New York Insurance Coverage Law Update

September 27, 2023 | Alan C. Eagle | Insurance Coverage

Eastern District Finds That Insurer’s Delay In Disclaiming After Insured Gave Notice Of Occurrence Precluded Insurer’s Reliance Upon Exclusions

Two employees of Extreme Residential Corp. were involved in a construction accident on July 30, 2019, and they sued several entities involved in the project who, in turn, filed a third-party action against Extreme. Extreme’s insurer, Prime Insurance Company, disclaimed coverage based on several exclusions on March 11, 2021 – approximately six months after Extreme’s counsel sent a report to Prime about the accident. Extreme argued that the insurer’s disclaimer was invalid because it was not timely as required by New York Insurance Law § 3420 (d). In response, the insurer argued that its disclaimer was timely because it only learned about the underlying and third-party actions approximately 30 days before it disclaimed; and any delay in disclaiming should be excused by its investigation. The United States District Court for the Eastern District of New York held that the insurer’s delay in disclaiming coverage was unreasonable as a matter of law and granted summary judgment to Extreme. The court reasoned that an insurer is obligated to disclaim when the insured provides notice of an accident or claim and found that there was no genuine dispute that Prime received notice of the accident from Extreme when it received the report from Extreme’s counsel. The court acknowledged that “there is room for an insurer to conduct an investigation” but concluded that disclaimers after 30 days are generally untimely unless the insurer establishes a reasonable justification, which Prime did not do. [Berkley Ins. Co. v. Prime Ins. Co., 2023 U.S. Dist. LEXIS 123656 (E.D.N.Y. July 18, 2023).]

Fourth Department Holds that Motor Vehicle Liability Exclusion Unambiguously Precludes Coverage Notwithstanding “Vehicle” Being Undefined

New York Central Mutual Insurance Company disclaimed coverage to its insured under a homeowners policy for a personal injury action arising from the off-premises use of a skid-steer loader owned by the insured. The insured filed a declaratory judgment action, and the trial court granted summary judgment to the insurer. On appeal, the Appellate Division, Fourth Department, affirmed, finding that the trial court properly found that coverage was excluded by the policy’s Motor Vehicle Liability Exclusion, which excluded liability coverage for off-premises occurrences involving “motor vehicles,” defined as a “self-propelled land or amphibious vehicle”. The court rejected the insured’s argument that the policy’s failure to specifically define the term “vehicle” created an ambiguity, stressing that an “ambiguity does not arise from an undefined term in a policy … merely because the parties dispute the meaning of the term.” Instead, the court applied the “plain and ordinary” meaning of “vehicle” – “a means of carrying or transporting something” – as supported by the dictionary. The court also found that the fact that the Vehicle and Traffic Law may define “motor vehicle” differently is of “no moment” because the policy defined that phrase. [Fornino v. New York Cent. Mut. Fire Ins. Co., 2023 N.Y. App. Div. LEXIS 4037 (4th Dep’t July 28, 2023).]

Southern District Upholds Life Insurer’s Termination Of Policy

Principal Life Insurance Company denied payment to the beneficiary under a life insurance policy that covered his deceased wife. The policy was renewable on a yearly basis subject to payment of an annual premium. The insured could elect to change the frequency of the premium payments with the insurer’s approval and an additional charge. The insured did not request such a change and failed to pay the premium on the yearly due date. Accordingly, the insurer sent a notice stating that the policy would be terminated if the annual premium was not paid within the 30-day grace period, i.e., by January 28, 2016. The insured paid the premium in February 2016, but her check was returned with a letter stating that the policy had been terminated. The beneficiary sued and argued that the insurer’s “grace period” notice was deficient under the policy and the New York Insurance Law because it demanded the entire annual premium rather than the payment of an installment. The United States District Court for the Southern District of New York rejected the beneficiary’s argument and dismissed his complaint, reasoning that he “confused the option to modify the frequency of premium payment subject to [the insurer’s] approval with a supposed unilateral right to do so”, which was not supported under the policy.  [Moskowitz v. Principal Life Ins. Co., 2023 U.S. Dist. LEXIS 132034 (S.D.N.Y. July 31, 2023).]

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