1 No. 42
The Argo Corporation, et al.,
Appellants, v. Greater New York Mutual Insurance
Company,
Respondent.
2005 NY Int. 29
April 5, 2005
This opinion is uncorrected and subject to revision before
publication in the New York Reports.
David R. Hornig, for appellants. Thomas D. Hughes, for respondent. Catholic Health Services of Long Island; New York
Insurance Association, Inc.; Complex Insurance Claims Litigation
Association; KeySpan Corporation; Athari Law Office; Crucible
Materials Corporation, et al., amici curiæ.
G.B. SMITH, J.:
The issue in this case is whether a primary insurer can
disclaim coverage based solely upon a late notice of lawsuit or
must show prejudice. We hold that, under the circumstances of
this case, plaintiffs' late notice was unreasonable as a matter
of law, that the Appellate Division correctly applied Matter of
Brandon v Nationwide Mut. Ins. Co. (97 2 491 [2002]) and that
the insurer need not show prejudice. On January 2, 1997, Igo Maidenek slipped and fell on
ice on the sidewalk adjacent to 137-01, 83rd Avenue in Kew
Gardens, New York. Maidenek was a tenant of the premises. The
property was owned by Henry Moskowitz and managed by two
companies owned by Moskowitz, Argo Corporation and Martinique
Realty Associates (Argo). On February 23, 2000, Maidenek brought suit for
personal injuries against Argo by serving a summons and complaint
on the New York Secretary of State. Argo acknowledged receipt of
the summons and complaint by signing a return-receipt dated
February 28, 2000. On November 10, 2000, Argo was served with a
default judgment. On February 13, 2001, Argo received a notice
of entry of the default judgment and of the scheduling of a
hearing on that judgment. On February 21, 2001, Argo received
service of a note of issue for trial readiness. Argo notified Greater New York Mutual Insurance Company
(GNY), its commercial liability insurance carrier,[1]
on May 2,
2001. On June 4, 2001, GNY disclaimed coverage because of the
late notice of the lawsuit, and occurrence, which, according to
GNY, was a "condition precedent" to coverage under the insurance
policy.[2]In January, 2003, Argo brought a declaratory judgment
action against GNY challenging GNY's disclaimer. GNY responded
with a motion to dismiss for failure to comply with the contract
provision which required timely notice to the carrier of the
occurrence and of the lawsuit against the insured. The contract
required notice "as soon as practicable."[3]Supreme Court agreed that defendant failed to comply
with a condition precedent to coverage under the contract,
stating, "Plaintiff's policy required them to “see to it that we
[the insurer] are notified as soon as practicable of an
'occurrence' or an offense which may result in a claim.
Plaintiffs did not notify defendant of Maidenek's suit until 14
months after service of the complaint upon the Secretary of State
as their agent, until 6 months after service of the default
motion upon plaintiffs, until more than 3 months after default
was entered and until almost 3 months after service of the Note
of Issue upon plaintiffs." As a result, Supreme Court granted
defendant's motion to dismiss for failure to timely notify the
insurer. The Appellate Division affirmed, stating:
"[T]he insureds are unable to provide an
excuse for their failure to comply with
the policy's notice provisions. Unlike
in Matter of Brandon v Nationwide Mut.
Ins. Co., (97 2 491), this is not a
case where the carrier had prior notice
of the claim before the action was
commenced (citations omitted)."
We granted leave to appeal and now affirm. For years the rule in New York has been that where a
contract of primary insurance requires notice "as soon as
practicable" after an occurrence, the absence of timely notice of
an occurrence is a failure to comply with a condition precedent
which, as a matter of law, vitiates the contract ( see Security
Mut. Ins. Co. of NY v Acker-Fitzsimons Corp., , 31 NY2d 436, 440-43
[1972]) [failure to notify in a timely manner allowed insurer to
disclaim coverage]). No showing of prejudice is required ( id.).
Strict compliance with the contract protects the carrier against
fraud or collusion ( id.); gives the carrier an opportunity to
investigate claims while evidence is fresh; allows the carrier to
make an early estimate of potential exposure and establish
adequate reserves and gives the carrier an opportunity to
exercise early control of claims, which aids settlement ( Unigard
Sec. Ins. Co. v North River Ins. Co., , 79 NY2d 576, 582 [1992]). We have applied the no-prejudice rule in various
contexts in recent years: supplementary underinsured motorist
insurance (SUM)( Matter of Metropolitan Prop. & Cas. Ins. Co. v.
Mancuso, , 93 NY2d 487, 495-96 [1999]; cf. Matter of Brandon and
Rekemeyer v State Farm Mutual Automobile Ins. Co. _____NY_____
[decided today]); and excess insurance ( American Home Assur. Co.
v International Ins. Co., , 90 NY2d 433, 442-47 [1997]). We have
held, however, that the rule enunciated in Security Mutual does
not apply to reinsurance and a reinsurer must show prejudice
before it can be relieved of its obligations to perform under a
contract ( Unigard Sec. Ins. Co. v North River Ins. Co., , 79 NY2d 576, 582-84 [1992]).
In Matter of Brandon (Nationwide Mut. Ins. >)(, 97 NY2d 491 [2002]), we again departed from the general "no prejudice"
rule and held that the carrier must show prejudice before
disclaiming based on late notice of a lawsuit in the SUM context
( see , 97 NY2d 491, 498, supra). Under the facts of Brandon, the
carrier received timely notice of claim but late notice of a
lawsuit ( see id. at 494-95). We were unwilling to extend the no
prejudice exception in regard to late notice of a lawsuit because
"unlike most notices of claim -- which must be submitted promptly
after the accident, while an insurer's investigation has the
greatest potential to curb fraud -- notices of legal action
become due at a moment that cannot be fixed relative to any other
key event, such as the injury, the discovery of the tortfeasor's
insurance limits or the resolution of the underlying tort claim"
( see id. at 498). Brandon did not abrogate the no-prejudice rule and
should not be extended to cases where the carrier received
unreasonably late notice of a claim. The facts here, where no
notice of claim was filed and the first notice filed was a notice
of law suit, are distinguishable from Brandon where a timely
notice of claim was filed, followed by a late notice of law suit,
and distinguishable from Rekemeyer, where an insured gave timely
notice of the accident, but late notice of a SUM claim. Argo was
notified of the lawsuit against it in February, 2000 but did not
notify GNY until May, 2001. The burden of establishing that the
delay was not unreasonable falls on the insured ( see U.S.
Underwriters Ins. Co. v A&D Maja Const. Inc., 160 F Supp 2d 565,
569, [SDNY 2001]). Argo admits that Maidenek filed the lawsuit against it
in late 1999, and that it received notice of the claim in early
2000. Argo further admits that its notice to GNY was late but
argues that GNY has not shown prejudice as a result of this late
notice. Argo notified GNY 14 months after it was first served
with the lawsuit, and six months after a default judgment was
entered against it. Argo asks this court to extend the Brandon
"prejudice analysis to notice of suit in commercial policies
where the notice was admittedly late."
The rationale of the no-prejudice rule is clearly
applicable to a late notice of lawsuit under a liability
insurance policy. A liability insurer, which has a duty to
indemnify and often also to defend, requires timely notice of
lawsuit in order to be able to take an active, early role in the
litigation process and in any settlement discussions and to set
adequate reserves. Late notice of lawsuit in the liability
insurance context is so likely to be prejudicial to these
concerns as to justify the application of the no prejudice rule.
Argo's delay was unreasonable as a matter of law and thus, its
failure to timely notify GNY vitiates the contract. GNY was not
required to show prejudice before declining coverage for late
notice of law suit. Accordingly, the order of the Appellate Division should
be affirmed, with costs.
Footnotes
1 Previously, "GNY issued a commercial-package insurance
policy to Henry Moskowitz that included commercial-liability
insurance coverage for some 35 buildings in New York City."
2 "A condition precedent is 'an act or event, other than a
lapse of time, which, unless the condition is excused, must occur
before a duty to perform a promise in the agreement arises'"
( Oppenheimer & Co. v Oppenheimer, Appel, Dixon & Co., , 86 NY2d 685, 690 [1995][citations omitted]).
2.Duties in The Event of Occurrence, Offense, Claim or
Suit
a. You must see to it that we are notified as soon
as practicable of an "occurrence" or an offense which may result
in a claim (emphasis added). To the extent possible, notice
should include:
(1) How, when and where the "occurrence" or
offense took place:
(2) The names and addresses of any injured
person and witnesses; and
(3) The nature and location of any injury or
damage arising out of the "occurrence" or offense.
b. If a claim is made or "suit" is brought against
any insured, you must:
1. Immediately record the specifics of
the claim of "suit" and the date received; and
2. Notify us as soon as practicable.
c.
You and any other involved insured must:
1.
Immediately send us copies of any
demands, notices, summonses or legal papers received in
connection with the claim or "suit";
2.
Authorize us to obtain records and
other information;
3.
Cooperate with us in the
investigation or settlement of the claim or defense against the
"suit" and;
4.
Assist us, upon our request, in the
enforcement of any right against any person or organization which
may be liable to the insured because of injury or damage to which
this insurance may also apply.
d.
No insured will, except at that insured's own
cost, voluntarily make a payment, assume any obligation, or incur
any expense, other than for first aid, without our consent.