For Purposes of Determining Consequence of Late Notice, New York Decides to Treat Excess Insurers like Primary Insurers

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American Home Assurance Co. v. International Insurance Co., 90 N.Y. 2d 433, 684 N.E. 2d 17, 661 N.Y.S.2d 584 (June 17,1997), N.Y. LEXIS 1378

Standard liability insurance policies require that the insured give timely notice to the insurer when a claim is made against the insured. In older times, courts frequently interpreted this duty strictly, permitting the insurer to avoid coverage where notice was late even if its interests were not prejudiced. In more recent times, the modern rule in most American states has required the insurer to demonstrate prejudice from late notice if coverage is to be avoided.

Among the minority of jurisdictions not requiring a showing of prejudice to the insurer, New York is most prominent because of the state's size and number of significant coverage disputes. For primary insurers, New York continues to hold to the "older" norm of voiding coverage for late notice even absent prejudice. However, in 1992, New York refused to apply this standard in favor of a reinsurer who claimed late notice from the primary insurer (see Unigard Sec. Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576, 594 N.E. 2d 571, 584 N.Y.S. 2d 290 [1992]). The Unigard decision led many to think that New York might also require excess insurers to show prejudice from late notice or might relax strict rule for primary insurers as well. Recently, however, New York has reaffirmed the "no prejudice required" rule for late notice defense by primary insurers and has also rejected any erosion of this strict form of late notice defense for excess and umbrella insurers. In American Home v. International, the court examined the traditional justifications for the strict rule requiring prompt notice despite no showing of prejudice by the insurer, including the prospective dangers to the insurer, and considerations of fairness. The case involved the tragic carbon monoxide poisoning of a family of five due to a furnace negligently installed by the policyholder. The primary insurer, Liberty Mutual, conceded coverage and paid its primary policy limit to first excess insurer American Home, which managed settlement of the resulting wrongful death actions and then sought contribution from other excess carriers International, Republic, and United. …


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