Last week, the New York Court of Appeals handed down its decision in Matter of New York Cent. Mut. Fire Ins. Co. v. Aguirre, 2006 NY Slip Op 04749.
In this case, the insureds' attorney sent a letter to NY Central on August 15, 2002 advising that a SUM claim would be made relative to an accident that had occurred. On September 3, 2002, NY Central sent a letter acknowledging receipt of the letter and directing the "immediate completion and return of the enclosed Notice of Intention to Make Claim forms." The insureds never filled out the forms, and instead, in May of 2003, served a request for uninsured motorist arbitration. NY Central moved to stay the arbitration on the ground that the insureds had failed to complete the requested forms, which was a condition precedent in the policy for which timely disclaimer was not required. The Court of Appeals disagreed.
The Court noted that the requirement that the insureds fill out the proof of claim form was an exclusion or condition of coverage, and thus the issue to be determined was whether NY Central Mutual Insurance Company timely disclaimed or dnied SUM coverage as soon as was reasonably possible within the meaning of Insurance Law s. 3420(d).
The Court stated that:
An "insurer's failure to provide notice as soon as is reasonably possible precludes effective disclaimer, even [where] the policyholder's own notice of the incident to its insurer is untimely" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 67 ). The "timeliness of an insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage" (id. at 68-69 [internal quotation marks omitted]). When "the basis for denying coverage was or should have been readily apparent before the onset of the delay [of disclaimer]," the insurer's explanation is insufficient as a matter of law (id. at 69). In Jetco, we held that an insurer's unexcused 48-day delay in notifying an insured of denial of coverage was unreasonable as a matter of law.
Accordingly, the Court concluded that by using the word "immediate" in its request for the return of the completed forms, NY Central became aware of the basis for denying coverage based upon the failure to return the completed forms well before June 19, 2003, when it moved to stay the arbitration. The Court stated:
That completed forms were never returned or that the letter did not set a precise deadline for their return does not extend the insurer's time to disclaim or deny coverage, or excuse its delay in doing so.
Judge Smith dissented:
The Court today holds, in substance, that this requirement was nullified because the insurance company did not, as soon as possible after as soon as practicable, send claimants a notice that they had failed to send a notice. The Catch-22 quality of this holding is too much for me, and I dissent...
Insurance Law § 3420 (d) requires an insurance company to give written notice of a disclaimer of coverage "as soon as is reasonably possible." I would hold that, where the disclaimer is based on a claimant's failure to submit a document in timely fashion, and there is no fixed deadline for the claimant's submission, the time to disclaim does not start running at least until the belated submission arrives. To hold otherwise, it seems to me, places an unreasonable and unnecessary burden on the insurance company.
I'm leaning towards the dissent's position in this case. While I find provisions of this sort to be tedious and unnecessary, in that insurers require special forms to be filled out, even when the insurer already has sufficient information to investigate, they are valid provisions of an insurance contract. And, these provisions serve to trigger other events to occur, once the requirements of the provisions are met. It seems unfair and burdensome to require insurers to proactively disclaim coverage, even though the insured has not yet provided the forms required by the contract.
Perhaps a positive outcome of this holding will be that insurers will remove the unnecessarily specific (and annoying) requirements of this nature from insurance contracts, and instead simply require that their insureds provide them with the appropriate information in any number of acceptable ways, be it by letter, pre-printed form, or otherwise.