In its recent decision in B&A Demolition & Removal Inc. v. Markel Ins. Co., 2013 U.S. Dist. LEXIS 55946 (E.D.N.Y. Apr. 18, 2013), the United States District Court for the Eastern District of New York had occasion to consider when an insurance policy is considered “issued or delivered” for the purpose of the “notice prejudice” rule set forth in New York Insurance Law §3420(a).

Markel Insurance Company insured B&A Demolition & Removal, Inc., a New York company, under a combined general liability and contractors pollution liability policy for the period October 22, 2008 through October 22, 2009.  In April 2009, B&A was sued for allegedly having caused property damage to a neighboring building while performing construction work on its own premises.  B&A delayed giving notice to Markel for nearly seven months.  Markel, as a result, denied coverage to B&A based on its failure to have complied with the policy condition requiring prompt written notice of claim or suit.

At issue in the resulting coverage action was whether B&A’s policy was governed by New York’s “no prejudice” rule, whereby an insurer need not demonstrate prejudice in order to sustain a disclaimer of coverage based on an insured’s delay in providing notice of claim or suit, or whether the policy was governed by the “notice prejudice” standard set forth in New York Insurance Law §3420(a), as amended by the New York legislature effective January 17, 2009.  The amended §3420(a) states late notice disclaimers will only be effective if the insurer has been prejudiced by the insured’s delay in providing notice.  Importantly, New York’s legislature stated that the changes to §3420(a) only apply to policies “issued or delivered” on or after January 17, 2009, and every court to have since considered the issue has agreed that the prejudice standard set forth in §3420(a) does not apply retroactively to policies issued or delivered prior to that date.

Notwithstanding the October 22, 2008 effective date of the Markel policy, B&A argued that the policy should not be considered “issued or delivered” prior to January 17, 2009 because of a purported delay in when the policy was actually delivered.  This alleged delay involved the roles of the retail and wholesale brokers in procuring the policy on behalf of B&A.  There was no dispute that the Markel underwriter transmitted a copy of the policy, via email, to the wholesale broker, Gremesco, on December 1, 2008.  The Gremesco employee responsible for the account testified that she emailed a copy of the policy to the retail broker, Halland, on the same day.  Halland, however, claimed not to have received the email because of an apparent technical problem with its email server.  Halland further contended that it did not have actual receipt of a copy of the policy until sometime in February 2009 after having asked Gremesco to resend it.  B&A contended that as a result of this delay, the policy could not be considered delivered until after January 17, 2009, and that as such, the policy was necessarily governed by the new late notice rule.

Markel initially moved to dismiss B&A’s complaint, arguing that certain documents referenced in the pleading established that the policy was at the very least issued prior to January 17, 2009.  The court denied Markel’s motion on the basis that the documents were not properly considered on motion to dismiss.  In dictum, however, the court noted that even if Markel could demonstrate that the policy was issued prior to January 17, 2009, it would still need to establish that delivery did not take place after this date.

Following discovery, Markel moved for summary judgment on the basis that the policy was, in fact, delivered prior to January 17, 2009, notwithstanding the apparent question of fact as to when Halland received a copy of the policy from Gremesco.  Markel argued that because Gremesco, as the wholesale broker, was B&A’s agent rather than Markel’s agent, delivery should be considered effected when Markel transmitted a copy of the policy to Gremesco in December 2008, since.  In support of this argument, Markel cited to case law holding that wholesale brokers are generally considered the insured’s agent, or sub-agent, and that there was no evidence to support the contention that Gremesco was Markel’s agent.  Markel pointed out, among other things, that Gremesco had no authority to bind policies, set premiums, or even collect premiums on behalf of Markel.  Markel further pointed to deposition testimony from both the Halland and Gremesco employees evidencing the fact that Halland used Gremesco to “tap into” the wholesale insurance market and that Gremesco, in this role, acted as a mere intermediary between Halland and Markel. 

In considering this issue, the court noted that an insurance broker typically will typically be considered the agent of the insured rather than the insurer, absent “exceptional circumstances” demonstrating an agency relationship between the insurer and the broker.  The court concluded that based on the evidence before it, no such exceptional circumstances were present.  On the contrary, the evidence demonstrated as a matter of law that Gremesco was B&A’s agent rather than Markel’s.  Having concluded that Gremesco was B&A’s agent, the court agreed that the policy was delivered on December 1, 2008, and thus governed by New York’s pre-January 17, 2009 “no prejudice” rule.  As such, and given B&A’s seven-month delay in giving notice of the underlying suit, the court held that, as a matter of law, Markel’s denial of coverage based on late notice was proper.