(Article from Insurance Law Alert, June 2025)
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Holding
Reversing a trial court, a New York appellate court ruled that an insurer had no duty to defend an underlying suit because the insurer was presumptively prejudiced by late notice of the suit. Hartford Fire Insurance Co. v. Hudson Excess Insurance Co., 2025 N.Y. App. Div. LEXIS 3289 (N.Y. App. Div. May 29, 2025).
Background
An employee of TS Group sustained injuries at a construction site located on property owned by Mayer Malbin Reality. The employee sued Mayer in 2017 and Mayer commenced a third-party action against TS Group in March 2018. Mayer was insured by Hartford, while TS Group obtained a policy from Hudson which provided additional insured coverage under certain circumstances.
Hudson was not notified of the suit until May 2020. Hudson denied coverage based on late notice and on the grounds that Mayer was not an additional insured under the policy. In ensuing litigation, a New York trial court ruled that Hudson was obligated to defend Mayer in the personal injury action. The appellate court reversed.
Decision
Under New York insurance law, since notice was given more than two years after it was practical to do so, the plaintiff had the burden of providing that Hudson was not prejudiced by the delay. See N.Y. Ins. Law § 3420(c)(2)(A)(ii). The appellate court concluded that Mayer failed to meet this standard.
The court reasoned that Mayer’s “vigorous[ ]” defense of the underlying suit was insufficient to establish a lack of prejudice and that the delay prevented Hudson from inspecting the accident site and interviewing witnesses while their memories were still fresh. Additionally, the court noted that Mayer’s counsel failed to depose key witnesses from TS Group, including its owner and foreman.
Mayer argued that Hudson was not prejudiced because even if Hudson had been timely notified, it still would have denied coverage on the additional insured issue. Rejecting this assertion, the court explained that when Hudson issued that disclaimer, it was still awaiting a copy of the contract that supported Mayer’s additional insured coverage claim, and that once it received such documentation, it did not pursue that ground for disclaimer. Thus, the court held, “there is no basis for concluding that ‘earlier notice would have resulted only in an earlier denial.’”
Comments
This ruling highlights the protection afforded to insurers under New York statutory law when a policyholder fails to give notice within two years after it was practical to do so. Under such circumstances, the insurer does not bear the burden of establishing prejudice. Moreover, this case shows that a policyholder cannot easily satisfy its burden to show an absence of prejudice, even in instances when there is some evidence showing that the insurer may have denied coverage for reasons other than late notice.