Opinion
12 CAF 15-00313.
02-18-2016
KRAEMER BUILDING CORP., Respondent, v. SCOTTSDALE INSURANCE COMPANY, Appellant.
Carroll McNulty & Kull, LLC, New York City (Ann Odelson of counsel), for appellant. Craig T. Bumgarner, Carmel, for respondent.
Carroll McNulty & Kull, LLC, New York City (Ann Odelson of counsel), for appellant.
Craig T. Bumgarner, Carmel, for respondent.
Opinion
DEVINE, J.
Appeal from an order of the Supreme Court (Schick, J.), entered May 29, 2015 in Sullivan County, which, among other things, granted plaintiff's motion for summary judgment declaring that defendant has a duty to defend and/or indemnify plaintiff in an underlying action.
Defendant issued a commercial general liability insurance policy to plaintiff, a construction firm, effective from October 2008 to October 2009. Plaintiff was the general contractor at a construction site where, in February 2009, Allan Speirs was injured in the course of his work for a subcontractor. Defendant was notified of the occurrence in March 2009. Plaintiff then learned that Speirs had allegedly sustained serious injuries in the accident and had retained counsel and, in January 2010, that information was promptly forwarded to defendant.
Speirs commenced an action against plaintiff and the owner of the construction site in August 2011, alleging violations of Labor Law §§ 200 and 241(6), as well as common-law negligence. In November 2011, plaintiff was served with the summons and complaint pursuant to Business Corporation Law § 306 but, because its registered agent was the defunct law firm that handled its 1965 incorporation, it did not receive those documents. Plaintiff accordingly defaulted, and neither it nor defendant became aware of the personal injury action until counsel for Speirs alerted defendant to that fact in March 2012. Defendant disclaimed coverage because, among other things, plaintiff had failed to give it notice of the personal injury action as required by the liability policy.
Plaintiff thereafter commenced this action seeking a declaration that defendant is required to defend and indemnify it in the personal injury action. Following joinder of issue, plaintiff moved, and defendant cross-moved, for summary judgment. Supreme Court granted summary judgment to plaintiff, and defendant now appeals.
We reverse. The liability insurance policy at issue here “contain[s] clauses requiring [plaintiff] to provide prompt notice of [both] an occurrence implicating coverage” and any ensuing legal action (American Home Assur. Co. v. International Ins. Co., 90 N.Y.2d 433, 440, 661 N.Y.S.2d 584, 684 N.E.2d 14 1997; see American Tr. Ins. Co. v. Sartor, 3 N.Y.3d 71, 75–76, 781 N.Y.S.2d 630, 814 N.E.2d 1189 2004 ). “The insurer's receipt of such notice is therefore a condition precedent to its liability under the policy,” and a failure to give that notice “may allow an insurer to disclaim its duty to provide coverage” (American Tr. Ins. Co. v. Sartor, 3 N.Y.3d at 76, 781 N.Y.S.2d 630, 814 N.E.2d 1189; see Great Canal Realty Corp. v. Seneca Ins. Co., Inc., 5 N.Y.3d 742, 743, 800 N.Y.S.2d 521, 833 N.E.2d 1196 2005; Argo Corp. v. Greater N.Y. Mut. Ins. Co., 4 N.Y.3d 332, 339, 794 N.Y.S.2d 704, 827 N.E.2d 762 2005 ). At the time the policy here was issued, “[n]o showing of prejudice [was] required” to justify a disclaimer (Argo Corp. v. Greater N.Y. Mut. Ins. Co., 4 N.Y.3d at 339, 794 N.Y.S.2d 704, 827 N.E.2d 762). The absence of a need to demonstrate prejudice represented “a limited exception to th[e] general rule,” and was justified by a primary “insurer's need to protect itself from fraud by investigating claims soon after the underlying events; to set reserves; and to take an active, early role in settlement discussions” (Matter of Brandon [Nationwide Mut. Ins. Co.], 97 N.Y.2d 491, 496, 743 N.Y.S.2d 53, 769 N.E.2d 810 2002; see Rekemeyer v. State Farm Mut. Auto. Ins. Co., 4 N.Y.3d 468, 475, 796 N.Y.S.2d 13, 828 N.E.2d 970 2005; Argo Corp. v. Greater N.Y. Mut. Ins. Co., 4 N.Y.3d at 339, 794 N.Y.S.2d 704, 827 N.E.2d 762).
Amendments to Insurance Law § 3420 subsequently took effect that prevented an insurer from disclaiming coverage “unless the failure to provide timely notice has prejudiced” it (Insurance Law § 3420[a]5; [c]2, as added by L. 2008, ch. 388; see Rosier v. Stoeckeler, 101 A.D.3d 1310, 1312, 957 N.Y.S.2d 742 2012 ).
There is no dispute that plaintiff provided timely notice of the underlying accident, but it is equally clear that plaintiff failed to “[n]otify [defendant] as soon as practicable” that the personal injury action had been commenced. Indeed, plaintiff never gave notice to defendant, although counsel for Speirs did so approximately four months after papers had been served (see Insurance Law § 3420[a]3; American Tr. Ins. Co. v. Sartor, 3 N.Y.3d at 76, 781 N.Y.S.2d 630, 814 N.E.2d 1189; Kalthoff v. Arrowood Indem. Co., 95 A.D.3d 1413, 1415, 943 N.Y.S.2d 645 2012, lv. denied 19 N.Y.3d 815, 2012 WL 5258814 2012 ). That delay, “in the absence of an excuse or mitigating factors, is unreasonable as a matter of law” (233 E. 17th St., LLC v. L.G.B. Dev., Inc., 78 A.D.3d 930, 932, 913 N.Y.S.2d 110 2010 ). Plaintiff never gave notice because it did not receive the summons and complaint but, inasmuch as its nonreceipt flowed from its failure to appoint a new registered agent for service to replace a defunct one that had been named decades earlier, that explanation was “insufficient as a matter of law” (Kalthoff v. Arrowood Indem. Co., 95 A.D.3d at 1415, 943 N.Y.S.2d 645; see Briggs Ave. LLC v. Insurance Corp. of Hannover, 11 N.Y.3d 377, 381, 870 N.Y.S.2d 841, 899 N.E.2d 947 2008; AH Prop., LLC v. New Hampshire Ins. Co., 95 A.D.3d 1243, 1244–1245, 945 N.Y.S.2d 391 2012 ).
Plaintiff nevertheless argues that it is entitled to summary judgment because defendant was not prejudiced by the lack of timely notice of suit, pointing to analogous cases involving supplemental uninsured and underinsured motorists coverage where timely notice of an occurrence, but not of the ensuing legal action, was given (see Rekemeyer v. State Farm Mut. Auto. Ins. Co., 4 N.Y.3d at 475, 796 N.Y.S.2d 13, 828 N.E.2d 970; Matter of Brandon [Nationwide Mut. Ins. Co.], 97 N.Y.2d at 496–498, 743 N.Y.S.2d 53, 769 N.E.2d 810). The Court of Appeals observed in those cases, however, that the “ no-prejudice” rule had less potency in the context of such coverage because an insurer was able to protect its interests due to its receipt of the separate no-fault claim (see Matter of Brandon [Nationwide Mut. Ins. Co.], 97 N.Y.2d at 496–498, 743 N.Y.S.2d 53, 769 N.E.2d 810). In contrast, “[t]he rationale of the no-prejudice rule is clearly applicable to a late notice of lawsuit under a liability insurance policy,” as a liability insurer is unlikely to obtain pertinent information through other means, impairing its ability “to take an active, early role in the litigation process and in any settlement discussions and to set adequate reserves” (Argo Corp. v. Greater N.Y. Mut. Ins. Co., 4 N.Y.3d at 340, 794 N.Y.S.2d 704, 827 N.E.2d 762). The “no-prejudice” rule accordingly applies to the case before us, and the failure of defendant to affirmatively establish prejudice is of no moment (see id.; Liberty Moving & Stor. Co., Inc. v. Westport Ins. Corp., 55 A.D.3d 1014, 1016–1017, 865 N.Y.S.2d 724 2008, lv. denied 12 N.Y.3d 709, 2009 WL 1259046 2009; 1700 Broadway Co. v. Greater N.Y. Mut. Ins. Co., 54 A.D.3d 593, 593–594, 863 N.Y.S.2d 434 2008 ). Thus, defendant should have been awarded summary judgment dismissing the complaint.
Regardless of the fact that defendant was not required to show prejudice, plaintiff is far from persuasive in asserting that defendant could not have been prejudiced by the absence of timely notice of suit. As a result of the lack of notice, defendant lost the opportunity to “appear and interpose an answer” on plaintiff's behalf as of right, although counsel for Speirs was apparently willing to show leniency in that regard (American Tr. Ins. Co. v. Rechev of Brooklyn, Inc., 57 A.D.3d 257, 257, 867 N.Y.S.2d 914 2008 ).
ORDERED that the order is reversed, on the law, with costs, plaintiff's motion denied, defendant's cross motion granted, summary judgment awarded to defendant and complaint dismissed, and it is declared that defendant has no duty to defend or indemnify plaintiff in the underlying action.
McCARTHY, J.P., EGAN JR. and LYNCH, JJ., concur.