Opinion
40065/07.
Decided July 22, 2008.
Upon the foregoing papers in this declaratory judgment action, plaintiff Long Island Insurance Company (LIICO) (1) moves for an order, pursuant to CPLR 3125, granting it a default judgment against defendants Oneil G. Johnson (Johnson), Rescue Car Service, Inc. (Rescue), Arlene McKenzie-Harris (McKenzie) and Ann Gulston (Gulston), and (2) cross-moves for an order, pursuant to CPLR 3212, granting summary judgment declaring that it has no duty to defend or indemnify defendants in an underlying personal injury action entitled Gulston v Johnson (Sup Ct, Kings County, Index No. 26757/07). Defendant Gulston cross-moves for an order granting summary judgment (1) dismissing LIICO's complaint against her on the ground that LIICO's delay in issuing its disclaimer of coverage was unreasonable as a matter of law, and (2) directing LIICO to defend and indemnify Johnson in the underlying action.
LIICO has withdrawn that branch of its motion which sought a default judgment against Gulston.
Background
In the underlying action, Gulston sought monetary damages for serious bodily injuries she allegedly sustained on July 3, 2007 when a motor vehicle, owned and operated by McKenzie and in which Gulston was a passenger, collided head on with a van owned and operated by Johnson and in which Deon Denny was a paying passenger. At the time of the accident, Johnson was insured by LIICO, pursuant to an automobile insurance policy which excluded "liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance" (LIICO Policy, Part A, ¶ 5).
The affidavit by Lori Russ, a LIICO claims representative, dated April 24, 2008, indicates that LIICO first learned of the underlying lawsuit on July 26, 2007, when it received a copy of Gulston's verified complaint, which alleged, in relevant part, that:
"defendant Johnson was in the course of his employment by defendant Rescue Car Service, Inc. at the time of the below referenced motor vehicle accident.
"defendant Johnson operated the above reference[d] motor vehicle with the permission and in the business of [defendant] Rescue Car Service, Inc."
(Complaint, ¶¶ 4-5).
Thereafter, according to Ms. Russ, an investigator was directed to obtain a statement from the insured Johnson; two letters, dated August 8 and 22, 2007, were sent by LIICO to Johnson scheduling his examination under oath; when there was no response from Johnson with respect to these letters, Denny, Johnson's fare at the time of the accident, was examined under oath on August 30, 2007; and the written disclaimer was issued by LIICO to Johnson and Gulston on September 19, 2007, which was 55 days after LIICO's receipt of Gulston's complaint.
Discussion
Insurance Law § 3420 (d) requires an insurer to provide a written disclaimer or denial of coverage "as soon as is reasonably possible" on the basis of a policy exclusion and, if it fails do so, it is precluded from denying coverage based upon the exclusion ( see Moore v Ewing , 9 AD3d 484 , 488). Insurance Law § 3420 (d) provides that:
A disclaimer pursuant to Insurance Law § 3420 (d) is required when the denial of coverage is based upon a policy exclusion without which the claim would otherwise be covered ( see Ciasullo v Nationwide Ins. Co. , 32 AD3d 889 , 890 [2006]). The parties do not dispute that the policy clause in this case is an "exclusion."
"If under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for . . . bodily injury arising out of a motor vehicle accident or any other type of accident occurring 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. . . ." (emphasis added)
The legislative history reveals that the purpose of the statute was "to assist a consumer or claimant in obtaining an expeditious resolution to liability claims by requiring insurance companies to give prompt notification when a claim is being denied" ( First Fin. Ins. Co. v Jetco Contr. Corp. , 1 NY3d 64 , 68, quoting 30-Day Budget Report on Bills, Bill Jacket, L 1975, ch 775 [referring to bills that later became Insurance Law § 3420 (d)]).
The insurer's obligation to provide a disclaimer is independent of whether or not the insured has timely notified the insurer of the accident ( see New York Cent. Mut. Fire Ins. Co. v Aguirre , 7 NY3d 772 , 774). Rather, the insurer's obligation to provide prompt notice under Insurance Law § 3420 (d) is triggered "when the insurer first learns of the grounds for disclaimer of liability or denial of coverage'" ( First Fin. Ins. Co., 1 NY3d at 68-69, quoting Matter of Allcity Ins. Co. [Jimenez], 78 NY2d 1054, 1056). "[T]he moment from which the timeliness of an insurer's disclaimer is measured is the date on which it first receives information that would disqualify the claim" ( 2540 Assocs., Inc. v Assicurazioni Generali, S.p.A., 271 AD2d 282, 283) and the requirement to provide prompt notice under Insurance Law § 3420 (d) "cannot be delayed indefinitely until all issues of fact regarding the insurer's coverage obligations have been resolved" ( Republic Franklin Ins. Co. v Pistilli , 16 AD3d 477, 479). "When in doubt, an insurer should issue a prompt disclaimer and then seek a declaratory judgment concerning its duty to defend or indemnify . . ." ( Republic Franklin Ins. Co., 16 AD3d at 479; see also Am. Exp. Property Cas. Co. v Vinci, 18 AD3d 655, 656). If an insurer delays in giving written notice of disclaimer, however, it bears the burden of justifying the delay ( see Delphi Restoration Corp. v Sunshine Restoration Corp. , 43 AD3d 851 , 852, lv dismissed 9 NY3d 1002). Investigation into issues affecting an insurer's decision whether to disclaim coverage may excuse the delay in notifying the policyholder of a disclaimer ( see First Fin. Ins. Co., 1 NY3d at 69; Delphi, 43 AD3d at 852) if such excuse relates to the insurer's decision to disclaim ( see First Fin. Ins. Co., 1 NY3d at 69). If the reason for the delay is not excusable, the final inquiry is whether the delay is unreasonable as a matter of law ( see First Fin. Ins. Co., 1 NY3d at 69-70).
Analysis
Since July 26, 2007, LIICO had been aware of the allegations contained in the summons and complaint in the underlying action, including the assertion that Johnson was operating his van as a livery vehicle. In spite of this knowledge, LIICO sent Johnson two letters, dated August 8 and 22, 2007, neither of which contained any language indicating that coverage might be disclaimed under the livery exclusion clause. It was not until its September 19, 2007 letter to Johnson that LIICO advised its insured and Gulston that it was denying coverage under that policy exclusion. Notwithstanding this nearly two-month delay, LIICO asserts that its disclaimer was timely "[s]ince the primary reason for disclaiming coverage herein was not readily apparent and required investigation," including an examination before oath of the paying passenger. LIICO's investigation, however, was superfluous, as the grounds for its disclaimer were readily apparent, before the onset of the delay, from the face of the complaint, which alleged that, at the time of the accident, Johnson was using his van as a livery vehicle in connection with his employment with Rescue. Several courts have held relatively short delays in notifying the insured of denial of coverage to be unreasonable as a matter of law ( see First Fin. Ins. Co., 1 NY3d at 69-70 [a 48-day delay was unreasonable as a matter of law]; Matter of Nationwide Mut. Ins. Co. [Steiner], 199 AD2d 507, 508 [an unexplained 41-day delay was unreasonable as a matter of law]; Transcontinental Ins. Co. v Gold, 18 Misc 3d 1135 [A], 2008 NY Slip Op 50322, *1 [U] [2008] [even a "thirty-day delay is unreasonable as a matter of law where the sole ground on which coverage is disclaimed is obvious from the face of the notice of claim and the accompanying complaint, and there existed no need to conduct an investigation before determining whether to disclaim"]; but see New York Central Mut. Fire Ins. Co. v Majid , 5 AD3d 447 , 448 [a 31-day delay in issuance a disclaimer letter based upon a livery vehicle exclusion was reasonable in light of the insurer's need to consult with counsel prior to the issuance of the disclaimer]). Accordingly, due to its untimely disclaimer, LIICO waived its right to rely upon the livery/public conveyance exclusion contained within its policy.
The instant fact pattern is clearly distinguishable from Farmbrew Realty Corp. v Tower Ins. Co. of New York ( 289 AD2d 284, 285 [2001], lv denied 98 NY2d 601 [2002]), in which a two-month delay in issuing the disclaimer was held to be reasonable in light of investigation by the insurer of the circumstances of the accident. Unlike the facts of this case, there was no claim in Farmbrew that the basis for the disclaimer had been obvious from the face of the insured's notice of loss to the insurer.
The court's ruling is consistent with Halloway v State Farm Ins. Cos. ( 23 AD3d 617 , lv denied 6 NY3d 708), on which LIICO relies. In Halloway, the Appellate Division, Second Department held that the insurer's disclaimer, which was issued five months from the date of the accident but immediately after the completion of an investigation, was timely based on the objective need for the insurer's prior investigation. "[I]n view of the contradiction between [the insured's] alleged statement at the time of the accident as related by the plaintiffs' attorney, and [the insured's] subsequent denial that passengers were present and the police report, it was reasonable for [the insurer] to investigate the incident to determine, inter alia, whether the livery vehicle exclusion applied" ( id. at 618). The holding in Halloway was a justified departure, based on the numerous inconsistencies in the insured's testimony and in the police report, from the general rule enunciated in Republic Franklin Ins. Co. ( 16 AD3d at 479) that "[w]hen in doubt, an insurer should issue a prompt disclaimer and then seek a declaratory judgment concerning its duty to defend or indemnify" ( id. at 618). After deciding Halloway, the Appellate Division, Second Department applied Republic's "disclaim first" approach, albeit without citing to it, in Allstate Ins. Co. v Swinton ( 27 AD3d 462 ). In Allstate, an insurer's 34-day delay in disclaiming coverage, based upon lack of notice of the accident and the fact that the driver was not listed as an insured driver, was held to be unreasonable as a matter of law. The Appellate Division stated that the insurer "could have immediately disclaimed based upon lack of notice and thereafter disclaimed in a separate letter on the additional ground that the driver was not listed as insured driver once that fact was ascertained" ( id. at 463). Subsequent to Allstate, the Appellate Division, Second Department held in Tully Const. Co., Inc. v TIG Ins. Co. ( 43 AD3d 1150 ), that a 42-day delay in the issuance of the disclaimer was reasonable in light of the discrepancies in the oral and written communications by the insured, warranting further investigation by the insurer, including obtaining a copy of the summons and complaint in the underlying action. The court acknowledges that investigation into issues affecting an insurer's decision whether to disclaim coverage obviously may excuse delay in notifying the insured of a disclaimer ( see e.g. DeSantis Bros. v Allstate Ins. Co., 244 AD2d 183, 184 [delay reasonable because of need to review 500-page file and conduct legal research], lv denied 91 NY2d 808; Aetna Cas. Sur. Co. v Brice, 72 AD2d 927, 928-929 [delay reasonable due to insurer's difficulty gathering evidence because all those involved in accident had been killed], affd 50 NY2d 958). In the instant case, however, it bears repeating that the excluded use of the insured van as a livery vehicle was readily apparent upon LIICO's receipt of the complaint in the underlying action.
It is well established that "an action for a declaratory judgment is not subject to dismissal merely because plaintiff is not entitled to the declaration it seeks. Instead, rather than dismiss the complaint, the court should make an appropriate declaration of the rights and obligations of the parties with respect to the subject matter of the litigation" ( Madera v Allstate Ins. Co., 12 Misc 3d 1162 [A], 2006 NY Slip Op 51004, *3 [U] [2006] [internal citations omitted]). Accordingly, the motions of LIICO and Gulston are resolved to the extent that the court declares that LIICO is obligated to defend and indemnify Johnson with respect to the underlying action.
In light of the court's determination, LIICO's motion to declare Johnson, McKenzie and Rescue to be in default on its complaint in the instant action is dismissed as moot.
This constitutes the decision, order and judgment of the court.