Plaintiff brought this action against its insurers seeking reimbursement for its attorneys fees and costs in an underlying action which had been commenced in the United States District Court for the Middle District of Florida. Supreme Court, Nassau County granted the plaintiffs motion for summary judgment, declaring that it was entitled to be reimbursed by the defendants in the principal sum of $104,370.74. The Appellate Division reversed.

In 2001, the plaintiff obtained an insurance policy covering advertising injury liability from each of the defendants. The policy issued by the defendant, Realm National Insurance Company, was in effect from April 1, 2001 through April 1, 2002. The policy the plaintiff obtained from the defendant Scottsdale Insurance Company was in effect from September 24, 2001 through September 24, 2002.

Timliness of Notice Disputed

On October 15, 2001, the plaintiff was served with the summons and complaint in the underlying action. On November 27, 2001, an order was entered in the underlying action granting the underlying plaintiff a default judgment. The underlying action was subsequently settled without any monetary compensation being paid by this plaintiff.

The plaintiff notified its insurance broker of the underlying action on or about December 21, 2001. Realm received its first notice of this claim, apparently by way of the plaintiffs insurance broker, on January 2, 2002. In response, Realm sent a letter dated January 3, 2002, stating that it appeared that the plaintiff had failed to give it timely notice of the occurrence and that the occurrence might not be covered under the policy. By letter dated February 6, 2002, Realm disclaimed coverage solely on the ground that the plaintiff failed to give it timely notice of the underlying action.

The plaintiff notified Scottsdale of the underlying action by a telephone call on January 8, 2002. By letter dated February 15, 2002, Scottsdale disclaimed coverage on the ground that this was not an occurrence within its policys definition of advertising injury coverage provided by the policy. Further, assuming this claim came within the definition of advertising injury, Scottsdale also disclaimed coverage on the ground that the policy excludes an advertising injury where first publication took place before the beginning of the policy period. By letter dated January 17, 2003, Scottsdale reiterated its disclaimer of coverage based upon the grounds set forth in its letter of February 15, 2002. It also asserted additional grounds for disclaiming including, inter alia, that the plaintiff breached the written noticeprovisions in the Scottsdale insurance contract.

Thereafter, the plaintiff commenced the instant action and moved for summary judgment declaring that it was entitled to be reimbursed by the defendants for its attorneys fees and costs in the underlying action. Realm and Scottsdale opposed, contending, inter alia, that they had properly disclaimed coverage based upon the plaintiffs late notice of the occurrence to them.

Supreme Court Ruling Reversed

By order dated April 23, 2004, the Supreme Court granted the plaintiffs motion for summary judgment declaring that it was entitled to be reimbursed by the defendants for its attorneys fees and costs in the underlying action. The Supreme Court found, among other things, that the disclaimers were ineffective as a matter of law, as they were late and there was no explanation for the delays in disclaiming, and referred the matter for a hearing on the amount due the plaintiff as reimbursement for its attorneys fee and costs in the underlying action. After the hearing, a judgment was entered in favor of the plaintiff and against the defendants in the principal sum of $104,370.74. We reverse.

This matter does not involve a claim for death or bodily injury (see Insurance Law 3420[d]). Therefore, contrary to the Supreme Courts determination, the unexplained failure of Realm and Scottsdale to promptly disclaim on the ground of untimely notification does not automatically estop them from relying upon such a disclaimer. Rather, reliance upon the untimely disclaimers here would only be estopped upon a showing of prejudice to the insured due to the delay. That is, that the defendants alleged delay in disclaiming liability based on an exclusion in the insurance policy prejudiced the rights of the insured (ODowd v American Sure. Co. Of N.Y., 3 NY2d 347, 355).

Since the record reveals no such prejudice, nor is any such prejudice alleged by the plaintiff, the disclaimers were effective and the Supreme Court should not have found them to be meritless and should not have granted the plaintiffs motion for summary judgment.

Furthermore, upon searching the record, we find that Realm and Scottsdale were entitled to summary judgment in their favor. It is undisputed that the plaintiff delayed more than two months before first notifying either Realm or Scottsdale that it had been served with papers in the underlying action. Such a lengthy unexplained delay relieved Realm and Scottsdale of their duty to defend it. Since the record reveals no explanation for the delay, nor did the plaintiff offer one in its papers, Realm and Scottsdale were entitled to rely on their disclaimers and be relieved of any duty towards the plaintiff in connection with the underlying action.

Comment: Note the all-important distinction between claims for death or bodily injury, which require a timely disclaimer, and all other claims, which do not.

Only Natural, Inc. v. Realm Natl. Ins. Co., 2007 NY Slip Op 01097 (2d Dept 2007)