Insurers’ Disclaimer Involving Environmental Damage Not Subject To Insurance Law §3420(d) Notice Requirements

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This environmental coverage action involved a dispute over whether the insurers had a duty to provide coverage for the remediation of environmental damage at several manufactured gas plant (MGP) sites formerly owned by Long Island Lighting Company (LILCO) and the timeliness of the excess insurers late notice defense asserted as an affirmative defense in its answer.  Defendants issued excess insurance policies to LILCO that required, as a threshold condition for coverage, LILCO to provide prompt notice of any occurrence that potentially implicated defendants’ duty of indemnification.

LILCO commenced a declaratory action and the insurer defendants moved for summary judgment based on late notice.  The trial court denied the motion holding the reasonableness of LILCO’s delay in notifying defendant of environmental occurrences at its MGP sites presented a question of fact for the jury.  The court also rejected LILCO’s claim that defendants waived their late notice defense by failing to disclaim coverage prior to interposing their answers.

On appeal the Appellate Division held that “issues of fact remain as to whether defendant insurers waived their right to disclaim coverage based on late notice” by “fail[ing] to timely issue a disclaimer.”  Thus, the Appellate Division granted defendants leave to appeal, certifying to the Court of Appeals the question of whether its order was proper.

On appeal to New York’s highest court, the insurers argued that the Appellate Division wrongly applied the strict timeliness standard from Insurance Law §3420(d)(2) in considering whether defendants waived their right to disclaim coverage of LILCO’s environmental damage claims.  In agreeing with the insurers, the court held that by its plain terms, §3420(d)(2) applies only in insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy.  Thus, it concluded “where, as here, the underlying claim does not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in Insurance Law §3420(d) are inapplicable”.

The court further noted that in such cases, the insurer will not be barred from disclaiming coverage “simply as a result of the passage of time,” and its delay in giving notice of disclaimer should be considered under common-law waiver and/or estoppel principles.  As the environmental contamination claims at issue did not fall within the scope of §3420(d)(2),  which the Legislature chose to limit to accidental death and bodily injury claims, the matter was remanded to the Appellate Division to determine whether the evidence supporting common law waiver is sufficient to defeat defendants’ motion for summary judgment.  Specifically, the Appellate Division was instructed to consider if, under common-law principles, triable issues of fact existed as to whether defendants clearly manifested an intent to abandon their late-notice defense.

KeySpan Gas East Corp. v. Munich Reinsurance America, Inc.
(New York Court of Appeals, June 10, 2014)