HNRK Coverage Corner

On November 1, 2018, the Third Department issued a decision in Lafarge Bldg. Materials Inc. v Harleysville Ins. Co. of N.Y., 2018 NY Slip Op 07385, holding that a property owner was not entitled to additional insured coverage under a contractor’s CGL policy because it gave late notice of the claim.

The coverage dispute at issue in Lafarge arose from an injury sustained by a contractor’s employee in the course of a project at a cement plant owned by LaFarge Building Materials, Inc.  As required by the terms of the purchase order for the project, the contractor procure a general liability policy naming LaFarge as an additional insured. Lafarge did not notify the CGL carrier of the lawsuit until nine months after it was served with the complaint.  The insurer disclaimed defense and indemnity coverage for LaFarge for the injured employee’s claim “on the ground that plaintiff failed to provide it notice of the lawsuit ‘as soon as practicable’” – a condition to coverage under the policy. The personal injury action ultimately settled for $1.425 million, and LaFarge commenced an action against the carrier for breach of the duty to defend and indemnify. 

The Third Department affirmed the trial court’s decision granting summary judgment to the insurer, explaining:

Where, as here, a policy of liability insurance requires that notice of an occurrence or claim be given “as soon as practicable,” such notice must be accorded the carrier within a reasonable period of time. The insured's failure to satisfy the notice requirement constitutes a failure to comply with a condition precedent which, as a matter of law, vitiates the contract.  Because the subject policy was issued prior to the amendment to Insurance Law § 3420, defendant was not required to show that it was prejudiced by plaintiff's failure to give timely notice in order to successfully disclaim coverage.  Further, although there may be circumstances where the insured's failure to give timely notice is excusable, the insured bears the burden of establishing the reasonableness of the proffered excuse.

Here, defendant made a prima facie showing of its entitlement to judgment as a matter of law based upon plaintiff's nearly nine-month delay in notifying defendant of the underlying personal injury action.  Thus, the burden shifted to plaintiff to raise a question of fact as to the reasonableness of such delay.  Even construing all inferences in favor of plaintiff, we find that plaintiff failed to do so.

Plaintiff attributes the delay in notifying defendant of the underlying lawsuit to its purported lack of knowledge that it was covered under the applicable insurance policy and its claimed diligent efforts to ascertain coverage. It is undisputed, however, that, upon commencement of the underlying personal injury action, plaintiff possessed contemporaneous knowledge of the date and location of the incident, as well as the fact that it occurred in the course of O'Dell's employment with AMS, one of plaintiff's contractors. Plaintiff's own submissions further establish that, promptly after service of the complaint in the underlying action, it found in its records the April 26, 2005 certificate of liability insurance in AMS's name, which, notably, listed plaintiff as the holder and defendant as the insurance carrier for the project. While the certificate of insurance did not specifically list plaintiff as an additional insured on the policy, the uncontroverted evidence submitted on the motion established that all contractors performing work for plaintiff at the Ravena plant did so pursuant to a purchase order issued by plaintiff, and that all such purchase orders contained standard terms and conditions requiring the contractor to name plaintiff as an additional insured on the contractor's general liability insurance policy before work would be approved. Thus, shortly after being served with the complaint in the underlying action, plaintiff (1) knew that an occurrence had taken place at its facility, (2) was aware that the incident involved an employee of one of its contractors, (3) had located the certificate of liability insurance listing it as the holder thereof and defendant as the insurer for the project, and (4) knew that the language contained in its standard purchase orders required contractors, such as AMS, to name it as an additional insured on their policy of liability insurance.

In light of the information possessed by plaintiff promptly after service of the complaint in the underlying action, plaintiff should have realized that there was a reasonable possibility of the subject policy's involvement.  While we are mindful that the reasonableness of any delay and the sufficiency of the excuse offered ordinarily present questions of fact to be resolved at trial, here the proffered excuse for the delay in providing notice was unreasonable as a matter of law.  Accordingly, Supreme Court properly granted defendant's motion for summary judgment and dismissed the complaint.

You can’t get insurance coverage if you don’t ask for it.  And, as the additional insured learned here, a delay in giving notice to the carrier can compromise the coverage.  Under Section 3420(a)(5) of the New York insurance law (which did not apply in this case because the policy was issued before the law’s effective date), an insurer for a policy covering liability for “injury to person” must demonstrate prejudice to invalidate a claim for late notice.  Nevertheless, the best practice is to give notice as soon as possible.