New York's Appellate Division Holds That Insurers Cannot Delay Issuing A Disclaimer Of Coverage On A Known Coverage Defense While It Investigates Other Potential Grounds For Disclaiming

In George Campbell Painting v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 2012 N.Y. Slip Op. 254 (1st Dept. 2012), New York's Appellate Division, First Department, expressly overruled its prior holding in DiGuglielmo v. Travelers Prop. Cas., 6 A.D.3d 544, 766 N.Y.S.2d 542 (1st Dept. 2004), which held that "[a]n insurer is not required to disclaim on timeliness grounds before conducting a prompt, reasonable investigation into other possible grounds for disclaimer."

In Campbell, the owner of a project, Triborough Bridge and Tunnel Authority (TBTA), and its general contractor, George Campbell Painting (Campbell), sought coverage for an underlying personal injury action from National Union, the excess carrier for Safespan Platform Systems (Safespan), the subcontractor that employed the underlying personal injury plaintiff. Campbell and TBTA sought coverage on the grounds that they were additional insureds under the policies issued to Safespan. Campbell and TBTA gave notice of the claim to National Union in November, 2005. On January 17, 2006, Campbell and TBTA provided National Union with an August, 2004 status report from defense counsel advising that the value of the underlying personal injury claim would exceed Safespan's primary limits. National Union continued to investigate the matter for an additional four months before issuing a disclaimer, dated May 17, 2006, that was based on late notice.

Campbell and TBTA brought a declaratory judgment action against National Union. They moved for summary judgment on the grounds that National Union's disclaimer was untimely under Insurance Law § 3420(d)(2), which obligates insurers to disclaim "as soon as is reasonably possible." The lower court granted summary judgment for Campbell and TBTA. National Union appealed. The First Department affirmed the lower court's grant of summary judgment.

On appeal, National Union argued that under DiGuglielmo, it was permitted to delay its disclaimer while it investigated other possible grounds for disclaiming, specifically that Campbell and TBTA were not in fact additional insureds under the excess policy. The First Department disagreed, and stated that it was declining to follow DiGuglielmo pursuant to the express language of Insurance Law § 3420(d)(2), prior holdings of the Court of Appeals, and public policy grounds.

The Campbell court held that the plain language of Insurance Law § 3420(d)(2) "cannot be reconciled with allowing the insurer to delay...