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(Article from Insurance Law Alert, January 2016)

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A New York appellate court ruled that an insurer’s untimely disclaimer did not preclude it from denying coverage where the denial was based on “a lack of coverage in the first instance” rather than a policy exclusion.  Black Bull Contracting, LLC v. Indian Harbor Ins. Co., 2016 WL 39829 (N.Y. App. Div. 1st Dep’t Jan. 5, 2016).

Indian Harbor insured Black Bull Contracting under a general liability policy.  When Black Bull was sued in a personal injury action, it tendered defense of the suit to Indian Harbor.  More than two months after receiving the notice of claim, Indian Harbor disclaimed coverage on the basis that the underlying claims were not within the scope of policy coverage.  Black Bull sued, seeking a declaration that Indian Harbor was obligated to defend and indemnify the personal injury suit.  A New York trial court disagreed and dismissed the complaint.  The appellate court affirmed.

The appellate court noted that Indian Harbor’s disclaimers would have been untimely as a matter of law “had they been subject to the timeliness requirement of Insurance Law §3420(d)(2).”  The court explained that Section 3420 precludes an insurer who issues an untimely disclaimer from denying coverage based on a policy exclusion.  Where, as here, the disclaimer is based on “a lack of coverage in the first instance,” untimeliness does not preclude a coverage denial.  As the court explained, requiring payment of a claim under such circumstances “would create coverage where it never existed.” 

Black Bull clarifies that Insurance Law §3420 should be read less expansively than policyholders often suggest.  The provision does not bar insurers from asserting that claims do not fall within a policy’s coverage grant, even when disclaimers are not timely issued.