KeySpan Gas East Corp. v. Munich Reinsurance America, Inc.
15 N.E.3d 1194
NY
2014
Check Treatment

OPINION OF THE COURT

Abdus-Salaam, J.

In this insurаnce coverage dispute, plaintiff-respondent Key-Span Gas East Corporation seeks a declaration that defendants-appellants Munich Reinsurance America, Inc., Cеntury Indemnity Company, and Northern Assurance Company of America have a duty to defend and indemnify KeySpan for liabilities associated with the investigation and remediation of environmental damage at manufactured gas plant (MGP) sites formerly owned or operated by plaintiff Long Island Lighting Company (LILCO). Defendants issued excess insurance policies to LILCO that required, as a threshold condition for coverage, LILCO to provide prompt notice of any occurrence that potentially implicated defendants’ duty of indemnification.

In October and November 1994, LILCO notified defendants by letter about “environmental concern[s]” at retired MGP sites in Bay Shore and Hempstead, the only sites relevant to this appeal. LILCO stated that, although no regulatory agencies had commenced a lawsuit or formal investigation, LILCO expected agency action would be “forthcoming” and that the extent of its potential liability “if any” could not yet be determined. LILCO also notifiеd defendants that a neighboring property owner had brought a property damage claim against the company for environmental contamination allegedly caused *588by the Bay Shore MGE LILCO asked defendants to “acknowledge [their] duty to indemnify [LILCO] for any damages that it may incur within [the] policy limits.”

Over the following year, defendants sent letters to LILCO in which they generally reserved all rights and coverage defenses, including the defense of late notice. Defendants also requested additional information about the MGPs and, noting that LILCO was self-insured at the primary level, sought documentation indicating that LILCO’s coverage under the excess policies had been reached.

Between February 1995 and January 1996, LILCO provided supplemental disclosures to defendants about, among othеr things, LILCO’s investigation of environmental damage at the MGP sites and its dealings with various regulatory agencies over the past 15 years. LILCO also notified defendants when, in August 1995, the New York State Department of Envirоnmental Conservation (DEC) served a formal demand requesting that LILCO conduct site investigations and, if necessary, remediate the Bay Shore and Hempstead MGP sites.1 Defendants did not respond to these disclosures.

LILCO thereafter commenced this declaratory judgment action in September 1997. In their answers, defendants asserted late notice as an affirmative defense warranting denial of coverage. Defendants later moved for summary judgment based on late notice. After protracted procedural history not relevant to this appeal, Supreme Court granted summary judgment on the Bay Shore site and entered a dеclaration that defendants have no duty to defend or indemnify LILCO regarding those environmental damage claims, but denied summary judgment on the Hempstead site and five other MGP sites (see Long Is. Lighting Co. v Allianz Underwriters Ins. Co., 2012 NY Slip Op 30258[U] [Sup Ct, NY County 2012]). The court held that, with the exception of the Bay Shore site, the reasonableness of LILCO’s ‍‌‌​​​​‌​​​‌‌​​‌​‌‌​​​‌‌‌​‌‌‌‌​‌​​​‌​​​​​‌‌‌‌​‌​​‍delay in notifying defendants of environmental occurrences at its MGP sites presented a question of fact for the jury (see id.). Thе court also rejected LILCO’s claim that defendants waived their late-notice defense by failing to disclaim coverage prior to interposing their answers (see id.). Defendants appealеd from the Supreme Court order only to the extent it denied summary judgment as to the Hempstead site. KeySpan, having been *589assigned the right to pursue LILCO’s claims and added as a new party plaintiff, cross-appealed from the order to the extent it granted summary judgment as to the Bay Shore site.

The Appellate Division modified the Supreme Court order by denying summary judgment on the Bay Shore site and vacating the declaration, and otherwise affirmed (see Long Is. Light. Co. v Allianz Underwriters Ins. Co., 104 AD3d 581 [1st Dept 2013]). The court held that LILCO failed, as a matter of law, to provide timely notice under the policies of environmental contamination at both the Bay Shore and Hempstead MGP sites (see id.). The court nevertheless declined to award summary judgment to defendants “because issues of fact remain as to whether defendants waived their right tо disclaim coverage based on late notice” by “fail[ing] to timely issue a disclaimer” (id.). Although defendants specifically reserved their rights to assert a late-notice defense, the court dеtermined that a jury should consider whether, based on the supplemental information provided by LILCO, defendants “possessed sufficient ‍‌‌​​​​‌​​​‌‌​​‌​‌‌​​​‌‌‌​‌‌‌‌​‌​​​‌​​​​​‌‌‌‌​‌​​‍knowledge to require that they meet the obligation to issue a writtеn notice of disclaimer on the ground of late notice as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability” (id. at 581-582). Accordingly, the court held that triable issues of fact exist whether defendants waived their late-notice defense (id. at 582). The Appellate Division granted defendants leave to appeal, certifying to us thе question of whether its order was properly made (2013 NY Slip Op 80446[U] [2013]).

Defendants argue that the Appellate Division wrongly applied the strict timeliness standard from Insurance Law § 3420 (d) (2) in considering whether defendants wаived their right to disclaim coverage of LILCO’s environmental damage claims. Although the Appellate Division did not cite section 3420 (d) (2) in its decision, the court essentially recited the statute’s disclaimеr requirement when it stated that defendants had an “obligation” to disclaim coverage based on late notice “as soon as reasonably possible after first learning of the . . . grounds for disclаimer” (104 AD3d at 582). We agree with defendants that this was error.

Insurance Law § 3420 (d) (2) provides:

“If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident *590occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person оr any other claimant.”

The legislature enacted section 3420 (d) (2) to “aid injured parties” by encouraging the expeditious resolution of liability claims (Allstate Ins. Co. v Gross, 27 NY2d 263, 267 [1970]; see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 68 [2003]). To effect this goal, the statute “established] an absolute rule that unduly delayed disclaimer ‍‌‌​​​​‌​​​‌‌​​‌​‌‌​​​‌‌‌​‌‌‌‌​‌​​​‌​​​​​‌‌‌‌​‌​​‍of liability or denial of coverage violates the rights of the insured [or] the injured party” (Allstate, 27 NY2d at 267, 269). Compared to traditional common-law waiver and estoppel defenses, section 3420 (d) (2) creates a heightened standard for disclaimer that “depends merely on the passage of time rather than on the insurer’s manifested intention to release a right as in waiver, or on prejudice to the insured as in estoppel” (id. at 269).

By its plain terms, section 3420 (d) (2) applies only in a particular context: insurance cases involving death and bodily injury claims аrising out of a New York accident and brought under a New York liability policy (see Preserver Ins. Co. v Ryba, 10 NY3d 635, 642 [2008] [“Insurance Law § 3420 (d) requires timely disclaimer only for denials of coverage Tor death or bodily injury’”]; see also Jetco, 1 NY3d at 70; Matter of Firemen's Fund Ins. Co. of Newark v Hopkins, 88 NY2d 836, 837 [1996]). “Where, as here, the underlying claim does not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in Insurance Law § 3420 (d) are inapplicable” (Vecchiarelli v Continental Ins. Co., 277 AD2d 992, 993 [4th Dept 2000]; see e.g. Ryba, 10 NY3d at 642 [insurer “not required by Insurance Law § 3420 (d) to make timely disclaimer of coverage” for breach of contract claim]; Travelers Indem. Co. v Orange & Rockland Utils., Inc., 73 AD3d 576, 577 [1st Dept 2010], lv dismissed 15 NY3d 834 [2010]; Topliffe v US Art Co., Inc., 40 AD3d 967, 969 [2d Dept 2007]; Fairmont Funding v Utica Mut. Ins. Co., 264 AD2d 581, 581 [1st Dept 1999]).2 In such cases, the insurer will not be barred from disclaiming coverage “simply as a result of the passage of time,” and its *591delay in giving notice of disclaimer should be considered ‍‌‌​​​​‌​​​‌‌​​‌​‌‌​​​‌‌‌​‌‌‌‌​‌​​​‌​​​​​‌‌‌‌​‌​​‍under common-law waiver and/or estoppel principles (Travelers, 73 AD3d at 577; see Allstate, 27 NY2d at 269).

Here, the Appellate Division erred when it held that defendants had a duty to disclaim coverage “as soon as reasonably possible” after they learned that LILCO’s notice was untimely under the policies. The environmental contamination claims at issue in this case do not fall within the scope of Insurance Law § 3420 (d) (2), which the legislature chose to limit to accidental death and bodily injury claims, and it is not for the courts to extend the statute’s prоmpt disclaimer requirement beyond its intended bounds. Indeed, KeySpan has never relied on section 3420 (d) (2) and instead asserts a common-law waiver defense (see Allstate, 27 NY2d at 269). The Appellate Division must determine whеther the evidence supporting this defense is sufficient to defeat defendants’ motion for summary judgment based on LILCO’s failure, as a matter of law, to give timely notice under the policies. Speсifically, the Appellate Division must consider if, under common-law principles, triable issues of fact exist whether defendants clearly manifested an intent to abandon their late-notice dеfense (see e.g. Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P., 7 NY3d 96, 104 [2006]; Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966, 968 [1988]; Albert J. Schiff Assoc. v Flack, 51 NY2d 692, 698 [1980]; Allstate, 27 NY2d at 269). We therefore remit this matter to the Appellate Division to make these determinations.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed, with costs, the case remitted to that court for further proceedings in accordance with this opinion, and the сertified question answered in the negative.

Judges Graffeo, Read, Smith and Pigott concur; Chief Judge Lippman and Judge Rivera taking no part.

Order, insofar as appealed from, reversed, with costs, case remitted to the Appellate Division, First Department, ‍‌‌​​​​‌​​​‌‌​​‌​‌‌​​​‌‌‌​‌‌‌‌​‌​​​‌​​​​​‌‌‌‌​‌​​‍for further proceedings in accordance with the opinion herein, and certified question answered in the negative.

Notes

. LILCO eventually entered into an administrative consent order with the DEC, and no regulatory agencies commenced an enforcement action.

. [2] To the extent Estee Lauder Inc. v OneBeacon Ins. Group, LLC (62 AD3d 33 [1st Dept 2009]), cited by the Appellate Division here, and other Appellate Division cases hold that Insurance Law § 3420 (d) (2) applies to claims *591not based on death and bodily injury (see Hotel des Artistes, Inc. v General Acc. Ins. Co. of Am., 9 AD3d 181, 193 [1st Dept 2004], lv dismissed 4 NY3d 739 [2004]; Malca Amit N.Y. v Excess Ins. Co., 258 AD2d 282, 282 [1st Dept 1999]), those cases were wrongly decided and should not be followed.