City of New York v Welsbach Elec. Corp.

[*1] City of New York v Welsbach Elec. Corp. 2006 NY Slip Op 50705(U) [11 Misc 3d 1085(A)] Decided on April 24, 2006 Supreme Court, New York County Lehner, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 24, 2006
Supreme Court, New York County

City of New York, Plaintiff,

against

Welsbach Electric Corporation and INSURANCE COMPANY OF NORTH AMERICA, Defendants.



403335/03

Edward H. Lehner, J.

The prime legal issues raised on the summary judgment motions before the court are: i) whether notice of an accident to the defendant Insurance Company of North America, now known as Century Indemnity Company ("Century"), by the insured constitutes notice on behalf of an additional insured; and ii) whether a stipulation by plaintiff's counsel extending Century's time to answer the complaint herein, executed 54 days after commencement of this declaratory judgment action, waives any right then existing of the plaintiff to assert that this 54-day delay constitutes a failure on the part of Century to timely disclaim as required by §3420(d) of the Insurance Law.

Before the court is a motion by Century for summary judgment dismissing plaintiff's complaint against it and declaring that it has no obligation to provide indemnity to plaintiff for the judgment it paid in an action entitled "Angerome v. City of New York," and a cross-motion by plaintiff (the "City") for partial summary judgment against Century for a declaration that its disclaimer of coverage with respect to the underlying action is void as unreasonably late.

Plaintiff alleges in its complaint: that it entered into a contract with Welsbach Electric Corporation ("Welsbach") on October 1, 1993 for maintenance of certain traffic signals under which Welsbach was required to obtain insurance for itself and the City; that in October 1993 Century issued a commercial general liability policy to Welsbach (the "CGL Policy") on which the City was an additional insured, and in October 1993 issued to Welsbach an owner's and contractor's liability policy (the "OCP Policy") on which the City was an insured (Id. ¶¶12-14); and that on October 11, 1993, an accident occurred between a car driven by Ellen Angerome ("Ellen"), in which her minor daughter Shannon ("Shannon") was a passenger, and an automobile driven by John Malin ("Malin").

In April 1994 Ellen commenced a lawsuit including the City, Welsbach, and Malin as defendants, and Shannon, by her father and natural guardian, commenced a separate action arising out of the accident, in which actions it was alleged that the traffic lights were green in all directions. The actions were consolidated in Supreme Court, Queens County. Welsbach cross-[*2]claimed against the City but, for reasons totally unexplained, the City failed to assert a cross-claim or third-party claim against Welsbach. The complaint against Welsbach, which was represented by its own retained counsel, was dismissed by order dated August 24, 1997, the City apparently not opposing the motion (Tr. Dec. 9, 2005, p. 10). After trial, a jury rendered a verdict holding the City 100% liable and awarded Ellen $6,950,700.00 and Shannon $2,702,530.00. The Appellate Division affirmed the verdict on liability, but ordered a new trial unless Ellen agreed to reduce her award by $3,400,000 and Shannon agreed to reduce her award by $1,800,000 [Angerome v. City of New York, 300 AD2d 423 (2nd Dept. 2002)]. On May 23, 2003, the City issued checks to Ellen and her attorney for $4,456,182.18 and to Shannon and her attorney for $796,984.39. On October 16, 2003 the City commenced this action against Welsbach for common law and contractual indemnification and against Century for contribution and indemnification under the CGL and OCP policies.

Welsbach previously sought summary judgment dismissing the complaint herein on grounds of res judicata or collateral estoppel, which motion was denied by Justice Lebedeff by order dated March 7, 2005. An appeal from that order is currently pending.

Century asserts: that the service of the complaint on October 16, 2003 was its first notice of the Angerome accident claim and suit from the City; that both the CGL and the OCP policies contained provisions requiring that it be "notified as soon as practicable" after an occurrence and after an action is commenced; and that the City's delay in notification was unreasonable as a matter of law. On December 9, 2003, attorneys for the City and Century executed a stipulation extending Century's time to respond to the complaint until January 9, 2004. On January 9, 2004 a second stipulation was signed extending such time until January 16, 2004, on which date Century served its answer containing the defense that it was disclaiming coverage based upon late notice. Century concedes, solely for the purposes of arguing these motions, that Welsbach gave it timely notice of the accident and suit (Tr. Dec. 9, 2005, p. 23), and that the City was an additional insured under the OCP and CGL policies (id. pp. 21-22).

Discussion

"Notice provisions in insurance policies afford the insurer an opportunity to protect itself, and the giving of the required notice is a condition to the insurer's liability. Absent a valid excuse, a failure to satisfy the notice requirement vitiates the policy ... (although) [t]here may be circumstances, such as the lack of knowledge that an accident has occurred, that will explain or excuse delay in giving notice and show it to be reasonable .... But the insured has the burden of proof thereon" [Security Mutual Insurance Company of New York v. Acker-Fitzsimmons Corp., 31 NY2d 431, 440-441 (1972)](internal citations omitted). As the Court of Appeals stated in The Argo Corporation v. Greater New York Mutual Insurance Company, 4 NY3d 332, 339 (2005): "Strict compliance with the contract protects the carrier against fraud or collusion; gives the carrier an opportunity to investigate claims while evidence is fresh; allows the carrier to make an early estimate of potential exposure and establish adequate reserves and gives the carrier an opportunity to exercise early control of claims, which aids settlement."

The policy provision "that notice be given as soon as practicable' (is) a standard provision in liability policies that has been interpreted to require notice within a reasonable time under the [*3]circumstances" [Travelers Insurance Company v. Volmar Construction Co. Inc., 300 AD2d 40, 42 (1st Dept. 2002)]. The City does not contend that its failure to notify Century of the claim for a ten-year period is reasonable. Rather, it maintains that a notice sent by Welsbach to Century (which Century concedes was given solely for the purpose of these motions) satisfied its obligation to provide notice.

However, the "law is clear that an insured's obligation to provide timely notice is not excused on the basis that the insurer has received notice of the underlying occurrence from an independent source" [Travelers Insurance Company v. Volmar Construction Co., Inc., 300 AD2d supra at p. 43]. In City of New York v. St. Paul Fire and Marine Insurance Company, 21 AD3d 978 (2nd Dept. 2005), it was held (p. 981): "As an additional insured under the ... policy, the City had an independent duty to provide the excess insurer with timely notice of the claim against it and its demand for coverage .... The fact that an insurer may have received notice of the claim from the primary insured, or from another source, does not excuse an additional insured's failure to provide notice ...."

See also, American Manufacturers Mutual Insurance Company v. CMA Enterprises, Ltd., 246 AD2d 373 (1st Dept. 1998). Moreover, in Structure Tone, Inc. v. Burgess Steel Products Corp., 249 AD2d 144 (1998), the First Department ruled (p. 145) that even "if the insurance policy were construed to specifying that only the named insured ... was required to provide notice of occurrences ..., the duty to give reasonable notice as a condition of recovery is implied in all insurance contracts ..., and is applicable to an additional insured."

In support of its position that it may rely upon notice given by the primary insured, plaintiff relies on the recent case of City of New York v. Continental Casualty Company, 27 AD3d 28 (1st Dept. 2005), which also involved Welsbach. There the City "faxed the second third-party complaint (which impleaded it) to Welsbach, requesting that Welsbach forward it, as well as the City's request for defense and indemnification, to Continental." However, the City never directly forwarded the suit papers or demand to Continental, which did receive the City's demand from Welsbach. Under those facts the court stated that the City "could properly rely on the notice given by Welsbach, the primary insurer." However, such statement was merely dicta as the insurer did not contest the timeliness of the notice, but "rested its disclaimer on the failure of the City to immediately forward the suit papers as required under the policy." This defense was ruled by the court to "be measured under the failure-to-cooperate standard." Finding that the insurer did not meet its burden under that standard, the court ruled that it owed a duty to defend and indemnify the City.

Here, the City has not presented any evidence that it forwarded any notice or suit papers or demand to Welsbach with a request that it forward them to Century, nor has it controverted Century's assertion that its receipt of the complaint herein in 2003 was its first notice of the ten-year old Angerome claim from the City.

Notwithstanding the foregoing, it has been held that timely notice by the insured can constitute notice by an additional insured where the two parties can be said to be "united in interest" [National Union Fire Insurance Company of Pittsburgh, Pennsylvania v. Insurance Company of North America, 188 AD2d 259, 261 (1st Dept. 1992), lv. denied 81 NY2d 709]. See also, Ambrosio v. Newburgh Enlarged City School District, 5 AD3d 410 (2nd Dept. 2004) (parties "were not adverse [*4]to each other"); New York Telephone Company v. Travelers Casualty and Surety Company, 280 AD2d 268 (1st Dept. 2001) (parties "were not adverse"). However, in the underlying action, Welsbach had cross-claimed against the City and the parties clearly were adverse to each other and in no way could be said to be united in interest. Thus, the court concludes that Century had the right to disclaim based on late notice. On the City's alternative contention that the disclaimer was untimely, the rule is that normally "whether a notice of disclaimer of liability or denial of coverage has been sent as soon as reasonably possible' is a question of fact which depends upon all of the facts and circumstances, especially the length of and reason for the delay" [Hartford Insurance Company v. County of Nassau, 46 NY2d 1028, 1031 (1979)]. However, "it is the responsibility of the insurer to explain its delay ... (and) a delay of 48 days ... that is unexplained and a delay that is unexcused, meaning that the explanation is unsatisfactory, ... (is) unreasonable as a matter of law"(emphasis in original) [First Financial Insurance Company v. Jetco Contracting Corp., 1 NY3d 64, 70 (2003)]. Where "the sole ground on which defendant disclaimed coverage ... was obvious from the face of the ... complaint and defendant had no need to conduct an investigation ... (the) 30 day delay in disclaiming coverage was unreasonable as a matter of law" [West 16th Street Tenants Corp. v. Public Service Mutual Insurance Company, 290 AD2d 278, 279 (1st Dept. 2002)], lv. denied 98 NY2d 605. See also, Matter of Colonial Penn Insurance Company v. Pevzner, 266 AD2d 391 (2nd Dept. 1999)(41-day delay unreasonable); Fass v. New York Central Mutual Fire Insurance Company, 281 AD2d 586 (2nd Dept. 2001)(42-day delay unreasonable).

Generally an insurer's assertion of untimely notice as a defense in its answer constitutes "timely notice of disclaimer" [American Manufacturers Mutual Insurance Company v. CMA Enterprises, Ltd., 246 AD2d supra at 373 (1st Dept. 1998)]. See also, Thompson v. Power Authority of the State of New York, 217 AD2d 495, 497 (1st Dept. 1995). Thus, if Century had served its answer within the 30 days allowed by statute, there is no question that a disclaimer defense asserted therein would be timely under Insurance Law §3420(d).

In this case, the answer with the assertion of untimely notice as a defense was served 92 days after receipt of the City's complaint seeking indemnification. A delayed disclaimer can be reasonable if there is "a prompt, diligent and good faith investigation of the claim by (the insurer)" [Structure Tone, Inc. v. Burgess Steel Products Corp., supra at p. 145]. See also, McGinley v. Odyssey Re(London), 15 AD3d 218 (2nd Dept. 2005) (holding a 39-day delay in disclaiming was reasonable since the delay was caused by efforts to obtain information and legal advice as to the applicability of an assault and battery exclusion).

Century states that: it retained counsel who sought information regarding the City's claim; it investigated and determined potential coverage defenses; and on December 9, 2005 reached an agreement with the City's attorneys to extend its time to respond to the complaint and agreed to waive personal jurisdiction defenses. Further, here there remains a dispute as to whether the City is in fact an additional insured as it was not specifically named as such on the policies. Whether there was a prompt, diligent and good faith investigation with respect to the ten-year-old claim involved herein presents a question of fact.

Century asserts that the City waived timely disclaimer by stipulating to extend the time to answer. However, "(w)aiver is an intentional relinquishment of a known right and should not be lightly presumed" [Gilbert Frank Corporation v. Federal Insurance Company, 70 NY2d 966, 968 (1988)]. Rather, "(t)he intent to waive must be unmistakably manifested, and is not to be inferred [*5]from a doubtful or equivocal act'" [Ess & Vee Acoustical & Lathing Contractors, Inc. v. Prato Verde, Inc., 268 AD2d 332 (1st Dept. 2000)]. In this case, both stipulations waived "any objection to the Court's assertion of personal jurisdiction over (Century) in this matter." There is no claim that there was any discussion between counsel at the time of the execution of either stipulation of the untimely disclaimer defense. Thus, Century has not shown an intentional relinquishment of the City's claim of untimely disclaimer.

While an extension of time to answer does automatically extend the time to assert defenses required to be interposed therein [see, CPLR 3211(e)], it cannot be said that the extension granted herein on December 9, at a time Century was apparently already 24 days late in answering the complaint, automatically extended the allegedly already expired independent statutory obligation of the insurer to timely disclaim. A triable issue of fact therefore exists as to whether Century's interposition of a late notice defense in its answer served on January 16, 2004 constituted a timely disclaimer. Accordingly, Century's motion for summary judgment dismissing plaintiff's complaint and plaintiff's cross-motion for partial summary judgment are both denied.

This decision constitutes the order of the court.

Dated: April 24, 2006_____________

J.S.C.