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Time's Up: Insurer Cannot Rely on Policy Limitation to Disclaim Coverage Because of Failure to Timely Notify Insured

April 26, 2024

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In Reidy Contracting Group, LLC v. Mt. Hawley Insurance Company, the Western District of New York analyzed the scope of New York Insurance Law §3420(d), which requires a liability insurer to give written notice of a disclaimer of coverage to the insured “as soon as is reasonably possible.”  2024 WL 1345704 (W.D.N.Y. Mar. 29, 2024).  Mt. Hawley first disclaimed coverage to general contractor Reidy, its additional insured, for a construction injury lawsuit in February of 2012.  Id. at *2.  Nine years later, Mt. Hawley cited a policy limitation for bodily injury arising from an additional insured’s negligence as another basis for disclaimer (the “Limitation”).  Id.  Reidy and its excess carrier asserted that Hawley’s reliance on the Limitation was untimely pursuant to §3420(d).  Id.


Mt. Hawley contended that Reidy’s settlement in the underlying lawsuit reflected that it had no actual interest in coverage, meaning Reidy’s excess insurer was the “real party in interest.”  Id.  The Court disagreed, holding that Reidy’s request for a declaration of entitlement to coverage in the instant matter constituted an “actual interest” in coverage.  Id. at *3.


Mt. Hawley next argued that its disclaimer was based on a lack of insured status, rather than on a policy exclusion.  Id.  Mt. Hawley asserted that the policy restricted additional insured status to entities with liability arising from “general supervision of the named insured’s work.”  Id.  The Court found the policy language was not so limited—it also extended additional insured status to entities “required by written contract” to receive coverage for work-related liability.  Id. at *4.  Considering these conditions and the Limitation together, the Court concluded the Limitation constituted an exclusion to coverage.  Id. 


Finally, Mt. Hawley asserted it could not have timely disclaimed because the Limitation required evidence that Reidy was “actively at fault,” a question of fact “bound up with the merits” of the underlying lawsuit.  Id. at 5.  However, the Court emphasized that no relevant caselaw suggested an insurer could not “deny coverage when extrinsic evidence shows that coverage is unavailable.”  Id.  In sum, the Court found Mt. Hawley failed to provide timely notice to Reidy under §3420(d) and could not disclaim under the Limitation.  Id. at 6.


Reidy Contracting Group LLC v. Mt Hawley Insurance Company
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