Insurance Coverage Litigation Lawyer & Attorney : Rivkin Radler Law Firm : Long Island, New York

If you’re interested in claims made policies and notice, see yesterday’s decision from the Texas Supreme Court, Prodigy Communications Corp. v. Agricultural Excess & Surplus Insurance Co., NO. 06-0598 (Apr. 1, 2009). The court held that: “In a claims-made policy, when an insured notifies its insurer of a claim within the policy term or other reporting period that the policy specifies, the insured's failure to provide notice ‘as soon as practicable’  will not defeat coverage in the absence of prejudice to the insurer.”  Disappointing decision.

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Sorry I haven't written much lately. Note that a recent case shows that late notice lives on as a viable defense in New York. Wells Fargo Bank, N.A. v. Zurich American Insurance Co., 2009 NY Slip Op 1396; 2009 N.Y. App. Div. LEXIS 1390 (App. Div. First Dep't Feb. 26, 2009).

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Insurers in New York must worry about Insurance Law sec. 3420(d) , a provision that requires denials "as soon as possible" for accidents involving bodily injury or death.  But, a recent appellated decision found that the statute did not apply where the incident was not an "occurrence."   State Farm Fire and Casualty Co. v. Whiting, 53 A.D.3d 1033 (4th Dep't 2008).  The court held that the statute does not apply "[w]here, as here, 'the insurance policy does not contemplate coverage in the first instance, ... requiring payment of a claim upon failure to timely discalim would [impermissibly] create coverage whre it never existed." (bracketed word in court's text)  This decision suggests a line of argument that insurers might regularly consider when facing charges of violating this statute.

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Late notice lives as a significant coverage defense in New York. On March 11, 2008, the Appellate Division entered summary judgment on late notice grounds, reversing the trial court, and rejecting the policyholder’s position that the delay should be excused because the policyholder thought that it was not liable. Donovan v. Empire Ins. Group, 2008 N.Y. Slip Op 2100 (App. Div. 2d Dep’t Mar. 11, 2008).

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The Supreme Court of Texas held last week that a late notice defense requires a showing of prejudice. PAJ, Inc. v. Hanover Insurance Co., 2008 Tex. LEXIS 8 (Tex. Jan. 11, 2008).

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Governor Spitzer vetoed the bill that would have required prejudice to establish late notice, and allowed direct actions in New York under certain circumstances. The bill would have changed a long-established and considered position in New York common law.  The veto is a welcome development for the insurance industry. 

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It will be interesting to see whether Governor Spitzer signs the legislation that would require insurers to demonstrate prejudice as part of a late notice defense. I hope that the governor declines to sign this bill. The New York no-prejudice position is a minority view, but it is a thoroughly considered view. Insurers should be free to set conditions on their coverage, and prompt notice of claims is a very reasonable condition.

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