Matters for an Agent or Broker to Consider
When a Disclaimer of Coverage is Issued
Disclaimers of coverage issued by insurers are a significant source of errors and omissions claims and lawsuits. For an insured, it is a simple matter of logic that, if their claim is not covered, it must either be the fault of the insurer or the agent or broker who procured the insurance policy. As a result, it is often in the interest of the agent or broker to closely examine the coverage position and, under certain circumstances, possibly even contact the insurance company in an effort to have it reconsider its position. Accordingly, in this issue of The E&O Report, we will review some issues that New York insurance agents and brokers should consider when a disclaimer of coverage is issued to a customer.
Did the Insurer Comply with Technical Requirements in Connection with Disclaimer?
New York Insurance Law §3420(d)(2) provides that “[i]f under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or 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 claimant.” Here are some questions to consider in order to determine whether the insurance company has complied with this statute:
- Was the insurance policy issued or delivered in New York? Does the claim against the insured seek to recover damages for bodily injury arising out of an accident that occurred in New York? If so, Insurance Law §3420(d)(2) will apply.
- Was the disclaimer issued in a timely fashion by the insurance company? In order to answer this question, some other questions to ask are: (a) What information was provided to the insurer with respect to the claim? (b) When was this information provided? (c) Did the insurer need any additional information in order disclaim on any of the asserted bases? If so, what efforts did the insurer make to obtain that information and when did it make those efforts?
The timeliness of a disclaimer of coverage will be determined based upon the circumstances of each particular case. As a general rule of thumb, a disclaimer will often be considered untimely if it is made more than 30 days after the insurance company has sufficient information in order to disclaim coverage. If an insurance company does not have sufficient information to determine whether it is permitted to disclaim coverage, the insurer is permitted to perform an investigation of the relevant facts. However, the investigation performed must be diligent and necessary. There is no case law determining what is considered to be diligent. As to the question of whether the investigation was necessary, there is some support for an argument that an insurance company is entitled to obtain documentary evidence to support its position before issuing a disclaimer. However, the courts are getting stricter with respect to disclaimers of coverage. As a result, it is no longer clear whether the courts will consider this to be “necessary.”
Previously, if an insurance company had multiple bases upon which to disclaim coverage, the courts permitted the insurer to hold off disclaiming until it could verify all potential bases, in order to avoid issuing piecemeal disclaimers. In January 2012, however, the New York Appellate Division, First Department (which had previously issued the leading decision discouraging piecemeal disclaimers) issued a decision in the case of George Campbell Painting v. National Union Fire Ins. Co. of Pittsburgh, P.A., in which the Court backed-off of its prior decision, and held, instead, that “we should not permit the insurer to delay issuing a disclaimer on a known ground while investigating other possible grounds for avoiding liability.”
- Did the insurer send copies of the disclaimer to all persons and entities entitled to receive copies? Did the insurer disclaim coverage to the correct insured? Is the insured’s address correctly listed on the disclaimer letter? Was the claimant or claimant’s attorney copied on the disclaimer?
We recognize that there is a general practice when ACORD loss notices are prepared by agencies and brokerages to list only the first named insured in the box requesting the name of the insured. The first named insured, however, may not be the insured seeking coverage. This practice is often a product of the agency management software which generates the notice. Sometimes this information cannot be corrected at all, and sometimes it cannot be corrected easily. If the agent or broker provided such a notice, additional information should be included on the loss notice form or together with the form in order to ensure the insurance company is made aware of which insured is seeking coverage. If you are reviewing a disclaimer in response to such a notice, you should take particular notice to ensure that the insurer has disclaimed to the insured seeking notice, rather than to the named insured.
- Did the insurer disclaim coverage with a high degree of specificity? Does the disclaimer quote the policy provisions relied upon? If so, does it quote the correct policy provisions?
New York Insurance Law §3420(d)(2) requires that an insurance company disclaim with a high degree of specificity. Although neither the statute nor case law specifically requires the insurer to quote the relevant provision in order to fulfill this requirement, it seems generally accepted that the requirement of specifying the basis should include the specific policy provisions that are being relied upon. In a few cases where the provisions are quoted, the courts found that it is insufficient if an older version of the endorsement or simply the wrong endorsement is quoted. However, this will only likely be the case if there is a substantive distinction. Disclaiming with a high degree of specificity also requires the insurer to specify whose notice was late and what notice was late if the insurer is disclaiming coverage for late notice. For example, if the insurer is disclaiming coverage to the insured based upon the insured’s late notice and sends a copy to the allegedly injured party, this is likely insufficient to notify the insured and the injured party that the insurer is also disclaiming coverage because the injured party’s notice was also untimely. If the injured party has provided timely notice, this may become a basis upon which the disclaimer can possibly be invalidated.
- Did the injured party provide notice?
New York Insurance Law §3420(d) has been interpreted as providing an injured party a separate right and obligation to provide timely notice of an occurrence and/or claim. The injured party’s time to provide notice begins to run from the time the injured party has sufficient facts to provide such notice. Obviously, the injured party will generally know of the injury as soon as it occurs. However, the injured party may not have sufficient information at that time to identify the alleged tortfeasor’s insurer. The injured party is obligated to make diligent inquiry to identify the identity of the insurance company. If the injured party had previously done so and did not identify the insurer until the insurer denied coverage, it is possible that notice provided by the injured party after the issuance of the disclaimer may be found to be timely. In light of this, if the insurance company issues a denial of coverage based solely upon late notice, it may be in the insured’s interest to notify the injured party of his/her right and obligation to notify the insurance company in an effort to “salvage” the late notice. However, if the injured party had not made any efforts to identify the insurance company before the denial of coverage was issued (e.g. by asking the insured), the injured party may not be able to provide timely notice after a disclaimer has been issued.
Additionally, if the insured’s notice is late and the injured party’s notice is timely, the insurer may only technically be required to indemnify the insured in the event of a settlement and not require a defense be provided. However, if the insurer is obligated to provide indemnification for a judgment, it has an interest in controlling the defense and, therefore, it will often offer to do so.
Do Not Interpret the Insurance Policy
If an insurance company has disclaimed coverage upon the basis that the claim does not fall within the scope of coverage or falls within a policy exclusion, it is often common for the insured to point blame at the insurance agent or broker for allegedly failing to purchase sufficient coverage. While it may seem to be in the best interests of the agent or broker to argue that the claims fall within the coverage, and not within any exclusion, it can often be more harmful than helpful for an agent or broker to take a position regarding interpretation of the policy after a loss. Although well-intentioned, anything said by the broker, either verbally or in writing, may later be twisted in litigation in an effort to help the insured’s position. To avoid potential problems, it is best to not get involved in substantive disputes regarding the meaning or interpretation of the coverage provided in the insurance policy.
Conclusion
An insurance agency or brokerage should consider the various issues we have addressed above when examining a disclaimer issued to a customer. By doing so, the agency or brokerage may possibly help a customer obtain coverage for a claim and, at the same time, the agency or brokerage may also help protect itself against a potential E&O claim or lawsuit.
Submitted by:
Debra M. Krebs, Esq.
James C. Keidel, Esq.
of Keidel, Weldon & Cunningham, LLP
Keidel, Weldon & Cunningham, LLP concentrates its practice in the defense of insurance agents and broker’s errors and omissions claims and litigation, errors and omissions loss control counsel and education, insurance coverage analysis and litigation and insurance regulatory matters. Please direct any comments or questions to James C. Keidel, Esq. by mail to the main office of Keidel, Weldon & Cunningham, LLP, at 925 Westchester Avenue, Suite 400, White Plains, NY 10604, telephone at (914) 948-7000 or e-mail at jkeidel@kwcllp.com. The law firm also maintains offices in Syracuse, New York; New York City, New York; Wilton, Connecticut; Bayonne, New Jersey; Warwick, Rhode Island and Philadelphia, Pennsylvania.
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