It’s Not Nice to Apply Policy Condition but it is Proper

No Excuse for Failure to Promptly Give Notice of Loss

New York law, unlike most states, properly requires that an insured must comply with the condition requiring prompt notice and refuses to apply the so-called notice-prejudice rule. U.S. Courts, like the Second Circuit Court of Appeal, when dealing with a New York based insurance dispute is required to follow New York Law.

In Nikolai and Harutyun Minasian v. Company, DBA Ameriprise Insurance Company, State Farm Fire & Casualty Company, United States Court of Appeals, Second Circuit 2017 WL 219105 (January 19, 2017) Plaintiffs Nikolai and Harutyun Minasian appealed from an award of summary judgment in favor of defendants IDS Property Casualty Insurance Company, doing business as Ameriprise Insurance Company, and State Farm Fire & Casualty Company, on plaintiffs’ claims that defendants breached their insurance contracts by failing to pay for losses resulting from an alleged burglary of plaintiffs’ property.

FACTS

The parties agree that the three insurance policies here at issue respectively required the insured to provide notice of loss to the insurer “as soon as reasonably possible,” “immediate[ly],” and “as soon as practicable.” They also agree that the alleged burglary occurred on January 1, 2014; that plaintiffs became aware of the burglary that day; and that plaintiffs did not notify defendants of their losses any time before March 28, 2014. Plaintiffs do not dispute that they were aware of the policies’ coverage.

PLAINTIFFS FAILED TO PROVIDE TIMELY NOTICE

Timely notice is a condition precedent to insurance coverage under New York law, see White v. City of New York, 81 N.Y.2d 955, 957, 598 N.Y.S.2d 759, 760 (1993), and the failure to provide such notice relieves the insurer of its coverage obligation, regardless of prejudice. A notice obligation is triggered when the circumstances known to the insured would have suggested to a reasonable person the possibility of a claim. Where an insurance policy requires notice be given as soon as practicable, such notice must be accorded the carrier within a reasonable period of time.

ANALYSIS

The circumstances as of January 1, 2014, would thus have suggested to a reasonable person the possibility of a claim in light of the policies’ theft coverage, and the 86-day delay that followed was unreasonable as a matter of law. As the district court concluded, these related determinations find support in the language of the policies. The same sections of the policies providing for notice to the insurer require notice to the police in case of theft—which plaintiffs did on the day of the burglary—suggesting that the insured is expected to contact both the insurer and the police in short order after discovering the loss of insured property. Moreover, the State Farm policies also require the insured to submit a formal proof of loss within 60 or 90 days after loss. The preliminary notice requirement that is the subject of this action can only reasonably be construed to require notice sooner than these formal notice requirements. Any different construction would render the preliminary notice requirement a nullity.

Plaintiffs argued this time under the umbrella of the contention that the district court failed to construe the evidence in the light most favorable to them and resolved a disputed question of fact, that:

(1)   their notice was timely, or

(2)   their delay should be excused because

(a) they reasonably believed that the police investigation was ongoing and the jewelry might be located, and

(b) they notified defendants promptly after learning that the police investigation was “closed.”

Even assuming plaintiffs held the professed belief in a possible recovery, that would not have prevented a “reasonable person” from suspecting “the possibility of a claim.” No exception is made to the timely notice requirement for losses which in the insured’s estimation may not ultimately ripen into a claim.

THE POLICIES ARE UNAMBIGUOUS

Plaintiffs next argue that the term “covered loss” is ambiguous and must be construed against the insurers. The term “covered loss” is unambiguous on its face. Indeed, the fact that plaintiffs submitted claims at all proves that they recognized that the purportedly stolen items constituted covered losses.  Therefore, no reasonable person could interpret this language to mean that a known theft of property only becomes a covered loss once the police cease to conduct an active investigation.

ZALMA OPINION

The state of New York is not nice to insureds because they require the insured to comply with a clear and unambiguous condition of the policy. The notice-prejudice rule requires courts to be nice to insureds and ignore clear and unambiguous contract language. By so doing, the courts that apply the notice-prejudice rule violate rules of contract interpretation and rewrite the contract to include words not agreed to by the parties to the contract of insurance.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

Barry Zalma, Esq., CFE, 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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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.
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