A federal court in Manhattan recently found that a policyholder’s untimely notice of a roof collapse relieved a general liability insurance carrier of any duty to defend or indemnify. The decision is notable because it involved a carrier’s late notice defense under New York Insurance Law § 3420(a)(5), which changed New York’s long-standing no-prejudice rule for policies issued on or after January 17, 2009. A copy of the opinion rendered by the U.S. District Court for the Southern District of New York, captioned Atlantic Casualty Ins. Co. v. Value Waterproofing, Inc., (S.D.N.Y. Jan. 15, 2013), can be found here.
Value Waterproofing was hired to perform work on the roof of a non-residential property located at 685 Lenox Avenue in New York. After Value completed its work, a snowstorm hit New York City, depositing roughly 20 inches of snow on the roof, causing it to collapse. The property owner’s insurer paid the related damages and then commenced a subrogation action against Value seeking reimbursement.
Value sought coverage for the lawsuit under a commercial general liability policy issued by Atlantic Casualty Insurance Company, effective for the policy period of May 12, 2009 to May 12, 2010. Although Value had been informed of the roof collapse on February 27, 2010, the collapse was not reported to Atlantic Casualty until September 2, 2010. Atlantic Casualty subsequently denied coverage on various grounds, including late notice, and brought a declaratory judgment action with respect to its defense and indemnity obligations under the policy.
After a bench trial, the court found that Atlantic Casualty had no duty to defend or indemnify Value for the underlying suit because, among other things, Atlantic Casualty had not been provided with timely notice of the roof collapse, as required by the policy. Specifically, the court held that the roughly six-month delay in notifying Atlantic Casualty of the incident was untimely under New York law, given that the policy required that notice be provided “as soon as practicable” with respect to any “occurrence” that might result in a claim. The court rejected Value’s argument that its notice obligations were not triggered until a later date, finding that Value was aware of its potential liability for the roof collapse at least five months before notice was given. Moreover, the court also found that it was not impractical for either Value or the property owner to have given prompt notice of the roof collapse to Atlantic Casualty, given that both entities were aware of the policy’s existence.
Because the subject policy was issued to Value after January 17, 2009, however, New York Insurance Law §3420(a)(5) required Atlantic Casualty to prove it was prejudiced by the breach of the policy’s notice clause in order to prevail on that defense. In that regard, the court held that Atlantic Casualty satisfied its burden under New York law, as the late notice materially impaired its ability to investigate the underlying claim and defend against it. Indeed, the court noted that Atlantic Casualty was prevented from being able to independently ascertain the potential causes of the roof collapse, in contrast to the property owner’s insurer, who was adverse to Value in the underlying action and able to inspect the property on multiple occasions. Thus, as a result of the late notice, Atlantic Casualty was forced to rely on its insured’s adversary’s investigation, putting Atlantic Casualty at a major disadvantage if it were required to defend Value in the underlying suit.