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Under New York law, the rules for a timely disclaimer arising out of an auto accident are found in Insurance Law section 3420(d)(2).  That section requires an insurer to disclaim liability as soon as is reasonably possible or otherwise the disclaimer is ineffective.  In a recent non-precedential appeal, the Second Circuit reversed the district court and found that an insurer timely disclaimed in the face of what the district court had determined was a 52-day delay.

In United Financial Casualty Co. v. Country-Wide Insurance Co., No. 18-3022 (2d Cir. July 1, 2019), two insurance companies clashed over which had to defend and indemnify the driver in a lawsuit arising out of a three-vehicle collision.  The driver was hauling goods for a trucking company.  It turned out that there were two possible policies involved.  The first was a motor carrier liability policy issued to the shipping company and a non-trucking liability policy issued to the owner of the truck leased to the shipping company and the driver’s employer.  The non-trucking liability policy had an exclusion, applicable only when other insurance was available, for automobiles being used to carry property in any business.  In other words, if there was other insurance that applied, the exclusion would preclude coverage for business use of the truck.

The carrier that issued the non-trucking liability policy contacted the motor carrier liability insurer after it assumed the defense in an effort to tender the defense to the carrier for the motor liability insurance.  It reached out for months and eventually received a response rejecting the tender and disclaiming coverage for the driver.  Some 52 days after the non-trucking carrier received the letter rejecting the tender it commenced a declaratory judgment action seeking a ruling that it did not have to defend the driver and that the other carrier had that duty and owed it the defense costs expended to date.

After cross-motions for summary judgment, the district court ruled in favor of the motor insurance carrier and held that the 52-day delay in disclaiming was unreasonable.  On appeal, the Second Circuit reversed.  The court found that the non-trucking carrier did disclaim as soon as reasonably possible because it did so only after it finally obtained the motor liability carrier’s policy in this litigation.  Up until then, said the court, the non-trucking carrier did not know if the motor liability carrier had a policy that covered the driver.  Because the non-trucking carrier had already commenced the declaratory judgment action, it had already disclaimed in a timely manner under 3420(d)(2).  The court noted that under New York law, the commencement of a declaratory judgment action by an insurer is sufficient written notice of a disclaimer because the action constitutes unequivocal, unambiguous written notice (citations omitted).

Interestingly, the circuit court, in a footnote, mentioned that the non-trucking carrier challenged the motor liability carrier’s standing to raise 3420(d)(2) as a defense in an insurer-versus-insurer dispute.  The court said that even if 3420(d)(2) was applicable, the non-trucking carrier had satisfied the requirements.  But the court said it did not need to address the argument, except that it cited cases stating that 3420(d)(2) does not apply to claims between insurers.