Reading the Fine PrintThe defense of late notice is a crucial tool used by insurance companies when defending against a policyholder in a coverage dispute. The law of late notice varies from state to state and era to era. In some states an insurance company’s ability to assert the defense of late notice has been codified by statute. In other states the common law rules concerning late notice apply. In a recent case, a New York intermediate appellate court reached a determination on an insurance company’s ability to assert the late notice defense and found that the right had been waived.

In Estee Lauder Inc. v. OneBeacon Ins. Group, LLC., the appellate court reversed an order that allowed the insurance company to amend its answer to assert the affirmative defense of late notice. (No. 602379/05 (N.Y. App. Div. 1st Dep’t July 9. 2015)). In so holding, the court stated that in a prior appeal in the same case the court had already determined that the insurance company had waived its right to assert the defense. The insurance company was trying to use a recent New York Court of Appeals case that came down between its two appeals to reopen the discussion and allow it to assert the late notice defense. Unfortunately for the insurance company, that effort (to date) failed.

Part of the problem is the general principle that when an insurance company disclaims coverage, it must do so with particularity. In other words, if late notice is a basis to disclaim coverage, then late notice of claim should be stated expressly a reason for the disclaimer in the disclaimer letter. In this case, that did not happen, according to the courts, and the appellate court originally held that the insurance company’s failure to include late notice in its disclaimer letter waived its right to try to assert it later in an amendment to its answer.

In the Court of Appeals case relied upon by the insurance company, KeySpan Gas E. Corp. v. Munich Reinsurance. Am. Co., 23 N.Y.3d 583 (2014), the court discusses New York’s statutory ground for disclaimers found in Insurance Law § 3420 (d) (2).  The court held that the statute only applies to insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy. In making its ruling, the Court of Appeals actually mentioned the earlier appeal stating that to the extent that prior appeal applies to claims not based on death and bodily injury it was wrongly decided and should not be relied upon.

Naturally, the insurance company seized upon this language to show that in its case–also not a bodily injury case–the earlier appeal was wrongly decided (on its right to assert the affirmative defense and was not waived). The appellate court nevertheless rejected the insurance company’s argument based on the doctrine of law of the case and also because the court had not decided the earlier appeal based on the statutory requirements for insurance disclaimers.

So the bottom line is that even though this case was not a bodily injury case that required disclaimers to follow the statutory requirements, the common law disclaimer requirements still applied and the failure of the insurance company to disclaim based on late notice meant that it had waived the right to assert the affirmative defense of late notice in the coverage action.