4/5/2005
Late Notice in the Aftermath of Argo Realty Corp. v. GNY
Last April, the New York Court of
Appeals, New York's highest court, issued a decision
concerning the effect of an insured's violation of its
policy's Notice conditions. The decision is highly favorable
to insurers of New York-based risks, and puts to rest any
notion that New York intends to abandon its traditional rule
(albeit the minority view), that an insurer may disclaim
coverage on late notice grounds without having to prove that
it has suffered prejudice on account of the delay. The Argo
Realty case upholds New York's traditional "No Prejudice" rule
with regard to an insurer's right to disclaim coverage on late
notice grounds. The Court of Appeals did not, as many had
anticipated, abandon the no prejudice rule in favor of
adopting the majority view, which requires the insurer to
prove it has been prejudiced by the insured's delay in
furnishing notice.
The Court also did not adopt a “rebuttable presumption” rule,
which permits an insured to make an evidentiary showing to
overcome the presumption of prejudice to the insurer (thereby
entitling itself to coverage notwithstanding its late notice).
Instead, the Court held that the notice conditions in a
liability policy are valid conditions precedent to coverage
and that an insurer need not prove prejudice to deny coverage
for an insured's breach of this condition precedent.
The Court also clarified the one exception to the “no
prejudice” rule, which is the exception first spelled out by
the Court of Appeals in the 2002 decision entitled Brandon v.
Nationwide 97 N.Y.2d 491 (2002); under Argo, the exception is
that an insurer need only prove prejudice when it has received
timely notice of the occurrence and/or claim and only late
notice of the lawsuit. The Argo decision clears up the wake of
confusion created by intermediate appellate court rulings
decided after Brandon.
Subsequent to Argo Realty, the Court of Appeals last June, in
Great Canal Realty v. Seneca Ins. Co., reversed an Order and
Decision of the First Department which had required the
insurer to prove prejudice before it could validly disclaim
coverage on the basis of its insured's late notice of an
occurrence. Following Argo Realty, the Court of Appeals
declared that the insured's untimely notice of the occurrence
relieved the insurer of its obligation to defend and indemnify
it in the underlying lawsuit.
Both the First and Second Departments as well, subsequent to
Argo Realty, have followed its mandate by declaring that New
York still adheres to its No Prejudice Rule and that as a
consequence, an insurer may validly disclaim coverage on late
notice grounds without having to prove prejudice as a
consequence of the insured's delay. (See, St. Charles Hosp. &
Rehab.
Ctr. v. Royal Globe Ins. Co., 795 N.Y.S.2d 343, 2005
N.Y. App. Div. LEXIS 5651 (2d Dep't, May 2005), Wilson
v. Quaranta, 795 N.Y.S.2d 532, 2005 N.Y. App. Div.
LEXIS 5441 (1st Dep't, May 2005))
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