A New York federal court recently held that the timeliness requirement of Section 3420(d)(2) of the New York Insurance Law does not apply to an insurer’s reservation of rights letter. The decision is helpful for carriers that write liability insurance in New York because it delves into the circumstances in which carriers may (and may not) be found to have waived the right to assert certain coverage defenses under Section 3420(d)(2). A copy of the decision, captioned Central Mutual Insurance Company v. William P. Willig, et al., Docket No. 1:13-cv-1134 (N.D.N.Y. Jun. 27, 2014), is available here.
This action arose out of a lengthy feud between a landowner whose property fronted Lake George (William Morgan), and the holder of an easement over the property (Norman Levy). Levy filed a complaint against Morgan that alleged that, starting in 2002, Morgan intentionally and unlawfully interfered with Levy’s easement by blocking Levy’s access to the lakeshore and by removing and destroying a dock that Levy’s easement gave him the right to install. The complaint went on to allege that, in 2010, Morgan rented his property to a tenant who paid a reduced price in exchange for participating in a scheme to terminate Levy’s easement. Levy’s suit asserted claims for malicious prosecution by Morgan, abuse of process, and prima facie tort. He sought damages “for all of his physical, emotional, [and] psychological injuries suffered from the defendants’ wrongful conduct.”
Central Mutual Insurance Company had issued a homeowners policy and a personal umbrella policy to Levy, which also covered Morgan as an additional insured. The policies obligated Central Mutual to defend and indemnify its insureds against suits alleging bodily injury or property damage caused by an occurrence, which the policies defined as “an accident.” The policies also contained a standard “expected or intended” exclusion. Morgan’s estate (Morgan had died by the time suit was filed) tendered the suit to Central Mutual, which agreed to provide a defense subject to a full reservation of rights. Two months later, Central Mutual filed a coverage action, seeking a declaration that it had no duty to defend or indemnify Morgan against Levy’s suit.
The Court held that Central Mutual had no obligation to provide coverage to Morgan or his estate – because there was no occurrence as defined in the policy, and because the exclusion applied. Of interest, however, was how the Court disposed of the Morgan estate’s argument that Central Mutual could not invoke the exclusion because it had failed to timely disclaim coverage in accordance with New York Insurance Law Section 3420(d)(2), which states: “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…any…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.” Relying upon New York state and federal law, the court found that the timeliness requirement of Section 3420(d)(2) did not apply to Central Mutual’s reservation of rights letter, distinguishing that from a carrier’s disclaimer, and noting that “sufficiently definite language must be used in order for [a] communication to constitute a disclaimer” under New York law. Because the letter that Central Mutual sent to Morgan’s estate did not unequivocally and unambiguously disclaim coverage, but rather reserved the right to do so, the Court found that Section 3430(d)(2) was inapplicable on its face.