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New York Appellate Court Discusses Notification for Denying Coverage is Essential

XYZ previously moved to dismiss the verified complaint against it, together with any cross-claims; or to treat the motion as one for summary judgment and declare that XYZ has no obligation to defend or indemnify Rx or CCI and no obligation to reimburse AAA in connection with the underlying lawsuit or third party personal injury actions.

Under Insurance Law, an insurer wishing to disclaim liability or deny coverage for death or bodily injury must “give written notice as soon as reasonably possible of such disclaimer or denial of coverage.” A failure to give such prompt notice precludes an effective disclaimer or denial. Timeliness of an insurer’s disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage. Further, an insurer’s explanation is insufficient as a matter of law where the basis for denying coverage was or should have been readily apparent before the onset of the delay.

The Court finds that XYZ’s disclaimer under Insurance Law ยง3420(d(2) was timely, as the basis for denying personal injury coverage was not readily apparent. The documentation attached to Rx’s Tender Letter did not provide sufficient facts to enable XYZ to disclaim coverage on the grounds of the Employee Exclusion or the Contractual Liability Exclusion provisions of the policy.

With respect to the Employee Exclusion provision, although Rx’s counsel, in its demand letter, asserted that Mr. F was an employee of CCI, Mr. F’s complaint, in the underlying action, which was attached to the demand, does not identify Mr. F’s employer at the time of the accident. Consequently, there was insufficient information to immediately ascertain the validity of Rx’s demand.

With respect to the Contractual Liability Exclusion provision, Mr. F’s complaint in the underlying lawsuit identified the accident location only as 27XX East Tremont Avenue, Bronx, New York, and alleged that the premises was owned, operated, maintained, controlled and managed by either Rx or MD LLC. The Standard Form of Agreement between Owner and Contractor (Rx) where the basis of payment is a STIPULATED SUM identifies the Project as EE Retail Store, 27XX/62 East Tremont Avenue, Bronx, New York. The Subcontractor Agreement, dated December 10, 2002, between Rx and CCI, only identifies the Project as EE, Bronx. The lack of specificity of the Project address in the Subcontractor Agreement created a sufficient ambiguity as to the applicability of Contractual Liability Exclusion provision. Under these circumstances, the 25 day “delay” by XYZ was reasonable and justified.

XYZ’s disclaimer letters to CCI and Rx sufficiently identified the applicable policy exclusion provisions and set forth the factual basis for XYZ’s position that the claims fell within the policy exclusions. The disclaimer letter sent to Rx, which enclosed and incorporated by reference the one sent to CCI, served as the functional equivalent of setting forth the applicable language again at length. This practice does not invalidate the disclaimer.

XYZ’s issuance of its disclaimer twenty-five days after receipt of Rx’s Tender Letter is timely.

XYZ’s policy contains an Employee Exclusion, which applies to all claims and suits by any person or organization for damages because of such bodily injury, including damages for care and loss of services.

The Court finds that provisions of Employee Exclusion Endorsement and Contractual Liability Exclusion Endorsements preclude coverage to Rx and/or AAA for the injuries allegedly sustained by Mr. F. As Mr. F was an employee of CCI, a subcontractor of Rx, no coverage is available because of the Employee Exclusion Endorsement. Moreover, the Subcontractor Agreement with CCI, which Rx relies upon for contractual indemnity from CCI, does not fit within the definition of an incidental contract. Hence, no coverage is available because of the Contractual Liability Exclusion. Consequently, it is unnecessary to address the contentions of the parties as to whether CCI was an insured or an additional insured under XYZ’s policy, or to address Rx’s cross-motion to amend the dog bite complaint for the purpose of reflecting the proper corporate name of the defendant.

XYZ’s motion for summary judgment is not premature. Accordingly, the branch of XYZ’s motion seeking dismissal of plaintiff’s complaint against XYZ is granted. The branch of XYZ’s motion seeking dismissal of any and all cross-claims is denied, as it does not appear that an answer was served by CCI or any cross-claims interposed.

The branch of XYZ’s motion seeking costs, including reasonable attorney’s fees, on this motion, is granted to the extent of awarding XYZ the sum of One Thousand Five Hundred and 00/100 ($1,500.00) Dollars, to be paid by Rx’s attorneys, towards the cost of renewing this motion.

The law has afforded sufficient protection to labor. However, in some instances where the insurance policy creates an exception, claims cannot be properly made against insurance companies. When this happens, claims shall be solely against the employer who must bear all the damages due to the injured employee.

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