X marks the spot (of the claim)

Where an insurance policy is 'issued or delivered' may determine whether a risk is covered.

Like most contracts, insurance contracts rely on state law to determine when coverage applies. In one recent case, the insurer claimed that it had no duty to defend the insured because it hadn’t been notified of the claim in what it considered a timely manner as required by the policy.

The policyholder disagreed, saying that the insurer was required to provide coverage, including a defense, because the policy had been “issued or delivered” in the state of New York. The dispute eventually ended up in the U.S. District Court for the Eastern District of New York.

Inside the case

Robert Schutt filed a lawsuit in a New York state court against T.G. Nickel & Associates, the general contractor on a construction project in Bay Shore, N.Y., alleging that he had been injured while working at the site for a subcontractor, Noble Elevator Co. Inc., a N.Y. corporation. T.G. Nickel in turn filed a third-party action against Noble.

Liberty Insurance Underwriters, Inc. — an Illinois corporation with its principal place of business in Massachusetts — had issued a commercial general liability (CGL) insurance policy to T.G. Nickel. Liberty contended that Greenwich Insurance Company — a Delaware corporation with its principal place of business in Connecticut and an office in New York, which had issued a separate CGL insurance policy to Noble — had to provide a defense to T.G. Nickel as an additional insured under that policy. Greenwich countered that it had no duty to defend T.G. Nickel because it had not been notified of the claim against T.G. Nickel “as soon as practicable,” as required by the policy it had issued to Noble.

Liberty sued and moved for partial summary judgment, seeking a ruling that the Greenwich policy was governed by N.Y. Insurance Law Section 3420, which requires the additional showing of prejudice to deny the claim based on late notice. In turn, Greenwich sought a ruling that Section 3420 did not apply because its policy had not been “issued or delivered in” New York within the meaning of New York insurance law and, therefore, that no showing of prejudice was required.

New York insurance law

New York Insurance Law Section 3420 specifically states:

No policy or contract insuring against liability for injury to any person … or destruction of … property shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions that are equally or more favorable:

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(5) A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured … unless the failure to provide timely notice has prejudiced the insurer.

The district court granted Liberty’s motion, concluding that Section 3420 did apply in this case, explaining that although the law did not define the term “issued or delivered in this state,” the N.Y. Court of Appeals — the state’s highest court — had recently concluded in the Carlson v. American International Group, Inc. case [30 N.Y.3d 288 (2017)] — that this language included policies that covered “both insureds and risks located in [New York].”

The district court said, because Noble was a N.Y. company and the risk was a N.Y. construction site, under Carlson the Greenwich policy was governed by Section 3420 and its prejudice requirement applied to the late notice defense.

The case is Liberty Ins. Underwriters, Inc. v. Greenwich Ins. Co., No. 16-CV-4293 (ADS) (SIL) (E.D.N.Y. Aug. 28, 2018).

Note that location is also an important consideration for insurance agents and brokers. State laws govern several aspects of their business as well, including licensing and cancellation or nonrenewal of insurance policies.