Late Notice

2nd Circuit holds insurer need not establish prejudice to avoid coverage for San Diego’s environmental liabilities.

The Second Circuit Court of Appeals, applying New York law, upheld a district court finding that the insured, The City of San Diego, California (the “City”), provided late notice to its insurer, Indian Harbor Insurance Co. (“Indian Harbor”), and therefore was not entitled to coverage. The court also found that the insurer did not have to prove it was prejudiced by the late notice to bar coverage.

The City sought coverage for three claims related to gas leaks from the City’s sewage system under a pollution and remediation legal liability insurance policy issued by Indian Harbor. Indian Harbor denied coverage for the claims, alleging that the notice was late. The policy at issue contains a New York choice of law provision and requires the City to notify Indian Harbor “as soon as practicable” about any liability claims relating to “pollution conditions.” Just prior to the issuance of the policy, the New York legislature passed a law to bar liability insurers from denying claims by reason of late notice unless the insurers suffered prejudice. This amendment only applies, however, to policies “issued or delivered” in New York after January 17, 2009.

Indian Harbor filed suit seeking a declaration that it had no duty to indemnify the City on the claims at issue because the notice provided was not timely. The City opposed, arguing that the amended law applied because the policy was “issued or delivered” in New York and, therefore, Indian Harbor must prove prejudice before denying coverage based on late notice. The City also argued that the notifications were not late as a matter of law. The district court rejected the City’s arguments and granted summary judgment for the insurer.

On appeal, the Second Circuit agreed with the district court and rejected the City’s argument that a reasonable fact finder could conclude that the policy was “issued or delivered” in New York. The Second Circuit also rejected the City’s argument that the amendment to the law created a new public policy and therefore changed the common law no prejudice rule.

Finally, the Second Circuit held that the district court correctly found that the City’s delay of notice was unreasonable as a matter of law, where notice of a claim was provided 58 days after the incident.  “The test for determining whether the notice provision has been triggered is whether the circumstances known to the insured at the time would have suggested to a reasonable person the possibility of a claim.” Under New York law, delays of one or two months had been found unreasonable. Indian Harbor Ins. Co. v. City of San Diego, No. 13-4244-cv (2nd Cir. Oct. 2, 2014).

Late notice continues to be a heavily litigated issue, and underscores the need for policyholders to be familiar with, and in compliance with, all policy-specific notice requirements.

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