Wait Too Long, and Exclusions May Disappear (NY)
In the recently decided case of City of New York v. Philadelphia Indemnity Insurance Company, the Southern District of New York held that dragging your feet on correcting errors, in a disclaimer, could bar insurers from relying on exclusions as a bar to coverage.
In brief, the City sought coverage from its insurer, Philadelphia Indemnity, for an underlying case regarding general welfare and preventive services. Philadelphia Indemnity denied coverage three weeks after receiving the request for coverage, relying on a broad exclusion – which was actually not included in the policy at issue. Philadelphia Indemnity mistakenly relied on this broad exclusion for seven months, failing to correct its error and cite the correct policy language for that entire period of time. In fact, Philadelphia Indemnity only corrected the error when it answered the City’s declaratory judgment complaint against it.
In determining whether Philadelphia Indemnity was required to provide coverage to the City for the underlying case, the Court examined the policy and the background of the case and held likely there would have existed a duty to defend in the first place. The Court went on to say that “Philadelphia’s unjustified delay of nearly seven months…was unreasonable as a matter of law, and waived Philadelphia’s ability to rely on [other policy] exclusions.” The Court reinforced that Philadelphia Indemnity had a duty to defend not only due to the policy language, but because of its unreasonable conduct in failing to correct its initial disclaimer of coverage – and that any other possible exclusions were waived as a result of that conduct. The Court’s decision is a stark reminder, that under New York law, courts take a strict approach interpreting an insurer’s disclaimer.
Thanks to Abby Wilson for her contribution to this post. If you have any questions or comments, please contact Colleen Hayes.