Second Circuit Holds Insurer Need Not Show Prejudice to Assert Late Notice Where Policy Issued Outside of New York

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In Indian Harbor Insurance Co. v. City of San Diego (2d Cir., No. 13-4244-cv, Oct. 2, 2014), the Second Circuit affirmed summary judgment in favor of Indian Harbor, finding based on a late notice defense that Indian Harbor had no duty to indemnify the City for three pollution claims.  The main issue was whether New York Insurance Law § 3420(a)(5) applied and required Indian Harbor to prove prejudice as a result of the City’s untimely notice.

The policy in question, a pollution and remediation legal liability insurance policy, was issued in 2009 after Section 3420(a)(5) went into effect.  However, the parties disputed whether Section 3420(a)(5) governed the policy.  Notably, the statute applies only to policies issued in New York.  There are two accepted definitions of the term “issued”:  (1) “prepared and signed”; and (2) “sent out or distributed officially.”  The City argued that the policy was issued in New York because Indian Harbor president Dennis Kane had an office in New York and signed the policy on behalf of the insurer.  The Second Circuit rejected the argument because Mr. Kane’s signature was electronic and affixed in Pennsylvania.  The court also found compelling that the policy was mailed from Indian Harbor’s Pennsylvania office.  Thus, the court concluded that the policy as not issued in New York, and in turn, Section 3420(a)(5) did not apply.  Further, since the common law rule in New York does not require an insurer to show prejudice to assert a late notice defense, Indian Harbor was not required to show prejudice.  The court rejected the City’s argument that Section 3420(a)(5) abrogated the common law rule, reasoning “if the New York legislature had intended to change the common law for all policies, it could have done so.”

The Second Circuit agreed that the City’s delays in notifying Indian Harbor of its claims were untimely as a matter of law and affirmed the summary judgment accordingly.

This case is significant for all insurers who have issued policies outside the State of New York.  These policies are not subject to Section 3420(a)(5), which means that the common law no-prejudice rule remains in effect for any such policies.  Considering the challenge insurers face in proving prejudice as a result of late notice, this case marks a significant advantage for insurers issuing out-of-state policies which ultimately get litigated in New York courts or under New York law.