We have written a number of blog posts involving New York Insurance Law Section 3420(d)(2), which requires insurance companies to disclaim quickly or waive the right to disclaim. Parties have tried to rely on 3420(d)(2) in a variety of ways. In a recent case, the Second Circuit Court of Appeals was asked to address the application of 3420(d)(2) in an action brought by one insurance company against another. The district court granted summary judgment in favor of the defendant carrier and declined to apply 3420(d)(2) to the case. The Second Circuit affirmed.
In Zurich Am. Ins. Co. v. Liberty Mut. Ins. Co. (Summary Order without precedential effect), a person was injured at a construction site in a shopping center. She sued the owner and operator of the shopping center who were additional insureds under the general contractor’s insurance policy. Even though the general contractor was not named as a defendant, it reported the case to its carrier who retained counsel to defend the owner and operator (the case ultimately ended up with a dismissal in favor of the defendants).
Meanwhile, the general contractor’s carrier notified the subcontractor that allegedly caused the dangerous condition on the construction site and the subcontractor’s carrier of the the suit, and demanded a defense and indemnification for the owner and operator. After the case was dismissed, the general contractor’s carrier brought this coverage action against the subcontractor’s carrier seeking reimbursement for the cost of defense and arguing that the carrier was required to defend the defendants as additional insureds. It was not until 2 years later, when the subcontractor’s carrier field its answer did it disclaim coverage (within the answer).
The subcontractor’s policy had a “Construction Exclusion,” which excluded liability for injuries arising from any construction, renovation, demolition or installation operations. It was not disputed that the underlying claim fell within the Construction Exclusion. It also had an additional insured provision.
The parties cross-moved for summary judgment. The general contractor’s carrier argued that the subcontractor’s carrier had failed to timely disclaim coverage based on the Construction Exclusion under 3420(d)(2). The district court denied the general contractor’s carrier’s motion and granted the cross-motion holding that 3420(d)(2) did not apply to claims between insurers and because the underlying claim fell within the Construction Exclusion. On appeal, the Second Circuit affirmed.
In affirming, the circuit court noted that New York courts have uniformly held that 3420(d)(2) does not apply to claims between insurers. The general contractor’s carrier argued that it was allowed to invoke the statute on behalf of its insureds and additional insureds because of the high deductible and subrogation provisions of the policy. The court rejected this argument. The court noted that the case was not brought in the name of the insureds and only sought relief for the carrier. Moreover, the court relied on New York cases that have held that an insurer cannot invoke 3420(d)(2) against a co-insurer even in cases where the mutual insureds remained personally protected by that provision. Had the general contractor’s carrier brought the action in the name of its insured and the additional insureds, the result might have been different, but not if the relief sought (reimbursement) solely benefited the carrier.