Fleischner Potash wins summary judgment in decision that provides guidepost for what an Insurer should do when it receives notice after the entry of a default judgment in a lawsuit subject to NY Insurance Law 3420.
When an Insured provides late notice to an Insurer under a policy issued or delivered in New York of a personal injury lawsuit filed in New York for an accident in New York, New York Insurance Law 3420 provides different types of proof of the prejudice required for the Insurer to deny coverage. When there is notice after a finding of liability, the Statute provides for an irrebuttable presumption of prejudice which allows the insurer to deny coverage. Insurance Law 3420 does not distinguish between liability judgments on the merits or on default. This leaves open the question of what an Insurer should do when notice is after a finding of liability on default? Technically, the statute permits the Insurer to deny, but what happens if the default can be set aside? Does the irrebuttable presumption of prejudice no longer exist for the Insurer to deny coverage?
Fleischner Potash recently won summary judgment in an Insurance Law 3420 notice case that provides a good guidepost for what an Insurer should do in the circumstance where the Insurer receives notice after the entry of a default judgment. In American Western Home Insurance Company v. Gjonaj Realty & Management Co., et al., the Honorable Justice David F. Everett held that American Western Home Insurance Company was irrebuttably prejudiced pursuant to Insurance Law § 3420(c)(2)(B) by the Insureds’ breach of the policy’s notice conditions, and that American Western did not lose this right under New York Insurance Law 3420 by its changing position through the course of the underlying case.
In a case with a complex factual and procedural history, Fleischner Potash presented the Court with a clear and concise timeline of the relevant events that formed the basis for American Western’s coverage position. The Court noted that American Western did not receive notice of the occurrence, claim and suit until October 2, 2014, after the entry of a $900,000 default judgment against the Insureds. American Western timely disclaimed coverage within one week of receiving notice, but advised the Insured that if they could have the default set aside, it would reconsider the coverage position. Thereafter, the Insureds retained counsel who successfully moved to have the default judgment vacated and American Western agreed to provide coverage, subject to a reservation of rights. When the Plaintiff filed for an appeal, American Western specifically reserved rights to deny coverage for a breach of the Policy’s Notice Condition, if the Default Judgment was reinstated. The Appellate Court subsequently reinstated the default as to liability and set the matter down for a hearing on damages. As a result of this decision, American Western again denied coverage due to the Insureds’ breach of the policy’s notice conditions for which there was an irrebuttable presumption of prejudice pursuant to Insurance Law § 3420(c)(2)(B). American Western also tendered the defense back to the Insureds and advised them that it would file a Declaratory Judgment Action and seek reimbursement of any further defense fees and costs it incurred, if the Insureds did not accept the tender. The Insureds failed to assume their own defense and American Western filed a Declaratory Judgment Action.
After all the parties appeared and answered, Fleischner Potash immediately moved for summary judgment on behalf of American Western. Due to Fleischner Potash’s effective advocacy and clear presentation of the applicable law, the Court rejected defendants “scattershot criticisms and objections” and granted the motion. The Court held that where, as here, there has been a finding by a court of competent jurisdiction that the Insureds are not entitled to a vacatur of the default judgment, because they acted unreasonably in failing to ensure that American Western received notice as soon as practicable, there is an irrebuttable presumption of prejudice. Although the Appellate Division vacated the default judgment on damages and ordered a new inquest, the Court held that under NY Insurance Law 3420 it is the failure to provide notice prior to a determination of liability that constitutes irrebutable prejudice.
The Court also rejected the defendant’s argument that American Western’s May 2, 2017 disclaimer (after the Appellate Division reinstated the default) was untimely. Instead, the Court found that “American Western promptly and justly disclaimed upon receipt of the post-judgment notice in October 2014”. Further, the Court held that American Western acted in good faith, and set forth the evidence of this good faith:
by promptly withdrawing its disclaimer upon vacatur of the default judgment in December 2015, so long as its ability to investigate and defend against the lawsuit had not been prejudiced; by promptly notifying Gjonaj and Webb in February 2016, that, in the event the vacatur was overturned, it intended to disclaim; and then by promptly disclaiming upon the Appellate Court’s issuance of its decision and order in May 2017.
Finally, the Court rejected the Insured’s argument that they had been disadvantaged by American Western’s “shifting positions” and agreed with the Appellate Division that the Insureds’ created their own disadvantage by failing to act promptly to protect themselves in underlying action. The Court also found the Insureds’ attempt to blame American Western’s defense counsel to be unavailing noting that it was the Appellate Court’s modification of the lower court’s decision and order, to the extent of reinstating the default Judgment and not America Western’s “shifting positions” or choice of counsel, that precluded any challenge as to liability, and provided the justification for American Western to disclaim.
Accordingly, The Supreme Court, Westchester County granted American Western’s motion for summary judgment, and denied the insureds’ and the underlying plaintiff’s cross motions. The Court specifically declared that American Western is not obligated to provide a defense and coverage to its Insureds for the Underlying Lawsuit, and that American Western has no obligation to pay any judgment that the Underlying Plaintiff may obtain in that action. In addition, the Court granted to American Western the recovery of attorney’s fees and costs incurred on behalf of the Insureds.
A copy of the decision can be found here.