Court of Appeals Reiterates That Insurance Law Applies Only For Bodily Injury Claims Under Policies Issued In New York

In KeySpan Gas EastCorp. v. Munich Reinsurance America, Inc., the plaintiff owned and operated manufactured gas plants (MGP) and brought suit against the defendant-insurer claiming that the insurance company had a duty to indemnify and defend environmental damages claims at two of the plaintiff’s MGP sites.  The defendant issued excess liability insurance policies to the plaintiff and required prompt notice of a potential indemnity claim.  Before any regulatory agencies had commenced a lawsuit or formal investigation, the plaintiff contacted the defendant about environmental concerns at the two MGP sites.  The defendant-insurer replied in two parts: first, it reserved all rights and coverage defenses, including that of late notice, and second, the defendant requested additional information about the MGPs.  Shortly thereafter, the plaintiff sent supplemental disclosures to the defendant, to which the defendant never responded.  The plaintiff commenced this suit after the DEC conducted a formal investigation.  The defendant asserted the affirmative defense of late notice warranting denial of coverage. 

The Supreme Court found that the defendant had no duty to indemnify or defend the claim on one of the properties, but held that an issue of fact existed regarding the reasonableness of the delay for the second property.  On appeal, the First Department held that the plaintiff failed to give timely notice under its insurance policy; yet, did not grant summary judgment because an issue of fact existed as to whether the defendant waived its right to disclaim coverage based on late notice.  While the First Department did not specifically cite to Insurance Law 3420(d)(2), it used its language to find that the defendant-insurer breached its duty.  The First Department essentially recited 3420(d)(2) in stating that the defendant had an “obligation” to disclaim coverage based on late notice “as soon as reasonably possible after first learning of the … grounds for disclaimer.”  The Court of Appeals found this to be in error, holding that where the underlying claim does not arise out of an accident involving bodily injury or death, 3420(d)(2) is inapplicable.  The Court clarified that 3420(d)(2) applies only in insurance cases involving bodily injury or death claims arising out of a New York accident and brought under a New York liability policy and that any Appellate Division case holding that 3420(d)(2) applies to claims not based on bodily injuries or death was wrongly decided and should not be followed.   As a result, the case was reversed and remanded.  The Appellate Division is to consider the defendant’s delay in giving notice of disclaimer under common-law waiver and estoppel principles