The decision by the New York Appellate Division, First Judicial Department, in Continental Casualty Co. v. Employers Ins. Co. of Wausau, 871 N.Y.S.2d 48 (N.Y. 1st Dep’t 2008), was a decision of particular note for its discussion of whether the insured’s underlying asbestos liabilities implicated its products/completed operations coverage, or its ongoing operations coverage. In a recently issued opinion, 2011 NY Slip Op 4594 (June 2, 2011), the same appellate court had occasion to revisit the matter in order to address issues involving defense costs that had not been resolved in its earlier decision. Specifically, the court had issue to address an insurer’s obligation to provide timely notice to a co-insurer when seeking reimbursement of defense costs. The court’s decision provides a stark reminder of just how strictly New York courts enforce notice provisions, at least for policies governed by New York’s “no prejudice rule” (i.e., policies issued or delivered prior to January 17, 2009).
From the period 1970 through 1987, Keasbey, an asbestos insulation installer, was insured under a series of consecutive primary general liability policies issued by CNA. These policies had aggregate limits for products/completed operations, but no aggregate limits for ongoing operations. During portions of the CNA coverage period, Keasbey also qualified as an insured under two wrap-up policies issued by OneBeacon. Beginning in the 1970s, CNA began defending Keasbey in connection with numerous underlying asbestos-related suits. This defense was provided under the policies’ products/completed operations limit. CNA’s primary policies exhausted in 1992, after which time, Keasbey’s excess insurers assumed the defense of the underlying suits. Keasbey’s excess coverage exhausted sometime in 2002. In 2001, however, Keasbey took the position vis-à-vis CNA that the underlying matters should have been considered as ongoing operations claims, for which there was no aggregate limit and as such, the policies were not exhausted. CNA commenced a declaratory judgment action against Keasbey, but so as to prevent the default judgments in the remaining underlying suits, CNA assumed the defense of the matters under its primary policies.
Sometime after Keasbey demanded a defense pursuant to the policies’ ongoing operations limit, CNA reviewed its Keasbey files, many of which it had been in possession of since the 1980s. This review led to CNA’s February 2003 discovery of the OneBeacon policies. CNA gave notice almost immediately thereafter to OneBeacon of an underlying asbestos suit, and two months later, CNA commenced a second declaratory judgment action, this time naming OneBeacon as a defendant. CNA sought a declaration that: (a) the underlying matters were properly handled under its policies’ products/completed operations limit; (b) OneBeacon had an obligation to defend Keasbey in connection with present and future asbestos claims and (c) OneBeacon was required to reimburse CNA for defense costs incurred from the time that CNA gave first notice to OneBeacon. The Appellate Division’s 2008 decision concluded that the underlying suits were correctly considered as products/completed operation claims and that the CNA policies, therefore, were properly exhausted in 1992. In its June 2, 2011 decision, the court addressed CNA’s right to reimbursement from OneBeacon for defense costs CNA incurred after February 2003.
In considering this issue, the court looked solely to whether CNA’s notice to OneBeacon complied with the policies’ requirements that notice of suit be given immediately. The court explained that under New York law, when “an insured gives only one of two insurers timely notice of claim, the insurer that received notice may obtain reimbursement from the other insurer only if it gives the other insurer notice of the claim that is reasonable under the circumstances.” Because Keasbey never put OneBeacon on notice of the underlying matters, the court was required to consider the timeliness of CNA’s notice. CNA pointed to the fact that it gave notice to OneBeacon, by letter, within weeks of having discovered the existence of the wrap-up policies in February 2003. The court noted that in the first instance, it was questionable as to whether CNA’s letter was sufficient, as it referenced only a single lawsuit rather than the thousands of suits for which CNA began to defend in 2001. More importantly, explained the court, CNA had not acted diligently in attempting to ascertain the identity of the OneBeacon policies. CNA, explained the court, had Keasbey’s records since the 1980s, and this, could have learned of the OneBeacon policies long before 2003. The court specifically rejected CNA’s argument that it had no reason to look for the OneBeacon policies until Keasbey raised the “ongoing operations” issue in 2001, stating that “[w]hile CNA’s sudden interest in finding an untapped primary insurer in response to this unexpected development may be understandable, it does not change the fact that the means to discover the OneBeacon policies had been available to CNA for more than a decade.”