February 6, 2012

By Steven P. Nassi and Jason M. Kurtz

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.

The Appellate Division of the New York Supreme Court, First Judicial Department, recently reversed itself and held that an excess insurer must disclaim coverage on known grounds "as soon as is reasonably possible," even if it has not yet completed its investigation into other possible grounds for disclaimer. In George Campbell Painting, et al. v. National Union Fire Ins. Co. of Pittsburgh, PA, an excess insurer was aware in January 2006 that its insureds failed to provide timely notice of a bodily injury liability claim in violation of the policy conditions. The insurer, however, waited five months to deny coverage on late notice grounds so that it could complete its investigation and consider alternative grounds for disclaimer.

The court found that the conduct contradicted New York Insurance Law § 3420(d)(2), which requires liability insurers to notify insureds "as soon as is reasonably possible" that its claim for bodily injury or wrongful death is being denied. This holding reverses the First Department's own precedent, known as the DiGuglielmo rule. In DiGuglielmo v. Travelers Property Casualty, the court held that an insurer was not required to disclaim coverage on late notice grounds "before conducting a prompt, reasonable investigation into other possible grounds for disclaimer."

Prior to George Campbell Painting, insurers were not required to deny coverage for late notice before completing its investigation into other possible grounds for denial. Now, once an insurer has a basis to deny for late notice, it must do so even if it has not yet determined whether other grounds for denial exist. Because New York Insurance Law § 3420(d)(2) applies solely to bodily injury and wrongful death-related claims arising under policies issued or delivered in New York, it remains to be seen whether New York courts will extend the holding in George Campbell Painting to claims outside this statute's purview.

For further analysis of this issue or other coverage matters, please contact Steven Nassi at 212-233-3099 or via email at snassi@nldhlaw.com.