February 2, 2010
Written By Attorneys: Mark H. Rosenberg and Robert T. Horst
This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
In a case that may have significant implications for New York insurers, the United States Court of Appeals for the Second Circuit has recognized that policy definitions limiting the scope of coverage in an automobile insurance policy are not equivalent to exclusions warranting a disclaimer of coverage under New York Insurance Law § 3420.
In NGM Ins. Co. v. Blakely Pumping, Inc., --- F.3d ---, 2010 WL 336684 (2d Cir. Feb. 1, 2010), the Second Circuit addressed a lawsuit arising from an accident involving the personal vehicle of an officer of the policyholder corporation, which occurred in the course of the officer's work for the policyholder. The policy at issue excluded liability arising from automobile accidents, but included an endorsement providing limited coverage for bodily injury claims arising out of the use of a "hired" or "non-owned" auto by the company or one of its employees. The claim was denied since a vehicle owned by an officer of the policyholder was neither a "hired" nor "non-owned" auto as defined by the policy.
N.Y. Ins. Law § 3420(d)(2) requires insurers to provide timely written notice of a disclaimer of coverage or denial of liability on a claim for bodily injury arising out of an accident. The notice requirement applies only when a claim is denied due to a policy exclusion, rather than when a claim is denied because it falls entirely outside the scope of coverage. The Second Circuit concluded that the terms "hired auto" and "non-owned auto" were defined such that the vehicle in question could never be covered under the policy. Accordingly, the insurer was not required to provide a disclaimer of coverage under § 3420(d)(2).
While New York courts have typically taken a rigorous approach to demanding compliance with § 3420(d)(2), this ruling demonstrates that this approach has its limits. By recognizing that policy definitions are not equivalent to coverage exclusions requiring a disclaimer of coverage, the Second Circuit has taken a common-sense approach ensuring that § 3420(d)(2) cannot be used to create coverage that never existed in the first place.
The Second Circuit's decision may be viewed here. If you have any questions or would like more information regarding the decision, please contact Mark H. Rosenberg at (215) 358-5198, or MRosenberg@nldhlaw.com.
