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A New York trial court ruled that New York Insurance Law section 3420(d) requires an insurer to provide separate and timely disclaimers to each “additional insured” and that failure to do so results in a waiver of policy exclusions.  Vargas v. City of New York, 2016 WL 184531 (N.Y. Sup. Ct. N.Y. Cnty. Jan. 15, 2016).

Liberty issued insurance to a sub-contractor involved in a construction project.  The policy provided additional insured coverage to several parties involved in the project, including other contractors and certain New York City agencies.  When a personal injury lawsuit was filed against the contractors and the City agencies, one of the additional insured contractors tendered defense and indemnity to Liberty.  Liberty promptly disclaimed coverage on the basis of a policy exclusion.  However, the City defendants did not receive a copy of the disclaimer letter.  The City defendants filed a third-party complaint against Liberty, arguing that as to the City’s claim for coverage, Liberty violated its timely disclaimer obligation under section 3420(d).  The court agreed. 

Liberty argued that it timely disclaimed coverage to the City defendants via its disclaimer letter to the other additional insured party.  Alternatively, Liberty argued that it was not obligated to disclaim as to the City defendants until they had tendered a claim, which Liberty argued occurred upon the City’s filing of a third-party complaint.  The court rejected both arguments.  First, the court ruled that an insurer’s obligations under section 3420(d) apply to additional insureds and that Liberty’s disclaimer to a different additional insured was not effective as to the City defendants.  Second, the court held that even if the City defendants’ third-party complaint was the event that triggered Liberty’s disclaimer obligation, its disclaimer was still untimely as a matter of law.  The court explained that Liberty’s answer, which effectively disclaimed coverage, was served 45 days after receipt of the complaint.  Under New York law, delays of more than 30 days have been declared untimely as a matter of law.