United States Liability Ins. Co. v. Winchester Fine Arts Servs., Inc. (337 F.Supp 2d 435 [SDNY 2004]) involved an action by an excess insurer, "U.S. Liability," against its insured "Winchester," its insured's primary carrier, Utica National Insurance Group ("Utica"), and injured claimants involved in an accident with plaintiff's insured, for a declaration that U.S. Liability was not required to provide excess indemnification coverage in connection with the claimant's underlying personal injury action.
On April 9, 2001, a Winchester's employee was involved a motor vehicle accident with the claimants. Winchester was then insured under a primary policy with Utica and under an excess policy with U.S. Liability (the "Excess Policy"), which required notice of an occurrence or claim by Winchester as soon as practicable.
On April 17, 2001 and January 29, 2002, the Claimants notified Utica of the accident and inquired as to whether Winchester carried excess liability insurance. The Claimants sued Winchester for personal injuries, and again requested that Utica provide information regarding excess insurance coverage, and provided Utica with the Complaint of their action. Utica did not respond. On two separate occasions during discovery, the Claimants requested excess coverage information from Winchester's trial counsel. Winchester's trial counsel never mentioned that Winchester had an excess policy.
On February 28, 2003, Winchester's defense counsel informed Utica that he was in the process of preparing an affidavit from Winchester's President to attest that there was no applicable excess insurance policy carried by Winchester. By letter dated March 5, 2003, Winchester's general corporate counsel ("Winchester's corporate counsel"), however, informed U.S. Liability of the state court action and provided the Complaint.
On April 1, 2003, Winchester informed the Claimants of the Excess Policy.
U.S. Liability then received the Claimants' pleadings from Winchester's corporate counsel on April 2, 2003, and two weeks thereafter, sent a letter to Winchester and the Claimants' counsel disclaiming coverage for Winchester's failure to comply with the notice provision of the Excess Policy. This notice further stated that the Claimants failed to cure Winchester's untimely notice because the Claimants were not the first to notify plaintiff of the state court action.
In determining whether U.S. Liability, or Winchester and the Claimants, were entitled to summary judgment on their respective claims, the Court first concluded that Winchester failed to provide timely notice of the state court action to plaintiff under the terms of the Excess Policy. The Court also found that "it was unreasonable as a matter of law for Winchester to not have notified U.S. Liability [plaintiff] of the state court action well before March 5, 2003."
The Court then "turned to the Claimants' argument that they cured Winchester's untimely notice"; more specifically, whether "according to the Claimants, they cured any untimely notice by Winchester by informing U.S. Liability plaintiff of the state court action pursuant to New York Insurance Law § 3420(a)(3)" which grants an injured party an independent right to notify the insurer of a potential claim" and deems such notice as "notice to the insurer."
The court acknowledged such notice from an injured party must be made "as soon as...reasonably possible" once the injured party learns of the insurance. The Claimants invoked § 3420(a)(3) "to overcome Winchester's untimely notice, and as such, proffercd their diligent efforts to discover the existence of the Excess Policy as a mitigating circumstance to excuse Winchester's delay in providing notice" to plaintiff. The Claimants asserted that they timely notified plaintiff of their claim on May 20, 2003 after receiving plaintiff's disclaimer letter on April 21, 2003. Plaintiff retorted that the Claimants did not cure Winchester's untimely notice because the Claimants were not the first to notify plaintiff of the state court action. In this regard, the court noted:
Although there is no statutory requirement that the injured party's notice must occur prior to any notice by the insured, several courts applying § 3420(a)(3) have so held. Ringel v. Blue Ridge Ins. Co., 293 A.D.2d 460, 740 N.Y.S.2d 109, 111 (2d Dep't 2002) (stating that "where the insured is the first to notify the carrier, even if that notice is untimely, any subsequent information provided by the injured party is superfluous for notice purposes"); Massachusetts Bay Ins. Co. v. Flood, 128 A.D.2d 683, 513 N.Y.S.2d 182, 183 (2d Dep't 1987) (noting that where the insured had already notified the insurer, the injured party's subsequent notice was "superfluous"); Mount Vernon Fire Ins. Co. v. Orange Intercept, Ltd., No. CV-92-1986, 1992 WL 368085, at 3 (E.D.N.Y. Nov. 19, 1992) (stating that "once the insured gives late notice to the insurer an injured party cannot give timely notice under section 3420(a)(4) because 'any subsequent information provided by the injured party [is] ..., for notice purposes, superfluous ....'") .
The Court also noted "that some courts have held to the contrary (See, e.g., Walters v. Atkins, 179 AD2d 1067, 579 NYS2d 525, 527 [4th Dept 1992][stating that first notice by the insured does not extinguish the injured party's ability to cure the insured's untimeliness because the "injured party has an independent right to provide written notice to an insurer and cannot be bound by an insured's late notice"])."
The Court also distinguished Lauritano v. American Fidelity Fire Ins. Co. (3 AD2d 564, 162 NYS2d 553 [1st Dept 1957]), which was cited for the proposition that the Claimants' notice need not be the first notice that plaintiff received provided that the notice was timely under the circumstances. The Court noted that the "injured parties in Lauritano, however, did in fact provide first notice to the insurer, and thus, that decision is materially distinguishable from the facts presented here."
The court then held that "Once an insurer has received notice from the insured, whatever notice requirements may be applicable are prima facie satisfied (subject to any challenge by the insurer). Thus, the ability of an injured party to provide notice to the insurer in lieu of the insured under § 3420(a)(3) is moot once notice has been accomplished by the insured." Since Winchester was the first to inform plaintiff of the state court action and the Claimants were not the first to provide such notice, "the Court rejects the Claimants' and Winchester's arguments that the Claimants' notice cured Winchester's untimely notice. Winchester thus removed the Claimants' practical ability to cure Winchester's untimely notice when it notified U.S. Liability on March 5, 2003." .
The Court, however, next turned to the Claimant's argument that their May 20, 2003 notice constituted timely notice of the state court action to U.S. Liability. The Court concluded that "based on the evidence in the record, such notice was untimely as a matter of law." Although the Court acknowledged that the Claimants "should not be vicariously charged with Winchester's dilatory practices," the record was clear that once the Claimants received notice of the Excess Policy on or about April 1, 2003 and waited approximately 50 days to formally provide notice to U.S. Liability. Thus, although the Claimants diligently sought information on excess coverage from Utica and Winchester's trial counsel during the period from April 2001 through March 2003, neither the Claimants nor Winchester offered "any explanation as to why the Claimants prior diligence suddenly terminated once the existence of the Excess Policy was revealed." Noting that unexplained delays, even if brief, can be unreasonable as a matter of law, the Court found that "the Claimants' unexplained 50-day delay in notifying U.S. Liability of the state court action is untimely as a matter of law." Accordingly, the Court rejected the Claimants' attempts to use their May 20, 2003 notice of the state court action to cure Winchester's untimely notice.