March 25, 2009
To Our Friends and Clients:
This will update you regarding a New York decision construing the insurer's requirement to timely notify the underlying plaintiff of a coverage disclaimer.
New York's Insurance Law §3420(d) requires that, if an insurer disclaims liability for death or bodily injury arising out of an accident in New York, the insurer must provide notice of that disclaimer as soon as is reasonably possible ... to the insured and the injured person or any other claimant." Further, §3420(a)(2) provides that, in the event the injured person obtains a judgment against the policyholder and serves the judgment upon the policyholder and the insurer, and if the judgment remains unsatisfied after thirty days, then the injured person may sue the insurer directly for coverage.
In Maldonado v. State Farm, the injured plaintiff filed just such a suit against the insurer, after obtaining an unsatisfied judgment against the policyholder and (as the plaintiff contended) serving that judgment on the insurer. The insurer disputed receipt of the judgment. Instead, the insurer contended that the first it learned of the judgment was filing of the direct action, to which the insurer had responded by promptly disclaiming coverage to the underlying plaintiff and policyholder.
The Queens County Civil Court granted summary judgment for the underlying plaintiff and against the insurer. The insurer and the plaintiff had submitted directly-contradicting affidavits on whether the judgment had been served on the insurer. Despite this conflicting evidence, the Court (relying upon a legal presumption of receipt) ruled that the judgment had been served on the insurer. We believe the Court erred in this instance, because the presumption of receipt is a rebuttable one, and the Court failed to credit any of the insurer's admissible evidence rebutting receipt of the judgment.
Based upon its inference that the insurer had been served with the judgment, the Court then determined that the insurer's coverage disclaimer was untimely. The Court measured timeliness from the presumed "receipt" date for the judgment, rather than the actual receipt date of the direct action complaint. The Court held that providing a coverage denial letter to the underlying plaintiff four months after the insurer's presumed "receipt" of the judgment, did not amount to disclaimer "as soon as reasonably possible" as the statute requires.
Maldonado illustrates the risk posed by Insurance Law 3420(d)'s requirement that a valid coverage disclaimer be issued to the underlying plaintiff as well as the policyholder. This risk often arises in cases where the policyholder defaults in the underlying action, due to insolvency or other factors. In that context, the fact that the insurer may be the only solvent entity in the picture, combined with legal presumptions relating to receipt and timeliness of the insurer's coverage communication, heavily tilt the playing field against an insurer advancing a valid coverage denial.
For a copy of the Maldonado holding, or information about our insurance coverage practice group, please contact Michael Case by email at mcase@brhr.com or by telephone at (212) 634-5030.
