The First Department recently reversed a New York County Supreme Court order, which had denied plaintiff's motion for summary judgment for a declaration of coverage and granted defendant's motion which sought a declaration that it is not obligated to defend or indemnify plaintiff. See ADD Plumbing, Inc. v Burlington Ins. Co., ___AD3d___, 2021 NY Slip Op 01498, *1 (2021). The court declared that the “defendant ha[d] a duty to defend and indemnify plaintiff in the underlying action.” See id.
The court explained that "a timely disclaimer pursuant to Insurance Law § 3420(d) is required when a claim falls within the coverage terms but is denied based on a policy exclusion" See id. (citing GHP Partners, LLC v American Home Assur. Co., 87 AD3d 843, 843 [1st Dept 2011]). The purpose of Insurance Law § 3420, as described by the First Department, “is to protect the insured, injured party, or any other claimant with an interest in the outcome, from prejudice based on a delayed denial of coverage.” See id. (citing Admiral Ins. Co. v State Farm Fire & Cas. Co., 86 AD3d 486, 488 [1st Dept 2011]).
According to the First Department, the clock begins to run for an insurer to make a disclaimer once “the insurer first learns of the grounds for disclaimer of liability or denial of coverage." See id. (citing Country-Wide Ins. Co. v Preferred Trucking Servs. Corp., 22 NY3d 571, 575-576 [2014]). Whether the insurer disclaimed coverage as soon as reasonably possible after it first learns of the ground for disclaimer is a case-specific legal question. See id. The First Department acknowledged that “courts have found relatively short periods to be unreasonable as a matter of law" when there is no excuse or mitigating factor for the delay. See id. (quoting Travelers Ins. Co. v Volmar Constr. Co., 300 AD2d 40, 43 [1st Dept 2002]).
In ADD, the defendant's disclaimer dated December 24, 2014 was “untimely as a matter of law” and their position that they only received plaintiff's claim on December 16, 2014” was deemed unpersuasive because the defendant had been on notice about the accident for several months before it disclaimed coverage and commenced an investigation. The First Department explained that the defendant was “sufficiently aware of the facts that would support a disclaimer but waited almost two months before disclaiming coverage.” (GHPPartners, LLC, 87 AD3d at 844).
Therefore, it is imperative that once an insurance carrier becomes aware of a claim, that it conducts an investigation and determines whether an exception in the insurance policy will entitle it to a disclaimer. Once the insurance carrier recognizes that it can make a disclaimer, it should do so immediately in order to avoid being deemed untimely, in light of the First Department deeming a two month delay as “unreasonable.”