Will a New York court excuse an insurer’s delay in disclaiming coverage based on an insured’s failure to cooperate, when the facts confirm that it did so as soon as reasonably possible after it determined that the insured would not cooperate in the defense, investigation or settlement of a claims? Yes said the Court of Appeals in its recent unanimous opinion in Country-Wide Ins. Co. v. Preferred Trucking Services Corp.
Underlying Facts and Litigation
Country-Wide Insurance Co. (Country-Wide) issued a business auto policy to Preferred Trucking (Preferred), requiring Preferred to cooperate with Country-Wide in the investigation, defense and settlement of any claim. The underlying claimant in Country-Wide was injured during the unloading of a truck driven by one of Preferred’s drivers. In March 2007, he and his wife sued Preferred, the driver in question and others. The accident was reported to Country-Wide, which immediately began attempting to contact Preferred’s president as well as the responsible driver to obtain further information about the incident. Neither Preferred’s president nor the responsible driver responded to Country-Wide. Moreover, although the underlying claimants had sued Preferred and its driver, the suit was not immediately reported to Country-Wide. In fact, the insureds failed to respond to the complaint, prompting the underlying claimants to file an application for a default judgment. On October 4, 2007, the underlying claimants’ counsel transmitted a copy of the default judgment application to Country-Wide, which maintained that this was its first notice of the lawsuit.
On October 10, 2007, County-Wide transmitted letters to the insured defendants denying any duty to indemnify them, while reserving its rights with respect to any duty to defend due to their lack of cooperation. Both Preferred’s president and the responsible driver confirmed that they would cooperate with the defense, and Country-Wide retained defense counsel to represent the insured defendants. Nevertheless, all subsequent efforts by Country-Wide and defense counsel to communicate with Preferred’s president were unsuccessful. As for the driver, despite being unable to reach him after October 2007, a Country-Wide investigator was able to speak with his daughter on July 28, 2008, who gave the investigator the driver’s cell phone number. On August 18, 2008, Country-Wide was able to reach the driver, who advised that he would cooperate in the investigation. The next day, he was informed of his upcoming deposition on September 9, but he refused to respond.
Country-Wide’s investigator again spoke with the driver on October 13, 2008, when he advised that he did not care about the date for his deposition and would not cooperate further. The investigator’s additional efforts to reach the driver were unsuccessful, resulting in Country-Wide’s issuing a letter on November 6, 2008, denying any obligation to further defend or to indemnify the insured defendants. Defense counsel retained by Country-Wide subsequently filed a motion to be relieved as the insured defendants’ counsel, which was granted. The Supreme Court later struck the insured defendants’ answer, and after an inquest, the underlying claimants were awarded $2,550,000 in damages, plus interest, costs and disbursement.
Lower Court Decisions
Subsequently, Country-Wide commenced an action against Preferred, its driver and the underlying claimants seeking a declaration that it had no duty to defend or indemnify the insured defendants due to their lack of cooperation. Country-Wide argued that since it did not become apparent until mid-October 2008 that the driver would not cooperate, its November 6, 2008, denial letter was timely issued. The underlying claimants responded by seeking summary judgment that the disclaimer was untimely as a matter of law since it was issued four months after Country-Wide learned of the basis for the denial.
The trial court ruled that Country-Wide owed no coverage obligation to the driver, but granted the underlying claimants summary judgment that Country-Wide was obligated to indemnify Preferred. The Appellate Division affirmed the trial court’s decision, and Country-Wide appealed to the Court of Appeals.
Court of Appeals Decision
The Court of Appeals reversed, holding that Country-Wide had established as a matter of law that its delay in denying coverage was reasonable, taking into account the totality of the relevant circumstances. In so ruling, the Court explained that while the controlling statute, Insurance Law § 3420(d)(2), requires an insurer to disclaim liability “as soon as is reasonably possible,” timeliness is measured from the point when the insurer first learns of the basis for denying coverage and must be considered on a case-by- case basis. Continuing, the Court pointed out that New York’s willingness to provide insurers with longer periods to disclaim based on the failure to cooperate promotes the important public policy consideration of ensuring that people suing for damages are given the opportunity to be fully compensated for their losses. In keeping with this, the Court also reiterated the heavy burden that must be borne by an insurer seeking to deny coverage based on the insured’s failure to cooperate.
Applying these principles, the Court found compelling Country-Wide’s argument that it could not have denied coverage in good faith until it became clear that the driver would not cooperate with Country-Wide since he, and not Preferred’s president, had personal knowledge of and was involved in the accident. Accordingly, the Court held that Country-Wide established as a matter of law that its delay was reasonable and that the claimants failed to raise any triable issue of fact.
Practical Lesson of Country-Wide
Country-Wide teaches this practical lesson for insurers: In New York, there is no specific “bright line” time frame within which an insurer must disclaim coverage. As the Country-Wide court noted, the inquiry “is necessarily case specific.” In some instances, it may be readily apparent from the face of a complaint that there is no basis for coverage. An example of this might be an allegation in an underlying complaint that the loss occurred on a date falling after the expiration of the relevant policy. In those situations, a disclaimer needs to be sent out promptly. In other situations, however, such as those involving a failure to cooperate, based on the facts, it may be “reasonable” for an insurer to take additional time to disclaim, This is particularly true, as in Country-Wide, where affording the insurer more time promotes an important public policy consideration – “the full compensation of injured victims suing for damages.” What other factual scenarios may satisfy the Country-Wide standard for granting insurers a longer time frame in which to disclaim will necessarily be determined in the future on a case-by-case basis.