New York has a statute that requires an insurance company to disclaim coverage for death or bodily injury arising from a motor vehicle or other kind of accident “as soon as reasonably possible.” New York’s highest court recently ruled that this statute does not apply to a claim for environmental harm and, therefore, the carrier was not required to disclaim as soon as reasonably possible. Which raises the question: How did a dispute with such an apparently obvious outcome reach the New York high court in the first place?
Sometimes I scratch my head and wonder if I’m the only one who doesn’t understand. For example, several weeks ago, I wrote about a case that the New Jersey Supreme Court has agreed to hear in which the New Jersey Appellate Division (the state’s intermediate court of appeals) ruled that a corporate policyholder was not a “prevailing party” in a coverage action, even though the policyholder had won the case against the insurer and had succeeded in preserving the carrier’s duty to defend the underlying action. How is this such a close question that a court could ever find against the policyholder under those facts? Practicing law is not for the faint hearted at least in part because a court will occasionally reach a conclusion that makes it essentially impossible to advise a client about what the law actually requires. I have written about these frustrations, as well.
Recently the New York Court of Appeals (the state’s high court) reversed a decision by the New York Appellate Division. In Keyspan Gas East Corp. v. Munich Reinsurance America, Inc., there was a question about the application of New York Insurance Law § 3420(d)(2). That statute says: “If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.” Long Island Lighting Company had been notified in the early 1990s that it was potentially responsible for “environmental concerns” at two LILCO manufactured gas plants. The dispute about whether the liability for those environmental claims was covered by LILCO’s Commercial General Liability insurance policies became the subject of coverage litigation between LILCO’s carriers and Keyspan, the company that had obtained an assignment of LILCO’s coverage claims.
Sometimes I scratch my head and wonder if I’m the only one who doesn’t understand.
The question the Court of Appeals resolved was whether Insurance Law § 3420(d)(2) applied to the insurance carrier’s disclaimer of coverage for the environmental liabilities that LILCO faced. While there are a great many statutes on the books that it takes an advanced degree in linguistics to navigate, § 3420(d)(2) isn’t one of them. It says, in plain English, that it applies to a denial of “coverage for death or bodily injury arising out of a motor vehicle accident” or other type of accident. Liability for environmental contamination is not the same as liability for death or bodily injury from a motor vehicle accident. It just isn’t. The question is not close or, in fact, even interesting.
In fairness to the New York Appellate Division, its written decision in the case did not make any explicit reference to § 3420(d)(2). Accordingly, it’s not perfectly clear that the App. Div. was interpreting that statute when it found that the carrier’s delay in disclaiming coverage meant that the coverage defense had been waived. It is, in fact, a much more interesting question whether a carrier should be able to sit on its figurative hands for an unreasonable time before letting its policyholder know that the claim has been denied. There are very good arguments to be made that an unreasonable delay in denying any kind of liability claim usually results in prejudice to the policyholder. Such delays also violate the provisions of the uniform Unfair Claims Settlement Practices Act, as that statute has been adopted by many states.
But, to the extent that the Appellate Division actually did rely on § 3420(d)(2) — as the Court of Appeals plainly concluded that it had — it is an example of a statutory interpretation that makes it dreadfully hard for lawyers to advise their clients intelligently.