New York High Court Rejects Policyholder’s Effort to Expand Reach of Late Disclaimer Statute

New York’s high court has prevented an extension of New York’s “late disclaimer” law that would have placed a new, strict time requirement on an insurer attempting to disclaim coverage.  By overruling an intermediate appellate decision, the Court of Appeals of New York preserved the current arrangement under New York law whereby an insurer will generally not lose the right to disclaim coverage based on the mere passage of time without facts supporting waiver or estoppel theories, except in the case of death and bodily injury claims.

The high court, in its June 10 ruling in KeySpan Gas East Corp. v. Munich Reins. Am. Inc., found that three insurers had not, by operation of New York’s late disclaimer statute, waived their right to disclaim coverage for environmental contamination where they had allegedly failed to issue their disclaimers “as soon as reasonably possible” after learning of the grounds for disclaimer.  The decision overturned an intermediate appellate court decision that had denied summary judgment to the three excess insurers on the basis that issues of fact remained as to whether such a waiver had occurred.

The three excess insurers were named as defendants in a declaratory judgment action brought by their insured, a property owner that had incurred losses in connection with the investigation and remediation of environmental damage at manufactured gas plant sites.  In defending the suit, the insurers raised late notice as a defense.  Following summary judgment proceedings, the intermediate appellate court decided that a jury should consider whether  the insurers waived their right to disclaim coverage by failing to meet their “obligation to issue a written notice of disclaimer on the ground of late notice as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability.”

The Court of Appeals reversed the decision, finding that the appellate court had improperly applied New York Insurance Law§ 3420 (d) (2), New York’s late disclaimer statute, to an environmental damages claim.  While the appellate court had not cited the statute directly, the Court of Appeals noted that the appellate court had essentially applied the statute’s strict timeliness requirements.

The statute, however, which requires notice of a disclaimer “as soon as is reasonably possible,” only applies to death and bodily injury claims because, as the Court of Appeals explained, the statute was enacted to aid injured parties by encouraging the expeditious resolution of such claims.

In other contexts, including environmental remediation claims, the statute does not apply, and the mere passage of time will not deprive an insurer of its policy defenses without “the insurer’s manifested intention to release a right as in waiver, or on prejudice to the insured as in estoppel.”  Accordingly, the Court of Appeals reversed the decision and remanded the case for further proceedings.