In Chiarello v. Rio, the plaintiff was allegedly injured while operating an ATV owned by the defendants third-party plaintiffs and operated on their property. The property was insured by third-party defendant, Encompass Insurance Company of America. Although the accident occurred in 2007, notice of the accident was not given by the property owners until after they were served with a summons and complaint in 2010. At that time, Encompass disclaimed on late notice grounds.
Because the Encompass policy pre-dated the 2009 amendment to Insurance Law § 3420, Encompass was not required to demonstrate that it had been prejudiced by the owners' failure to give timely notice of the occurrence. The Second Department found, however, that the Supreme Court correctly determined that questions of fact existed as to whether the delay in giving notice to Encompass was "reasonable" under the circumstances. More specifically, the property owners averred that the plaintiff had taken the ATV without permission, used it in an area off the property and that after the accident the plaintiff seemed more concerned about his own liability for property damage and trespassing and never suggested that he was considering an action. Stated simply, the owners argued that they had a "good faith belief" that they would not be liable for the accident.
The Second Department also affirmed the denial of Encompass' motion to sever the third-party action. Although the Court recognized that there was a potential for prejudice to have an issue of insurance coverage raised in the context of a personal injury action (Christensen v. Weeks), the Court nevertheless held that the prejudice was outweighed by the potential for inconsistent verdicts. Here, the issue of whether the accident occurred on the Rios' property was common to both actions. Therefore, the Court held that any prejudice to Encompass could allegedly be "mitigated" with curative instruction.