A recent ruling by a New York trial court highlights the duty of an insurer to timely respond to its policyholders. In Robert Vargas, et al. v. The City of New York, et al., No. 154323/13 (N.Y. Sup. Jan. 15, 2016), the court required an insurer to defend and indemnify its policyholder against lead exposure claims, even though the policy contained a lead exclusion, because the insurer’s disclaimer of coverage was untimely.

The City of New York, New York City Transit Authority and the Metropolitan Transportation Authority (the “City defendants”) had contracted for a project with a joint venture that in turn enlisted various subcontractors. A worker on the project sued the City defendants, the joint venture and other entities after he was exposed to lead dust. Both the joint venture and the City defendants were additional insureds on a liability insurance policy issued by Liberty Insurance Underwriters (“Liberty”) to one of the project subcontractors. The joint venture sought coverage for the lawsuit from Liberty. Liberty denied coverage, claiming that a policy exclusion for lead claims barred coverage. The City defendants did not receive Liberty’s denial letter.

The City defendants filed a third-party complaint against Liberty in the underlying injury suit seeking, for the first time, defense and indemnity coverage for the lawsuit. Liberty responded to the complaint asserting that the lead exclusion barred coverage. The court examined the timeliness of the disclaimer under a New York insurance statute that obligates insurers to disclaim coverage “as soon as is reasonably possible.” N.Y. Ins. Law § 3420(d)(2). The court held a delay of more than approximately 30 days in disclaiming coverage is untimely as a matter of law. The court found that the City defendants’ complaint constituted a “tender” of the claim. As a result, Liberty’s disclaimer in its answer to the City defendants’ complaint was untimely as a matter of law and Liberty could not rely on the lead exclusion to deny coverage. The court ordered Liberty to defend and indemnify the City defendants against the injured employee’s lead dust claims.

The decision in Vargas is illustrative of the duties insurers owe to their policyholders when it comes to clearly and timely disclaiming coverage. As occurred here, a delay can be fatal to even seemingly on-point defenses to coverage. Further, the decision is a reminder that a disclaimer of coverage to one insured is not an effective denial of coverage to another insured. This is of particular importance in subcontractor relationships, where multiple insureds may seek coverage under the same policy.