Insurance Company Did Not Satisfy Obligation To Give "Written Notice to the Insured" of Disclaimer of Liability By Sending Notice to Another Carrier for The Insured

On November 24, 2014, the Court of Appeals issued a decision in Sierra v. 4401 Sunset Park, LLC, 2014 NY Slip Op. 08216, holding that an insurance company did not satisfy its obligation under Insurance Law § 3420(d)(2) to provide written notice of a disclaimer of coverage by sending the notice to another insurance carrier for the insured.

In Sierra, the defendants, who were the owner and managing agent of a building where the plaintiff was injured while performing construction work, submitted a claim for defense coverage to their liability carrier, GNY. Defendants were also additional insureds under a policy issued by Scottsdale Insurance Company to the subcontractor that performed the work. However, no notice was given to Scottsdale until GNY sent it the summons and complaint, approximately five months after the injury. Scottsdale, by letter sent to GNY – but not directly to the insureds – denied the claim based, in part, on the "insureds' failure to comply with their obligation under the policy 'to see to it that we are notified as soon as practicable of an "occurrence" which may result in a claim.'" The Court of Appeals held that Scottsdale's letter disclaiming coverage did not comply with its notice obligation under the Insurance Law because the letter was not sent to the insureds themselves:

It is undisputed that Scottsdale did not give notice of its disclaimer directly to its additional insureds or to the lawyer who had been retained to represent them. Scottsdale argues that the disclaimer notice it sent to GNY was sufficient to satisfy the statute. We disagree.

GNY was not an insured under Scottsdale's policy; it was another insurer. While GNY had acted on the insureds' behalf in sending notice of the claim to Scottsdale, that did not make GNY the insureds' agent for all purposes, or for the specific purpose that is relevant here: receipt of a notice of disclaimer. GNY's interests were not necessarily the same as its insureds' in this litigation. There might have been a coverage dispute between GNY and the insureds, or plaintiffs claim might have exceeded GNY's policy limits. Because the insureds had their own interests at stake, separate from that of GNY, they were entitled to notice delivered to them, or at least to an agent - perhaps their attorney - who owed a duty ofioyalty in this matter to them only. As the Appellate Division correctly held in Greater N. Y, Mut. Ins. Co. v. Chubb Indem. Ins. Co. (105 AD3d 523, 524 [1st Dept 2013]), the obligation imposed by the Insurance Law is "to give timely notice of disclaimer to the mutual insureds . . . not to . . . another insurer."

This decision illustrates the importance, both to insurance carriers and insureds, of complying with notice requirements. Notably, under a provision of New York Insurance Law applicable to policies "issued or delivered" in New York after January 17, 2009, the defendants' late notice to Scottsdale would not constitute a waiver of coverage absent a showing of prejudice. See Insurance Law § 3420(a). However, as the policy at issue here pre-dated the effective date of this statute, New York’s harsher common law rule, which treated timely notice of a covered occurrence or lawsuit as a condition precedent to the insured’s right to coverage, applied.