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The Rogak Report: 01 Nov 2005 ** Disclaimers - Late Notice **

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  • Lawrence Rogak
    Message 1 of 1 , Nov 1 7:51 PM
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      Admiral Indemnity Co. v. Pancas Restaurant Inc., NYLJ 11/01/05
      (Supreme Court, New York County) (RAMOS, j)

      Defendant Giovanni Ristaurante operated a restaurant 47-49 West 55th
      Street in New York, New York. Giovanni leased the restaurant premises
      from the owner of the building, defendant Pancas.

      Plaintiff Admiral issued a General Liability policy to Giovanni.
      Pursuant to an "Additional Insured Endorsement", the policy, as
      required by the terms of Giovanni's lease with building owner Pancas,
      named Pancas as an additional insured. The Admiral policy contained
      in its pertinent parts a "Conditions" section which required that the
      insured notify "as soon as practicable of an occurrence which may
      result in a claim." The Conditions section further provided that
      when "Admiral insurance is excess, [they] will have no duty... to
      defend the insured against any 'suit' if any other insurer has a duty
      to defend the insured against that 'suit'."

      Pancas also procured its own separate liability policy from the
      defendant PSM. Pancas's PSM policy provided primary coverage to
      Pancas for, among other things, lawsuits arising out of bodily injury
      occurring within the subject premises.

      On October 20, 2002, while both the Admiral and PSM liability
      policies were in effect, the underlying plaintiff, Oswalso Bendenzu,
      slipped and fell on a staircase within the insured premises during
      the course of his employment as a dishwasher for Giovanni, and was

      A December 2, 2002, letter from an attorney retained by Bendenzu
      advised that he would be asserting a claim against Pancas to recover
      for injuries he had sustained in the course of his employment. This
      letter instructed Pancas to notify its liability insurer for the
      claim. Pancas did not notify Admiral of Bendenzu's claim in December

      On January 2, 2003, Bendenzu commenced an action against Pancas in
      the Supreme Court of Bronx County for which the Summons and Complaint
      were served on Pancas on January 23, 3003. Bendenzu alleged in his
      complaint that his injuries were the result of defective conditions
      of the premises due to Pancas's negligent maintenance and ownership
      of the premises. In February, 2003, Pancas tendered the action
      exclusively to its own liability insurer, defendant PSM. PSM
      thereafter assigned counsel to represent Pancas in the Bendenzu
      lawsuit without reservation of rights.

      In July, 2003, Admiral claimed they were placed on notice of the
      Bendenzu lawsuit. Admiral acknowledged the action in a letter dated
      August 11, 2003. Admiral stated that it commenced its investigation
      thereafter into the matter.

      On September 15, 2003 the Bendenzu Summons and Complaint were
      furnished to Admiral. Admiral disclaimed coverage in a letter to
      Pancas dated November 4, 2003, on the basis of its violation of the
      Admiral policy's Notice Conditions. In a letter dated May 17, 2004,
      Admiral rescinded its disclaimer and retained defense counsel to
      share in and partly assume control of Pancas's defense with PSM in
      the Bendenzu suit.

      Admiral argued in this DJ action that it was not obligated to defend
      or indemnify Pancas in the underlying personal injury action. Admiral
      claimed that PSM, as Pancas's own general liability insurer, breached
      the Notice Conditions of the Admiral policy by unconditionally and
      without any reservation of rights assuming Pancas's defense
      exclusively at the outset of the underlying litigation. Admiral
      claimed that PSM failed to notify Admiral of the injury or/and suit
      in a timely manner and controlled Pancas's defense as a primary
      insurer thereby forfeiting its rights to challenge the nature of the
      coverage or to disclaim coverage thereunder.

      Pancas and PSM opposed plaintiff's motion for summary judgement,
      alleging that Pancas's delay in providing notice to Admiral created
      an issue of fact as to the viability of Admiral's late notice defense.

      Additionally, Pancas and PSM argued that Admiral was precluded from
      disclaiming coverage to Pancas because Admiral unreasonably delayed
      disclaiming coverage based on a late notice. Defendants also argued
      that Admiral ultimately rescinded its disclaimer of coverage and has
      resumed Pancas's defense in the underlying action without

      Pancas's contract, as an additional insured under the Admiral policy,
      required it to notify Admiral "as soon as practicable" of an
      occurrence, claim, or suit pursuant to the policy's coverage
      section. "While the issue of whether the insured has given timely
      notice of occurrence is generally a question of fact," held the
      Court, "New York courts have held that it may be determined as a
      matter of law when (1) the facts bearing on the delay in providing
      notice are not in dispute and (2) the insured has not offered valid
      excuse for the delay."

      "The undisputed evidence establishes that on October 20, 2002 while
      both the Admiral and PSM liability policies were in effect, the
      defendant and underlying plaintiff, Bendenzu, sustained an injury
      during the course of his employment for Giovanni. While Pancas became
      aware of the incident in December 2002, it was not until 9 months
      later, on July 30, 2003 that Admiral was placed on notice for the
      first time of the 2002 occurrence and lawsuit. Therefore, the facts
      regarding the delay are not in dispute. Rather, the issue is whether
      the delay is reasonable."

      "Pancas has not offered a valid reason for the delay. New York
      recognizes the insured's reasonable belief in its non-liability as a
      valid excuse for a policyholder's untimely notice. White v. City of
      New York, 81 NY2d 955, 957 (1993). Nevertheless, when no credible
      evidence supports a proffered excuse, a notice will be held untimely
      as matter of law. Hartford Fire Ins. Co. v. Masternak, 55 AD2d 472,
      474 (4th Dep't. 1977)."

      "Defendant Pancas argues that given the allegation that Bendenzu's
      injury occurred as a result of a defective stairway, which Giovanni
      was contractually obligated to maintain and repair, Pancas had a good-
      faith belief that it would not be held liable. However, Pancas, as
      the owner of the building within which the injury occurred should
      have been aware of his liability with regards to the occurrence which
      is specifically alleged in the Bendenzu Summons and Complaint.
      Additionally, Pancas, as an additional insured, agreed to all of
      Admiral policy's terms, conditions, limitations and exceptions that
      existed with respect to the original insured. Therefore, Pancas has
      an independent contractual obligation for which Pancas should have
      been put on notice by virtue of being an additional insured on the
      Admiral policy liability."

      "Under New York law, an insured's satisfaction of the notice of
      conditions in a policy insurance, absent valid reason for delay, is a
      mandatory condition precedent to the insured's right of coverage
      under the policy. Where an insured breaches the policy notice
      conditions, it is deemed as a matter of law, to have forfeited its
      rights under the policy, thus absolving the insurer of any coverage
      obligations, whether it be the primary or excess insurer, which would
      otherwise have existed."

      "Pancas failed to notify Admiral of the subject occurrence, claim and
      suit in a timely manner and as a result, breached the conditions
      stipulated in the Admiral policy. Pancas's breach of insurance
      contract forfeits its rights of coverage under the Admiral policy.
      Admiral is not estopped from disclaiming liability. In light of the
      circumstances, investigation, and delay of notice of occurrence and
      lawsuit, Admiral's disclaimer was provided as soon as reasonably

      Pursuant to Insurance Law §3420(d), "If under a liability policy
      delivered or issued for delivery in this state, an insurer shall
      disclaim liability or deny coverage for [ . . . ] any other type of
      accident occurring within this state, it shall give written notice as
      soon as is reasonably possible of such disclaimer of liability or
      denial of coverage to the insured and the injured person or any other

      "Where an insurance policy would otherwise cover a particular
      occurrence, but for an exclusion in the policy, an insurance carrier
      will be precluded from disclaiming coverage when it has unreasonably
      delayed in issuing its disclaimer."

      But under New York law, "an insurer's statutory obligation to give
      written notice of disclaimer of coverage as soon as reasonably
      possible pursuant to §3420(d) varies a great deal according to the
      specific circumstances surrounding the disclaimer. Nevertheless,
      timeliness is generally measured from the time that the insurer has
      sufficient information to disclaim liability in good faith. Admiral
      was obligated pursuant to New York Insurance Law to notify Pancas and
      PSM as soon as reasonably possible of its disclaimer upon the
      predicated exclusion. However, Admiral was not put on notice of the
      2002 occurrence until July 2003 and did not receive the Bendenzu
      pleadings until September 2003."

      "A disclaimer is based on concrete evidence in order to avoid
      piecemeal disclaimer. While Admiral cited Pancas's breach of policy
      conditions as grounds for its liability disclaimer, namely late
      notification of the occurrence, claim, and lawsuit, Admiral could not
      come to this determination without an investigation of the Bendenzu
      accident, the legal events following thereafter and all potential
      grounds for disclaimers. Under these circumstances, the Court finds
      Admiral's delay in issuing the disclaimer from September to July

      But what about the fact that Admiral withdrew its disclaimer before
      bringing this DJ action? The Court said, "Admiral's rescission letter
      states in pertinent parts: 'We hereby rescind our November 4, 2003
      coverage disclaimer. We will share in the defense of this claim on
      its merits with Magna Carta Insurance Company [PSM].' Admiral did not
      reserve its rights. While primary coverage by Admiral is not
      dependant upon the condition that PSM share in the obligation to
      defend Pancas, as argued by Admiral, the rescission following
      Pancas's defense does not prejudice Pancas. PSM did not lose complete
      control of the defense. As the aforementioned letter provides, PSM
      was able to share in Pancas's defense and Admiral only assumed part
      of the defense of the claim in conjunction with PSM. Therefore, the
      estoppel doctrine does not apply to Admiral; Admiral can disclaim
      their primary coverage obligation after having rescinded their
      original disclaimer."

      Admiral was granted summary judgment.

      Comment: This is certainly an odd set of circumstances, which may
      explain the odd result. Giovanni had a policy with Admiral which
      named Pancas as additional insured. Pancas had its own policy with
      PSM. The Admiral policy provided that it was excess in any situation
      where another policy had a primary duty to insure, and therefore
      Admiral's policy was excess to PSM's. The lawsuit comes in and
      Pancas notifies only its own insurer, PSM -- and not Admiral.
      Admiral doesn't get notice until 6 months after the lawsuit is
      served. Admiral gets a copy of the summons on September 15 and
      disclaims on November 4, some 7 weeks later. Then -- for some reason
      which is not explained -- Admiral rescinds its disclaimer more than 6
      months later in May and appoints defense counsel to share in the
      defense of Pancas -- without a reservation of rights. Then Admiral
      turns around again and brings this DJ action seeking to disclaim for
      late notice. Weird! And they succeed! Even weirder! How to
      explain? The only rationale I can think of is the fact that PSM, the
      primary insurer, defended and indemnified Pancas all along. Admiral
      should have been, at best, the excess insurer. But a late notice
      basis for a disclaimer is supposed to be served pretty fast -- as
      soon, in fact, as the insurer can tell that the notice was late.
      When Admiral got notice of the suit on July 30, one would imagine it
      was pretty clear that notice was late -- especially since PSM got
      notice 6 months earlier! And yet Admiral did not disclaim until over
      three months later, on November 4. That's late, for a late notice
      disclaimer. Reeeeeeeally late. How much investigating did it take
      to figure out that Admiral got late notice? And then to rescind the
      disclaimer without a reservation of rights and STILL be allowed to
      disclaim after that? That's more than weird. It borders on bizarre.
      Oh for sure, there is no basis for estoppel, because neither Pancas
      or PSM was left in a worse position by Admiral's actions. However, I
      am confident that no PRIMARY insurer could get away with that, and it
      is only Admiral's status as an excess insurer that lets it walk away
      here -- unless somebody appeals. And if I were representing PSM or
      Pancas, I would tell them that an appeal is worthwhile.

      Larry Rogak
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