Application of a particular state’s law can have a significant impact on the determination as to whether a loss is covered. Given the impact choice-of-law decisions may have, insureds and insurance companies may “forum shop” to pick the jurisdiction most favorable to resolution of their claims. This is especially true when it comes to a late notice defense.
An insured is required to provide its insurer with timely notice of a loss. Insurance policies typically require that notice be provided “as soon as practicable” or, in some cases, “within a reasonable time.” The purpose of a notice provision is to give the insurer an opportunity to conduct a full investigation of the facts and circumstances concerning a claim while the evidence and the witnesses’ memories are still fresh. Once it receives notice, the insurer can decide whether to compromise or defend the claim.
The failure to provide timely notice may bar coverage for a claim. However, the standard that applies differs from state to state. For instance, under New Jersey law, an insurance company generally must establish that it sustained appreciable prejudice to avoid coverage under a late notice defense. Under New York law, on the other hand, a showing of prejudice is not always required. Moreover, a delay in providing notice of just 22 days has been found to bar coverage under New York law with respect to a first-party policy.
The issue of whether to apply New Jersey or New York law to a late notice defense was addressed by the New Jersey Appellate Division in Waldorf Holding Corp. v. Chartis Claims Inc., 2016 WL 4651436 (Sept. 7, 2016). The plaintiff in that case, Waldorf Holding Corp. (“Waldorf”), was a demolition and construction company incorporated in New York. Defendant Illinois National Insurance Company (“INIC”), an AIG company, issued a commercial umbrella policy to Waldorf. The policy listed a Mount Vernon, New York, location as Waldorf’s mailing address. The INIC policy provided coverage in excess of that provided by a policy issued to Waldorf by Arch Specialty Insurance Company (“Arch”).
Under the policy, the insured was required to notify INIC “as soon as practicable of an Occurrence that may result in a claim or Suit under this policy.” The insured was further required to “immediately send . . . copies of any demands, notices, summonses or legal papers received in connection with the claim or Suit.” Notice was to be provided to AIG Domestic Claims, Inc. (“AIG”) at an address in New York.
An employee of a Waldorf subsidiary was injured in May 2008 while working on a construction project in New York. The employee sued the owner of the project and the general contractor. Those parties, in turn, filed a third-party compliant against Waldorf. Waldorf apparently notified Arch of the lawsuit and Arch agreed to provide a defense and indemnification to Waldorf. Arch sent a copy of its letter accepting the tender of the claim by Waldorf to AIG at a Georgia address. The letter was not sent to the New York address as required under the INIC policy.
In August 2010, more than two years after the injury occurred, Arch sent a letter to AIG at the New York address listed in the policy, advising AIG of the pending action and indicating that it served as formal notice of the loss. AIG was further notified that the Arch policy had a limit of $1 million and the plaintiff recently made a $6 million settlement demand. On September 1, 2010, INIC notified Arch and Waldorf that it was denying coverage based on the failure to provide INIC with timely notice of the loss.
After the personal injury action was settled, Waldorf commenced an action against INIC, Arch, and an insurance broker in state court in New Jersey. After engaging in some discovery, INIC and Waldorf both moved for summary judgment. INIC argued that New York law applied and Waldorf argued that New Jersey law applied. According to Waldorf, although it was incorporated under New York law, its only place of business was in Englewood, New Jersey. Waldorf claimed it had not used the Mount Vernon address since 2006. Waldorf further claimed that the policy had been procured through a New Jersey insurance broker and delivered to Waldorf in New Jersey.
There was no question that the more than two-year delay in providing notice would bar coverage under New York law. A more detailed factual analysis would have to be performed to see if coverage was barred under New Jersey law.
Performing a choice-of-law analysis, Judge Susan J. Steele, the trial judge, concluded that New York law applied because New York had the most significant interest in the matter. According to the judge:
[w]hile the contract was signed in New Jersey through a New Jersey insurance broker, [it] does not outweigh the other contacts which lean in favor of New York. The policy was issued to Waldorf, a New York corporation with a New York address, which had not changed regardless if the plaintiff asserted the principal place of business of the company is now Englewood, New Jersey and the New York address had not been used for some years. Nothing set forth before the court indicated the New York address was invalid at the time the policy was executed.
Id. at *2. Judge Steele went on to note that “the circumstances surrounding the necessity for coverage all occurred in New York.” Id. Applying New York law, Judge Steele held that the notice was untimely and, therefore, coverage was barred. She also rejected an argument that the claim was not untimely because INIC may have had constructive notice of the loss much earlier, noting:
Absent authority to the contrary, of which there appears to be none, that the insurer may have been copied on a letter does not absolve the insured of its obligations under the agreement it signed to timely send notice.
Id. at *3. On appeal, the Appellate Division affirmed “substantially for the reasons expressed by Judge Steele as reflected in her well-reasoned, thorough written opinion.” Id.
Waldorf appears to be a classic case of forum shopping. Realizing its claim would be barred under New York law, the insured commenced an action in New Jersey and argued that New Jersey law applied. The court correctly rejected that argument.
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This case reminds me of a law school question from a civil procedure final exam.
What I find interesting about the case is that notice was sent to AIG at its Georgia address instead of the New York address, yet the court didn’t find that this was “constructive” notice. I understand that insurance policies must be complied with, but how was sending the notice to AIG’s Georgia address not still giving notice to AIG? Was the New York address an actual corporate office building while the Georgia address was an empty room in a remote office complex where they check their mail quarterly?
If AIG got notice, they got notice, whether or not it was sent to the proper address. This case is yet another instance of insurance companies finding technicalities to avoid their obligations under the policy or something else was going on here that we don’t know about.