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NY Appellate Court Excuses Late Notice to Insurer

February 13, 2009

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Most courts are uncomfortable strictly applying New York's law of the issue of late notice. There are a number of exceptions to the general rule that an insured risks the loss of its insurance coverage if it fails to provide timely notice of an occurrence to its insurer. Sometimes it seems that the exceptions can swallow up the general rule. (As of January 2009, New York law now requires insurers to establish prejudice in order to disclaim coverage on the basis of late notice.)
The New York Appellate Division, First Department has spoken again regarding the failure to provide timely notice on the basis of the insured's “good-faith belief of non-liability.” In this case, the manager of the insured, a diner, was allegedly informed that a woman had slipped in the parking lot. When the manager went outside he saw the woman on the ground. The woman’s husband told the manager “not to worry” because his wife had tripped over her shoelaces. The wife said “she was clumsy and fell.” The manager informed the couple he was going to get a pen to get their information but when he came back out the couple had departed.
Five months later, the woman sued the diner for personal injury. The insured then notified its carrier of the claim. After the insurer disclaimed coverage on late notice grounds, the insured commenced this declaratory judgment action. The lower court dismissed the action based on the policy’s late notice provision. However, the Appellate Division reversed because the insured had a good faith basis for believing there was no liability. Specifically, the husband’s comment to the diner manager not to worry and the wife’s statement that she was clumsy, followed by the couple’s departure before the manager could obtain further information was grounds for the manager’s good faith belief that there was no liability.
Our concern with this decision is that the insured's excuse is apparently based on statements its manager attributes to the plaintiffs -- statements that are self serving from the standpoint of the insured. It is unclear whether there was any corroboration that such statements were made, and the insurer is seemingly stuck defending the insured based solely the word of the insured.
Thanks to Mendel Simon for his contribution.
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