ACE Am. Ins. Co. v Unite Here
Annotate this CaseDecided on December 10, 2007
Supreme Court, New York County
ACE American Insurance Company, Plaintiff,
against
Unite Here, Defendant/Third-Party Plaintiff, XL Insurance American, Inc., Third-Party Defendant.
604224/06
For Defendant/Third-Party Plaintiff:
Dickstein Shapiro LLP
1177 Avenue of the Americas
New York, New York 10036
(David Prouty)
For Third-Party Defendant:
Mound Cotton Wollan & Greengrass
One Battery Park Plaza
New York, New York 10004
(Constantino P. Suriano)
Bernard J. Fried, J.
Third-party defendant XL Insurance American, Inc. (XL) moves for an order pursuant to CPLR 3211 dismissing the third-party complaint for failure to state a cause of action. XL also seeks an award of its motion costs and disbursements.
The claims in this third-party action arise out of a coverage dispute between Ace American Insurance Company (ACE) and third-party plaintiff Unite Here (Unite), an unincorporated labor organization with its principal place of business and headquarters in New York County. Unite [*2]obtained primary liability coverage from ACE under Media Advantage Policy No. OGL N01874512 for the period beginning March 1, 2005 through March 1, 2006 (ACE Primary Policy). The ACE Primary Policy was subject to a $5,000,000 limit of liability. Unite obtained excess liability coverage from XL under commercial umbrella insurance Policy No. US 00008710L105A (XL Policy), for the period beginning March 1, 2005, and ending March 1, 2006.
On April 28, 2005, Sutter Health (and affiliated health care entities) initiated suit against Unite in the Superior Court of California, Placer County, alleging damages based upon libel, trade libel, wrongful interference with prospective economic relations and unfair competition in an action entitled Sutter Health v Unite Here, Superior Court, California, Placer County, Docket No. S CV 17938 (Underlying Action). On May 4, 2005, Unite provided initial notice of the Underlying Action to its insurance carrier, ACE through its insurance broker, Frank Crystal & Company. By letter dated July 6, 2005, ACE disclaimed coverage on the ground that the Underlying Action did not involve "scheduled media," as required by the ACE Primary Policy. On June 26, 2006, trial commenced in the Underlying Action. On July 21, 2006, a jury awarded plaintiffs in that action damages in the amount of $17,143,000. The judgment was filed on September 13, 2006 and Unite was served with Notice of Entry on September 19, 2006. By letter dated November 9, 2006, Frank Crystal & Company provided XL with a copy of the judgment, summons and complaint in the Underlying Action. XL received a copy of the judgment, summons, and complaint on November 15, 2006.
On August 4, 2006, Unite commenced a declaratory judgment action against ACE in the Superior Court of California, County of Placer, in an action entitled, Unite Here v ACE American Insurance Company, Case No. S CV 19735 (Underlying Declaratory Action). That action was dismissed on the ground of forum non conviens. Following that dismissal, ACE commenced this action seeking a declaration that it was not obligated to defend or indemnify Unite in the Underlying Action.
XL argues that it is entitled to dismissal because Unite's third-party claim is barred due to its failure to provide XL with timely notice of the occurrence as required under the policy.
Unite argues that XL is not entitled to dismissal because California law applies to the present dispute, and, under California law, an insurer bears the burden of demonstrating that it was substantially prejudiced by an alleged delay in notification in order to escape its contractual obligations on this ground, and XL has failed to demonstrate that it has been prejudiced. Unite further argues that if this court finds that New York law applies to this dispute, XL is still not entitled to dismissal because XL waived any claim of late notice by failing to disclaim coverage in a timely manner, and XL's delay in making its coverage position known, should have waived the carrier's right to assert a late notice defense.
New York is one of the few states that does not require a showing of prejudice in order for an insurer to disclaim for late notice (see Argo v Greater New York Mut. Ins. Co., 4 NY3d 332, 339 [2005]). The State of California adheres to the "Notice-Prejudice Rule" under which a defense based on an insured's failure to give timely notice requires the insurer to prove that it suffered substantial prejudice (Steadfast Ins. Co. v Casden Props., Inc., 41 AD3d 120 [1st Dept 2007]). Prejudice is not presumed from delayed notice alone. The insurer must show actual prejudice, not the mere possibility of prejudice (id.).
Historically, courts faced with a choice of law question in contract cases applied the law of [*3]the State where the contract was made or was to be performed (Zurich Ins. Co. v Shearson Lehman Hutton, Inc., 84 NY2d 309, 317 [1994]). However, as the flaws in the mechanical application of these rigid rules became apparent, the New York Court of Appeals developed more flexible approaches to choice of law questions (id.; see Restatement of Conflict of Laws § 370). The Court of Appeals inaugurated the use of center of gravity or grouping of contacts as the appropriate analytical approach to choice of law questions in contract cases (Zurich Ins. Co. v Shearson Lehman Hutton, Inc., 84 NY2d 309, supra). In adopting the grouping of contacts theory to resolve choice-of-law issues, the Court of Appeals has noted that the merit of this approach enables the state having the most interest in the problem paramount control over the legal issues arising out of a particular factual context, thus allowing the forum to apply the policy of the jurisdiction most intimately concerned with the outcome of the particular litigation (Certain Underwriters at Lloyd's, London v Foster Wheeler Corp., 36 AD3d 17, 23 [1st Dept 2006]; affd 9 NY3d 928 [2007]).
The purpose of the grouping of contacts analysis is to establish which state has the most significant relationship to the transaction and the parties (Zurich Ins. Co. v Shearson Lehman Hutton, Inc., 84 NY2d 309, supra; Certain Underwriters at Lloyds, London v Foster Wheeler Corp., 36 AD3d 17, supra). That analysis focuses on the place of contracting. It also entails four other factors to be considered in establishing the "most significant relationship to the transaction and the parties," which includes: the places of negotiation and performance; the location of the subject matter; and the domicile or the place of business of the contracting parties (Zurich Ins. Co. v Shearson Lehman Hutton, Inc., 84 NY2d 309, supra; see Restatement of Conflict of Laws § 188).
Here, the case of a corporate insured seeking coverage under a policy covering risks in multiple states, the foregoing interests, in aggregate, weigh in favor of applying the law of the insured's domicile, notwithstanding that certain other states (i.e., the states of the insurer's domicile, and where negotiation and contracting occurred) may share, to a lesser extent, in the interests enumerated above (Certain Underwriters at Lloyd's, London v Foster Wheeler Corp., 36 AD3d 17, supra).
Additional goals of choice-of-law analysis are "certainty, predictability and uniformity of result" and "ease in the determination and application of the law to be applied" (Certain Underwriters at Lloyd's, London v Foster Wheeler Corp., 36 AD3d 17, supra; Zurich, 84 NY2d at 318). These goals are promoted by applying the law of the insured's domicile to liability insurance policies covering multi-state risks. The state of the insured's domicile is a fact known to the parties at the time of contracting, and (in the absence of a contractual choice-of-law provision) application of the law of that state is most likely to conform to their expectations (Certain Underwriters at Lloyd's, London v Foster Wheeler Corp., 36 AD3d 17, supra). Moreover, the state of the insured's domicile can be ascertained in any subsequent litigation without fact-intensive inquiry or unguided weighing of different contracts, and making the insured's domicile the primary factor in selecting applicable law minimizes the likelihood that contemporaneous policies will be deemed governed by the laws of the different states (id.; Steadfast Ins. Co. v Sentinel Real Estate Corp., 283 AD2d 44, 50 [1st Dept 2001]). Thus, in addition to rendering the resolution of choice-of-law issues less difficult, adoption of a rule to apply the law of the insured's domicile makes it more likely that consistent and uniform results will be reached in different cases.
What emerges from the foregoing is that, where it is necessary to determine the law governing a liability insurance policy covering risks in multiple states, the state of the insured's domicile should be regarded as a proxy for the principal location of the insured risk. As such, the [*4]state of domicile is the source of applicable law (Certain Underwriters at Lloyd's, London v Foster Wheeler Corp., 36 AD3d 17, supra).
Here, there is an adequate grouping of contacts to warrant the application of New York law to the contractual claims. Unite is an unincorporated labor organization that maintains its principal place of business in New York (Affirmation of David Prouty, Esq. dated April 12, 2007) (Prouty Aff.). The policies were brokered in New York by Frank Crystal & Company, which is also a corporation headquartered and licensed to do business in New York (Exhibit A to Affidavit of Frank Giannattasio, dated May 15, 2007) (Giannattasio Affidavit). As a result of the brokers involvement, certain relevant activities such as the parties' negotiations, the policy delivery, and premium collections, all occurred in the State of New York. The XL Policy also contains a number of New York endorsements (id.). New York is the state where claims under the policy were handled (id.). Although XL is incorporated in Delaware with its principal place of business in Connecticut, it is licensed in New York where it maintains offices and transacts business (Exhibits A and B to Affidavit of Keri Ryan, dated March 7, 2007).
Thus, New York law applies here. For years the rule in New York has been that where a contract of excess insurance requires notice "as soon as practicable" after an occurrence, the absence of timely notice is a failure to comply with a condition precedent, which, as a matter of law, vitiates the contract (Argo Corp. v Greater NY Mut. Ins. Co., 4 NY3d 332, supra; American Home Assur. Co. v International. Ins. Co., 90 NY2d 433, 443 [1997]). More importantly, the insurer need not show prejudice before disclaiming based upon the insured's failure to timely notify it of an occurrence because prejudice is not an element of the late notice defense under New York law (Argo Corp. v Greater New York Mut. Ins. Co., 4 NY3d 332, supra); American Home Ins. v Intl. Ins. Co., 90 NY2d 433, supra).
Late notice of a lawsuit in the liability insurance context is so likely to be prejudicial to these concerns as to justify the application of the no-prejudice rule (Argo Corp. v Greater NY Mut. Ins. Co., 4 NY3d 332 at 340). That rule applies in the context of primary liability coverage as well as excess liability coverage (id.). Apart from the fact that their coverage does not immediately attach after an occurrence but rather attaches only after the primary coverage for the occurrence is exhausted, excess insurers have most of the rights and obligations of primary insurers (American Home Assur. Co. v International Ins. Co., 90 NY2d 433, supra). They have the right to investigate claims and to participate in settlement negotiations, and they have been held to be entitled to make their own settlement negotiations (id.).
However, there may be circumstances that excuse a failure to give timely notice, such as where the insured has a "good-faith belief of non-liability," provided that the belief is reasonable (Great Canal Realty Corp. v Seneca Ins. Co., 5 NY3d 742, 743- 44 [2005]). Where an excuse or explanation is offered for delay in furnishing notice, the reasonableness of the delay and the sufficiency of the excuse are matters to be determined at trial (Travelers Ins. Co. v Volmar Constr. Co., 300 AD2d 40, 42 [1st Dept 2002]). In the absence of an excuse or mitigating factor, the issue poses a legal question for the court (id. at 43). Here, Unite has proffered no excuse for failing to provide notice in accordance with the XL Policy provisions, nor did Unite assert a good-faith belief in non-liability to excuse its failure to give timely notice (Sorbara Constr. Corp. v AIU Ins. Co., 41 AD3d 245, 246 [1st Dept 2007]). Hence, Unite's delayed notification was unreasonable as a matter of law (Long Is. Light. Co. v Allianz Underwriters Ins. Co., 24 AD3d 172, 173 [1st Dept 2005], lv [*5]dismissed 6 NY3d 844 [2006]).
Unite argues that the obligation to provide a prompt disclaimer of an asserted late notice defense mirrors the duty that Insurance Law § 3420 (d) imposes on insurers that wish to disclaim coverage for a death or bodily injury claim, and accordingly, XL waived any claim of late notice by failing to disclaim coverage on this ground until nearly four months after XL's receipt of Unite's notice of claim.
I am not persuaded by Unite's argument. It is clear that the notice requirement of § 3420 (d) is designed to protect the insured and the injured person or other claimant against the risk, posed by a delay in learning the insurer's position, of expending energy and resources in an ultimately futile attempt to recover damages from an insurer or foregoing alternative methods from recovering damages until it is too late to pursue them successfully (Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 92 [1st Dept 2005]). Recognizing that these are not risks to which another insurer seeking contribution is subject, courts have held that § 3420 (d) is not applicable to a request for contribution, defense, or indemnity between co-insurers (id.).Furthermore, contrary to Unite's argument, XL's disclaimer three months after receipt of the judgment in the Underlying Action was timely. "The reasonableness of any delay in disclaiming coverage must be judged from that point in time when the insurer is aware of sufficient facts to issue a disclaimer" (Travelers Ins. Co. v Volmar Constr. Co., 300 AD2d at 45). Again, XL did not become aware of facts sufficient to disclaim until November 15, 2006. Given the circumstances, XL had no basis to disclaim with respect to Unite until it received the latter's demand for contribution. The record reveals that after receiving a demand for contribution from Unite, XL actively investigated the claim by requesting information regarding the circumstances surrounding the Underlying Action and Unite's coverage dispute with ACE. XL conducted two meetings with Unite's broker on December 18, 2006 and February 16, 2007 to discuss the status of the discussions between Unite and ACE in an effort to resolve their coverage dispute (Giannattasio Affidavit). On February 5, 2007, prior to the resolution of XL's investigation, Unite initiated a third-party complaint against XL seeking a declaration that the insurance company was obligated to defend and indemnify Unite in the Underlying Action, prompting XL to file the present motion asserting a late notice defense.
I have considered Unite's remaining arguments and find them to be unavailing.
Accordingly, it is
ORDERED that the motion to dismiss is granted and the complaint is dismissed against third-party defendant XL Insurance American, Inc. with costs and disbursements to this defendant as taxed by the Clerk of the Court; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.
Dated:
ENTER:
______________________
J.S.C.
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