STANDING UP TO YOUR INSURANCE CARRIER: ADDITIONAL INSURED MAY STILL BE COVERED DESPITE ATTEMPTED DISCLAIMER BY CARRIER

By Henry L. Goldberg,

Managing PartnerIt is not often that the New York Court of Appeals, New York's highest court, takes a strong, pro-policyholder stance. Such a decision has recently come down from Albany with clear ramifications for the risk-burdened construction industry.

Today, insurance carrier disclaimers of coverage are on the rise, whether due to the strict liability standard of New York's "Scaffold Law" (Labor Law § 240), or other causes The exodus from New York of carriers willing to write CGL coverage upon reasonable terms has clearly begun. The market has turned extremely "hard" as demand exceeds the supply of fairly priced coverage. So much so that when certain carriers today see a crack in the wall of insurance coverage, they are "heading for the daylight."

However, the rules regarding how insurance coverage is provided in New York State is governed by statute. An insurer disclaiming coverage must give written notice of the disclaimer "to the insured" as soon as reasonably possible. In the case discussed herein, New York's highest court took up the question of whether additional insureds must be provided direct notice of a disclaimer from the carrier, or if notice to the carrierfor the additional insured (particularly where it was such carrier that made the original claim for additional insurance coverage), would suffice under the Insurance Law

§3420's "notice to insured" provision. The Court of Appeals sided with the policyholder holding that notice to its carrier was not sufficient to fulfill Insurance Law §3420 notice of disclaimer requirements.

Underlying Facts
An owner (O) and managing agent (A) of an apartment building in Brooklyn entered into an agreement with a general contractor (GC) to perform renovation work. As is typically the case, the construction contract required the GC to maintain liability insurance and to name O and A as additional insureds, which it did from Insurance Carrier X. The O and A, of course, also had their own liability insurance policy, which was issued by Carrier Y.

Subsequently, an employee of the GC sustained injuries on the site. However, O and A (and their Carrier Y) negligently waited over three months before notifying the carrier for the GC of the work-related injury and claim.

The injured employee subsequently sued O and A. Carrier Y made claim to Carrier X for additional insured coverage for O and A. However, the GC's Carrier X responded with a letter to the intended additional insureds' primary Carrier Y, which had made the original claim for additional coverage to

Carrier X, disclaiming liability due to late notice of the claim. Notably, the GC's Carrier X did not send notice of disclaimer to either O or A, nor to the attorney representing them in the underlying personal injury action.

O and A brought third party claims against the GC and its Carrier X, asserting, among other things, that GC's Carrier X must indemnify them as additional insureds. The trial court held that the GC's Carrier X must, indeed, indemnify both the O and A as additional insureds. This was despite the fact that the basis for disclaimer, late notice to the GC's carrier was, in fact, valid. The contractor's insurer had failed to strictly comply with Insurance Law §3420, because it had not sent its disclaimer notice to the additional insureds themselves, but rather to their Carrier Y, which was, as indicated, the entity that made the claim to the GC's primary Carrier X for additional insured coverage. Significantly, the trial court held that the fact that the additional insureds' Carrier Y provided late notice of the accident, did not excuse the unreasonable delay of the GC's Carrier X, itself, in disclaiming additional insured coverage for O and A.

Court of Appeal's Decision
The Court of Appeals agreed, holding that the disclaimer notice sent only to the Carrier Y, on behalf of O and A, was not sufficient to satisfy the Insurance Law notice requirements. The O and A's Carrier Y was not the "Additional Insured" under the contractor's policy, nor an agent of the additional insureds.

The Court stated that the interests of the O and A were not the same as those of their Carrier Y in the litigation, because: (l) there might have been a coverage dispute between the insured O and A and their Carrier Y, and/or (2) the injured plaintiff's claim might have exceeded the additional insureds' policy limits with Carrier Y. Because the additional insureds had their own interests at stake, separate and apart from their Carrier Y, they were entitled to direct notice from the GC's Carrier X, delivered to them personally, or at least to their own attorney acting as their agent. G&C Commentary
As the title of this article suggests, you may very well need to "Stand Up To Your Insurance Carrier." This is increasingly so today in the current hardened insurance market in the New York metropolitan area. Insurance is difficult to come by, and, if underwritten, costly to carry. Do not accept the loss of coverage for which you already dearly paid. There are many creative ways to challenge a disclaimer of coverage. Even where you are compelled to challenge a disclaimer, and need to temporarily while pursuing such challenge, provide for your own costly defense in a complex personal injury action, all such defense costs will eventually be reimbursed, from the beginning, by the recalcitrant carrier if you are successful.

This case underscores the validity of this advice. Here, both the O and A, as intended additional insureds, did not, in fact, give timely notice of the accident to the GC's Carrier X. Nevertheless, the technicality of the carrier giving inadequate notice of the attempted disclaimer saved them. The O and A stood up to the GC's Carrier X and received the protection they contracted for despite their own error.

It is important to keep in mind that both insureds and carriers have responsibilities to fulfill, and putting carriers to the task of acting fairly, properly and lawfully at all times is absolutely essential to preserve your rights.
Jeffrey I. Scott, an associate with Goldberg & Connolly, assisted in the preparation of this article.

©Goldberg & Connolly 2014
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