Disclaimer of Coverage Must Be Prompt & Clear

Failure to Promptly Disclaim Coverage Requires Insurer to Defend Excluded Child Molestation

The City of New York (City) sued an insurer under a commercial general liability (CGL) policy, seeking a declaration that the insurer was obligated to indemnify the City in underlying suit against the City, its Administration of Children’s Services, and foster care contractor, as related to abuse and death of child. The City lost in the trial court.

FACTS

City, its Administration for Children’s Services, and a foster care agency with which it contracted were named as defendants in a lawsuit alleging that the decedent suffered abuse, and ultimately death, as a result of their negligence. City seeks insurance coverage as an additional insured under a commercial general liability (CGL) policy issued by defendant. The CGL part of the policy was occurrence-based but contained an exclusion for liability arising from occurrences of abuse or molestation. However, it also contained an abuse or molestation endorsement that added such coverage back in but only if reported during the policy period or 60 days after its expiration.

In City of New York v. Granite State Ins. Co., Supreme Court, Appellate Division, First Department, New York,  — N.Y.S.3d —- , 2016 N.Y. Slip Op. 01124 2016 N.Y. Slip Op. 01124 2016 WL 596877 the Appellate Division was asked to require coverage because it took six months for the insurer to disclaim coverage.

ANALYSIS

Although the incidents alleged in the underlying action occurred during the policy period, the City did not receive notice of the claim against it until June 2011, more than 60 days after expiration of the policy. The City promptly notified defendant of the claim but defendant did not disclaim coverage as to the City for more than six months.

When a claim falls outside the scope of an insurance policy’s coverage portion, a disclaimer of coverage is unnecessary because the policy did not contemplate coverage in the first instance and requiring coverage for a failure to disclaim in such instances would create coverage where it never existed. By contrast, in New York, when a refusal to provide coverage is based on a policy exclusion, a timely disclaimer of coverage is necessary to invoke the policy exclusion.

Here, abuse and molestation claims occurring during the policy period but not reported until afterwards were eliminated from coverage by the exclusion but not added back in by the endorsement, and thus required a disclaimer which defendant failed to timely provide.

Moreover, the Limitation of Coverage to Designated Premises or Project endorsement (Premises Limitation endorsement) does not provide a basis for defendant to decline coverage here. The Premises Limitation endorsement restricts coverage only to injuries or damages arising from the “ownership, maintenance or use of the [designated] premises … and operations necessary or incidental to those premises.”

The acts of negligence alleged in the underlying complaint here are “incidental to” the “use” of the premises designated in the Premises Limitation.

ZALMA OPINION

The Appellate Division is noted for its brief, concise opinions. The City’s claim was not, on the face of the policy, a covered claim. However, the insurer took too much time to deal with the issue of coverage. Although the abuse and molestation claims occurred during the policy period the exclusion also existed at the time the claim was presented. The summary judgment was reversed because the insurer sat on its duff and failed to promptly disclaim coverage.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
This entry was posted in Zalma on Insurance. Bookmark the permalink.