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Decision Highlights Importance of Timely Disclaimer Requirement, Even for Out-of-State Insurers

June 13, 2018

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The First Department recently avoided the opportunity to apply the Court of Appeals’ decision in <a href="http://www.nycourts.gov/reporter/3dseries/2017/2017_08163.htm"><em>Carlson v American Intl. Group, Inc.</em>, 30 N.Y.3d 288</a> (2017) and instead remanded to the motion court for a determination as to whether the insured had a “substantial business presence” in New York.  Nonetheless, the decision in <a href="http://dseries/2018/2018_03730.htm"><em>Vista Engineering Corp. v. Everest Indemnity Ins. Co.</em></a>,highlights the need for all insurers, including those located out of state, to be aware of New York Insurance Law’s disclaimer requirements.
In <i>Vista, </i>the underlying defendant, East Coast Painting, entered into a subcontract with Vista Engineering to perform work at the Queensboro Plaza subway station.  The agreement required East Coast to name Vista as an additional insured, which East Coast did in its policy with Everest.  In 2011, an East Coast employee sustained injuries while working at the site and Vista sought a defense from Everest.  Everest disclaimed coverage pursuant to the “Action Over” exclusion that barred coverage for injuries to employees of East Coast.  The parties did not dispute that the exclusion would bar coverage; rather, the dispute related to the timeliness of Everest’s disclaimer, which was issued almost two months after receiving notice of the claim.  New York Insurance Law section 3240(d)(2) requires that insurers provide notice of a disclaimer “as soon as is reasonable possible.”
Notably, section 3240 applies only to policies “issued or delivered” in New York.  Everest argued that, because it was a New Jersey insurer who issued a policy to East Cost, a New Jersey company, that the policy was not “issued or delivered” in New York.  While the case was pending, the Court of Appeals issued their decision in <em>Carlson</em>.  The Court held that the applicability of Insurance Law § 3420(d)(2) depends on (1) a policy covering risks located in New York, and (2) the insured being located in New York.  The Court further held that a company was "located in" New York if it had a "substantial business presence" there.  Therefore, under <em>Carlson</em>, if an out-of-state insurer issued a policy covering risks located in New York to a company with a substantial business presence in New York, the disclaimer requirements of Insurance Law § 3420(d) will apply.
The court found that the first prong of the <em>Carlson</em> test was present, but remanded as to the second prong “[b]ecause the <em>Carlson</em> Court did not set forth a specific definition of substantial business presence.”  The dissent, however, argued that the record “conclusively established” that both East Coast and Vista’s presence in New York was “substantial.”  Specifically, the court looked to the fact that the project was to be performed in New York and that Vista derived substantial income from work in New York.  As a result, the dissent took the position that a remand for this determination was unnecessary.  This was especially true in light of the legislature’s intent that a company "doing business in New York and purporting to cover risks in New York" should not be able to evade the Insurance Law.  Given the dissent’s strong language, and the majority’s hinting that the “the current record does contain some indicia that East Coast had a substantial business presence in New York,” the decision serves as a warning for all insurers, including those located out of state, to make sure their disclaimers abide by the Insurance Law’s timely disclaimer requirement.
Thanks to Doug Giombarrese for his contribution to this post.
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