Construction Contractors Should Promptly Notify Insurers of a Potentially Covered Claim
Contractors always should put their insurers on notice of a potentially covered claim as soon as possible. In many states, an insured typically will not be denied coverage for the late notice of a claim if there is no prejudice to the insurer, however, there are circumstances under which late notice alone can bar coverage. A recent case before a New York appellate court demonstrates the importance of being aware that liability insurance policies subject to New York Insurance Law § 3420 law which were issued before January 17, 2009 are not subject to a requirement that an insurer may deny coverage for late notice of a claim only if the insurer was prejudiced by the late notice. In Lafarge Bldg. Materials Inc. v. Harleysville Ins. Co. of New York, 2018 WL 5659750 (N.Y. App. Div. Nov. 1, 2018), the New York appellate court rejected a construction contractor’s claim for coverage under an insurance policy due to late notice to its insurer.
This case followed the injury of a subcontractor’s employee at a construction site. The commercial general liability policy issued to the subcontractor required the subcontractor to name the general contractor as an additional insured. Subsequently, a personal injury action was commenced in March 2008. Nine months later, the general contractor tendered to the defendant insurer a letter requesting coverage. The insurer declined to provide coverage on the grounds that the general contractor failed to provide notice "as soon as practicable" as required by the policy. The general contractor filed suit against the insurer to challenge the declination of coverage. The defendant insurer moved for summary judgment on the grounds that the notice was deficient and the New York Supreme Court, New York’s trial level court, agreed.
In the appeal that followed, the question before the New York appellate court was whether the general contractor’s notice to its insurer was timely based on the policy language that notice be given "as soon as practicable." The general contractor argued that it lacked knowledge as to whether it was covered under the policy, thus causing the delay. The appellate court disagreed, based on the fact that shortly after being served with the underlying personal injury complaint the plaintiff became aware of the occurrence and had in its possession the certificate of insurance outlining its status as an additional insured and identifying the insurer. The appellate court held that although the reasonableness of delay ordinarily presents questions of fact, the facts presented by the general contractor in support of the nine month delay were unreasonable as a matter of law as the insured failed to demonstrate that it lacked knowledge of the identity of the insurer and its additional insured status for over 8 months.
The policy in this case was issued prior to the amendment of N.Y. Ins. Law § 3420, effective January 19, 2009. Most notably, the amendment requires that an insurer show that it was prejudiced by a failure to provide notice in order to successfully disclaim coverage. The appellate court held that the insurer was not required to show that it had been prejudiced by the untimely notice because the policy had been issued prior to the statutory amendment. Both construction companies and insurers are often faced with claims under policies that pre-date the amendment. Prejudice requirements vary by state. In some states whether prejudice is required can depend on the type of policy and when it was issued. As demonstrated in the Lafarge case, it is important, particularly with older policies, that construction companies promptly place their insurer on notice of potentially covered claims to avoid any coverage disputes based on late notice.