Y. Slip Op. 4113 (N.Y. June 10, 2014). Unanimously reversing the appellate division, the KeySpan court found that this standard for waiver of coverage defenses extends only when an insured seeks coverage under a New York liability policy for bodily injuries or death sustained in New York. Because this dispute arose from property damage claims, the insurers, which previously reserved their rights, had no duty under the statute to disclaim “as soon as reasonably possible.” Rather, the KeySpan court remanded the case to the lower court to determine, under the common law standard for waiver, if the evidence called for a trial on whether the insurers forfeited their right to disclaim coverage.

The underlying dispute arose from environmental contamination claims caused by the insured’s manufactured gas plants. The insured provided notice, and the insurers issued a reservation of rights based on the insured’s untimely notice. The insured filed a declaratory judgment action seeking a ruling that the excess insurers had a duty to defend and indemnify; in response, the insurers asserted late notice as an affirmative defense warranting a denial of coverage.  

The supreme court granted summary judgment for the insurers, holding that the defendants had no duty to defend or indemnify. However, the appellate division modified the order, and instead denied summary judgment for the excess insurers. The appellate division agreed that the insured provided untimely notice as a matter of law. However, it ruled that a jury should decide if the insurers possessed sufficient knowledge requiring them to provide written disclaimers for the insured’s late notice “as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability.” The court cited other appellate division courts that applied this standard in the context of property damage.

On appeal, the insurers argued that the appellate division erred in imposing this standard for waiver, seemingly derived from New York Insurance Law § 3420(d)(2), and that the court should have instead applied the common law standard. Interestingly, the plaintiff also relied on the common law standard for waiver in pleading its case.

The New York Court of Appeals unanimously agreed with the insurers and held that the lower court erroneously imposed the heightened statutory standard. The KeySpan court clarified that Insurance Law § 3420(d)(2) does not apply to cases arising out of property damage by its plain terms. Rather, this timeliness standard applies only to “insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy.” Clarifying mixed case law on the issue, the KeySpan court stated that the courts applying this standard to property damage claims wrongfully extended the scope of this statute and should not be followed.

The decision in KeySpan clarifies that neither Insurance Law § 3420(d)(2) nor its strict timeliness standard for disclaimers applies outside the context of accidental death or bodily injury. In those other contexts, the more liberal standards of common law waiver and estoppel apply.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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