July 22, 2019

The United States Court of Appeals for the Second Circuit ruled that an insurer who waits to deny coverage so that it can investigate facts giving rise to a disclaimer will not be prevented from denying coverage under Insurance Law Section 3420(d)(2), as long as the insurer does not use the investigation as a tactic to delay the disclaimer. The case is United Fin. Cas. Co. v. County-Wide Ins. Co., No. 18-3022, 2019 U.S. App. LEXIS 19581 (2d Cir. July 1, 2019).

After Juan Pineda was involved in a three-vehicle collision while he was hauling goods for International Trucking Group (ITG). At the time, Pineda was potentially entitled to coverage under one of two insurance policies. The first was a motor carrier liability policy issued by Country-Wide Insurance Company (Country-Wide), and the second was a “non-trucking liability” policy issued by United Financial Casualty Company (UFCC) UFCC to T.F. Victors Trucking Company, LLC, who employed Pineda and who also owned the truck that Pineda was driving on the day of the incident. The non-trucking policy excluded coverage when other insurance is available for automobiles being used “[t]o carry property in any business, or while such property is being loaded onto or unloaded from the insured auto,” so when a truck is being used for business purposes. Later, UFCC learned that Country-Wide might also owe Pineda coverage, and would be primary over UFCC's coverage because Pineda had been operating the truck for business purposes at the time of the collision. UFCC tried to reach Country-Wide several times.

Country-Wide eventually disclaimed coverage. More than 50 days after UFCC received the disclaimer, it filed a declaratory judgment action seeking a determination that because the driver was insured under the Country-Wide policy, the UFCC exclusion applied to bar coverage to the driver. Country-Wide argued that UFCC should be estopped from disclaiming coverage due to section 3420(d)(2) because the 52 days that it waited to file the coverage action. The District Court granted summary judgment in favor of Country-Wide finding that UFCC had failed to disclaim in a timely manner, and the Second Circuit reversed that decision.

The Second Circuit noted that New York insurance law section 3420(d)(2) begins running the clock for a timely disclaimer when the insurer has obtained sufficient facts to disclaim the coverage. The law allows an insurer time to conduct a reasonable investigation to determine if a policy exclusion applies in situations where the basis for denial is not immediately apparent. The Court also noted that the existence of a second policy was not known to UFCC until Country-Wide turned the policy in for the coverage litigation filed by UFCC. The Court decided that filing a declaratory judgment action constituted sufficient written notice of a disclaimer, and thus ruled that UFCC had timely disclaimed coverage by filing action prior to when Country-Wide's policy was produced.

 

Editors Note: While insurers should still conduct investigations into their claims as quickly and efficiently as possible, this court ruling helps to recognize some of the rights of insurers' to take their time conducting a reasonable investigation of a claim. No party reaps any benefit from the insurer rushing through a claim investigation. On the other hand, this law important because it prevents insurers from dragging their feet in the course of their investigation. In this case, whether or not coverage applied was directly tied to the presence of a second policy, so taking steps in finding out about that second policy constituted sufficient written notice.

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