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A New York appellate court ruled that an insurer is estopped from denying coverage to an additional  insured based on its failure to timely disclaim coverage.  Harco Constr., LLC v. First Mercury Ins. Co., 2017 WL 986586 (N.Y. App. Div. 2d Dep’t Mar. 15, 2017).

Harco Construction hired a subcontractor, Disano, to assist with demolition of a building.  Pursuant to the contract, Harco was listed as an additional insured under a liability policy that First Mercury issued to Disano.  Harco was also insured under its own liability policy, issued by Mt. Hawley.  When an accident occurred during demolition, Mt. Hawley notified First Mercury and sought confirmation that Harco and the owner of the property were additional insureds under the policy.  In a letter response to Mt. Hawley, First Mercury disclaimed any duty to defend or indemnify Harco based on a policy exclusion.  First Mercury did not disclaim coverage as to the property owner and did not send notice of its disclaimer to Harco or the property owner.  In ensuing coverage litigation, the parties disputed First Mercury’s coverage obligations as to Harco and the property owner.

The appellate court ruled that First Mercury was obligated to send written notice of its disclaimer directly to Harco under N.Y. Insurance Law § 3420(d).  The court explained that while Mt. Hawley was “acting on behalf of” Harco when it sent notice of the occurrence to First Mercury, Mt. Hawley was not Harco’s agent for the purpose of receipt of notice of a disclaimer.  Thus, First Mercury’s failure to provide timely notice of a disclaimer directly to Harco resulted in a waiver of that coverage defense. 

However, the court ruled that First Mercury was not obligated to issue a disclaimer to the property owner, because he was not an additional insured under the policy.  The court explained that an insurer is not required to disclaim coverage under § 3420(d) when the denial is based on a lack of coverage in the first place, rather than a policy exclusion.