A New York statute provides that liability insurers may not deny claims on grounds of late notice, unless they can show they were prejudiced by the delay. The statute applies to policies “issued or delivered” in New York. In October 2014, in Indian Harbor Ins. Co. v. City of San Diego, the U.S. Court of Appeals for the Second Circuit ruled that the statute did not abrogate New York’s older, common-law rule, which imposed no prejudice requirement, and which still applies to policies issued elsewhere. As a result, the City of San Diego could not avoid the consequences of providing late notice for a pollution claim.
Shortly after the statute took effect, San Diego purchased a pollution and remediation legal liability policy from Indian Harbor Insurance Company. The policy, which was governed by New York law, required the city to notify its insurer “as soon as practicable” of any claim regarding “pollution conditions.” Trouble arose when the city was notified of three claims against it, including one, by Centex Homes, for “hydrochloric gas emissions.” Because the city took 58 days to notify Indian Harbor, the insurer denied the claim and brought a declaratory judgment action.
Historically, under New York common law, courts strictly enforced notice provisions in liability policies, without requiring insurers to demonstrate prejudice. San Diego argued, however, that its policy was subject to the new statute, because it had been “issued or delivered” in New York. It also argued that the statute manifested a public policy against strict enforcement of notice provisions, which would abrogate the common law rule for all insurance policies. Finally, the city denied that its notice was untimely.
The district court rejected these claims and granted summary judgment to the insurer. On appeal, the Second Circuit held that the policy was not issued or delivered in New York, because it was neither “prepared” nor “signed” within the state. The policy did bear the signature of Indian Harbor’s president, and his office was in New York, but it was undisputed that the “signature” was actually an electronic stamp that was created in, and mailed from, Pennsylvania. The court also rejected the City’s argument that the newly enacted statute abrogated the common law rule, as the scope of the statute was expressly limited to policies issued within the state.
The Second Circuit also found that notice had, in fact, been “unreasonably” delayed. The city argued that Centex’s legal claim had not accrued before the city provided notice of it, but the court found that fact irrelevant. The purpose of the notice provision, the court held, was to “permit the insurance company to investigate promptly.” Because the city failed to notify Indian Harbor “as soon as practicable” after learning about “hydrochloric gas emissions,” summary judgment was affirmed.