New York Appellate Division
January 17, 2012
On January 17, 2012 the Appellate Division, First Department of the Supreme Court of the State of New York issued a significant decision dealing with the timeframe for a carrier to disclaim coverage. This decision, in the matter of George Campbell Painting v National Union Fire Ins. Co. of Pittsburgh, PA, overruled and rejected the First Department’s prior decision in DiGuglielmo v. Travelers Prop. Cas. 6 A.D.3d 344 (2004), leave denied 3 N.Y.3d 608 (2004). In doing so, the George Campbell Painting Court held that New York Insurance Law §3420(d) precludes an insurer from delaying issuance of a disclaimer on a ground that the insurer knows to be valid, e.g. late notice of the claim, while investigating other possible grounds for disclaiming. Therefore, where the insurer had sufficient information to disclaim coverage on the ground of late notice, but delayed issuing a disclaimer on that ground for nearly four months while it investigated whether the entity seeking coverage was an additional insured, the disclaimer was ineffective as a matter of law.
In DiGuglielmo, the First Department had addressed Insurance Law 3420(d)’s requirement that carriers disclaim coverage “as soon as reasonably possible”. In interpreting that provision, the DiGuglielmo court held that “[a]n insurer is not required to disclaim on timeliness grounds before conducting a prompt, reasonable investigation into other possible grounds for disclaimer”. In other words, under DiGuglielmo, a carrier that was aware of one basis for a disclaimer could delay notifying the policyholder of the disclaimer until it had conducted an investigation into other possible grounds for a disclaimer. (The so-called “DiGuglielmo Rule”)
In George Campbell Painting, the court re-examined Insurance Law § 3420(d) and held that the statute cannot be “reconciled with allowing the insurer to delay disclaiming on a ground fully known to it until it has completed its investigation (however diligently conducted) into different, independent grounds for rejecting the claim. (” … the statute mandates that the disclaimer be issued, not ‘as soon as is reasonable,’ but ‘as soon as is reasonably possible.'”
Therefore, an insurer no longer can conduct an investigation to determine other bases that may affect coverage before issuing a disclaimer based on grounds it already knows to be the basis for a valid disclaimer, such as late notice of the claim. The George Campbell Painting decision reconciles what had been inconsistent rulings between the First and Second Departments. Accordingly, coverage determinations of other potential coverage issues must be reserved until an investigation can be completed.
Inquiries on the issues involved in this matter may be directed to George Hardin.