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Court Rules that Reasonableness Under Insurance Law 3420 Can Be a Question of Law for the Court.

May 17, 2018

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On May 10, 2018, the Eastern District of New York handed down a total victory to Northfield Insurance Company on the insurer’s motion for summary judgment, in <em><a href="http://blog.wcmlaw.com/wp-content/uploads/2018/05/Northfield-Insurance-Company-v-Queens-Palace-Inc..pdf">Northfield Insurance Company v Queens Palace Inc.</a></em>, issuer of a commercial general liability policy to Queen’s Palace, a nightclub, initiated the federal declaratory judgment action seeking a ruling that it had no coverage obligations to its insured or any other party in connection with the underlying wrongful death action brought by the estate of a Queen’s Palace patron tragically murdered outside of the nightclub by several of its patrons.
Northfield issued a total disclaimer of coverage premised only upon the policy’s Assault and Battery Exclusion barring coverage for bodily injury arising out of any act of assault or batter “committed by any person.”  The Court easily agreed with the substance of the disclaimer, even in light of the stringency of the duty to defend imposed upon insurer’s under New York law, where even a “reasonable possibility” of coverage is sufficient to trigger the duty, and the burden on an insurer relying on an exclusion to disclaim coverage to show there is only one reasonable interpretation of the allegations: that the exclusion applied.
Thus, the insured and other defendants were left with one other argument: that Northfield’s disclaimer was too late, pursuant to N.Y. Ins. Law § 3420.  Section 3420 imposes a duty on any insurer, in any matter involving bodily injury or death, to provide any disclaimer or denial of coverage “as soon as is reasonably possible.”  Defendants argued they did not receive written notice, and submitted “return to sender” envelopes as evidence that Northfield was aware its disclaimer was not received.
The Court ruled that the envelopes were not admissible evidence, and therefore could not impact the summary judgment motion.  In favor of Northfield, the Court did consider the testimony submitted via affidavit from the Northfield adjuster about the dates she mailed out the disclaimers.  But, as the Court noted, “the question of whether a disclaimer has been issued with reasonable promptness is in most cases a question of fact.”  A question of fact would preclude granting the motion for summary judgment.  The disclaimer was mailed out 19 days following Northfield’s receipt of notice of the claim.  So – and significantly – the Court ruled that 19 days could be deemed reasonable as a matter of law, thus rendering Northfield’s disclaimer proper as a matter of law.
The question of what constitutes “as soon as is reasonably possible” is understandably vexing to insurers, particularly in matters necessitating more complicated investigation and analysis than was necessary for Northfield here.  The <em>Northfield </em>Court’s ruling is a helpful example of the Court’s applying a reasoned and practical approach to deciding what is “reasonable,” and represents excellent precedent on summary judgment motions where defendant’s attempt to argue the “reasonableness” question of fact alone is sufficient to preclude such a motion.
Thanks to Vivian Turetsky for her contribution to this post.
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