New York Appellate Court Affirms that Insurance Companies Seeking Contribution Must Timely Notify Successive Insurers If Their Mutual Policyholder Failed to Do So

Today, New York’s Third Department, Appellate Division affirmed an award of summary judgment dismissing third-party claims for contribution against two Fireman’s Fund insurance companies, American Automobile Insurance Co. and National Surety Corp. The decision makes New York’s late notice “no-prejudice” rule, which requires no showing of prejudice to an insurer in a late notice situation, apply equally to policyholders and successive insurers – insurers that insure the same policyholder for different periods of time. New York courts have long applied this rule to policyholders, and this decision extends the rule to insurers bringing contribution claims against other successive insurers.

In 2007, the State of New York learned of gasoline contamination at a municipal drinking well in the vicinity of the Richmond Automotive Center, a gasoline service station near Rochester. The State asserted claims against Richmond and Kirkwood Heating Oil, Inc., a supplier of gasoline. The State also asserted claims against Kirkwood’s insurer at the time, Utica Mutual, under the Navigation Law to recover pollution cleanup costs.

Although Kirkwood and Utica Mutual had notice of the pollution claim in 2007, neither one provided notice of the claim to the Fireman’s Fund companies, which had insured Kirkwood for seven years during the 1990s. The Fireman’s Fund companies’ first notice came in 2010.

In State of New York v. Diana L. Flora, et. al., Utica Mutual filed a third-party complaint against the Fireman’s Fund companies, among others, seeking contribution for the pollution cleanup costs. The Fireman’s Fund companies moved for summary judgment on grounds of late notice. The trial court, New York Supreme Court, Albany County, granted the Fireman’s Fund companies’ motion for summary judgment and dismissed the claims against them, and Utica Mutual appealed.

The Third Department affirmed, holding that “[i]f multiple insurers exist and ‘the insured gives only one of [those] insurers timely notice of a claim, the insurer that received notice may obtain reimbursement from . . . [an]other insurer only if it gives [that] other insurer notice of the claim that is reasonable under the circumstances.’” The Court held that because “Utica Mutual delayed more than three years in notifying [the Fireman’s Fund companies] of the underlying incident, [the Fireman’s Fund companies] established their prima facie entitlement to summary judgment dismissing the third-party complaint against them based upon the absence of the prompt notice, as required by their policies.”

The Court acknowledged that “justifiable ignorance of insurance coverage” may excuse a delay in giving notice if “reasonably diligent efforts were made to ascertain whether coverage existed,” but concluded that “Utica Mutual failed to tender sufficient proof to raise a question of fact as to whether it was justifiably ignorant of [the Fireman’s Fund companies’] prior insurance coverage.” Specifically, the Court held that “in the absence of evidence demonstrating diligent efforts to learn of [the Fireman’s Fund companies’] existence, Utica Mutual’s excuse of justifiable ignorance is unreasonable as a matter of law.”

The Fireman’s Fund insurance companies were represented by Rivkin Radler partners Michael A. Kotula, Larry A. Levy and Robert A. Maloney.

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