New York Court of Appeals Declines to Impose “As Soon As Reasonably Possible” Requirement on All Insurer Disclaimers

The New York Court of Appeals, applying New York law, has held that an insurer is not required to disclaim coverage for environmental contamination claims on late notice grounds “as soon as reasonably possible,” a standard drawn from a statute applicable only to death and bodily injury claims arising out of New York accidents and brought under New York liability policies.  KeySpan Gas East Corp. v. Munich Reinsurance Am., Inc., 2014 WL 2573382 (N.Y. June 10, 2014).  Wiley Rein represented amicus curiae Complex Insurance Claims Litigation Association in this case.

The insured electrical power and natural gas utility had been engaged in ongoing negotiations with state regulatory actors over a number of years concerning the cleanup of seven manufactured gas plant sites.  Several claims had been asserted against the utility relating to contamination emanating from the sites, and the utility began proactively investigating and remediating its sites.  However, the utility did not notify its insurers of the potential for liability until many years later.  Upon receiving notice, the insurers issued timely letters expressly reserving the right to deny coverage on late notice grounds and requesting more information from the insured.

In a subsequent coverage action between the utility and its excess carriers, the insurers included late notice as an affirmative defense in their answers.  The insurers then sought summary judgment on the grounds of late notice.  The trial court found as a matter of law that the utility’s notice was late as to one site, but held that genuine disputes of material fact remained as to the other sites.  The trial court specifically rejected the utility’s contention that the insurers had waived the late-notice defense for each of the sites because they did not immediately disclaim coverage on that basis.  On cross-appeals of the trial court’s ruling, the intermediate appellate court held that the utility’s notices at two sites were late as a matter of law.  However, the court ruled that summary judgment was premature because material issues of fact remained as to whether the insurers had waived their rights to disclaim based on late notice.  The intermediate appellate court stated that there would be a waiver if the insurers had not met an “obligation to issue a written notice of disclaimer on the ground of late notice as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability.”

The New York high court reversed, holding that the intermediate appellate court erred in stating that the insurers had an “obligation” to disclaim coverage “as soon as reasonably possible.”  The court observed that the lower court had essentially recited the language of New York Insurance Law § 3420(d), which applies only to cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy.  The court held that the environmental contamination claims in this case did not fall within the scope of the statute and that the courts should not extend the statute’s prompt disclaimer requirement beyond the limits set by the legislature.  The court remanded the case to the intermediate appellate court to determine if, under the common law doctrine of waiver, there were triable issues of fact as to whether the insurers had clearly manifested an intent to abandon their late notice defense.