Wade Clark Mulcahy LLP

In Charles Bardylyn Enterprises, Inc. v. Rockingham Insurance Company, the New York Appellate Division, Second Department dealt with an appeal stemming from a declaratory judgment action brought by Charles Bardylyn Enterprises (“CBE”) seeking “a judgment declaring that Rockingham is obligated to defend and indemnify CBE in the underlying action.” Charles Bardylyn Enters, Inc. v. Rockingham Ins. Co., No. 520763/20 2024, 2024 WL 3058101, at *2 (N.Y. App. Div. June 20, 2024).

The underlying action involved claims that Lawrence Sessoms suffered bodily injury when he slipped and fell at CBE’s property on December 14, 2019. Id. At the time the incident occurred, CBE had a commercial general liability policy (“Policy”) issued by Rockingham Insurance Company (“Rockingham”). Id. The Policy provided coverage for “sums that CBE became legally obligated to pay as damages because of ‘bodily injury’ to which the policy applied,” but the Policy also contained several exclusions and endorsements. First, the Policy included a habitability exclusion, meaning “the policy did not apply to bodily injury arising out of, inter alia, the alleged or actual ‘[f]ailure to maintain any premises in, or restore any premises to, a safe, sanitary, healthy, habitable and tenantable condition.” Id. Second, the Policy included a tenant special conditions endorsement, providing that “in order for coverage to apply to claims for bodily injury arising out of a tenant’s occupancy at the premises, CBE was required to maintain several documents related to the tenancy.” Id.

On January 24, 2020, Rockingham was notified of the underlying action via a notice of claim. Id. On February 28, 2020, Rockingham’s third-party claims administrator, Certus Claims Administration (“Certus”), notified CBE via letter that there was insufficient information to accept or deny the claim. Id. On March 23, 2020, Certus sent a letter to CBE notifying CBE that “Rockingham disclaimed coverage under the policy, inter alia, on the basis of the habitability exclusion.” Id. CBE then brought this declaratory judgment action against Rockingham in October 2020 seeking a judgment that “Rockingham is obligated to defend and indemnify CBE in the underlying action.” Id. 

Following several motions and an appeal, the New York Appellate Division, Second Department considered the case and decided to “remit the matter to the Supreme Court, Kings County, for the entry of judgment, inter alia, declaring that Rockingham is obligated to defend and indemnify CBE in the underlying action.” Id. at *4.

Under Section 3420(d)(2), an insurer must provide its insured with “timely written notice ‘as soon as is reasonably possible’ of its disclaimer or denial of coverage.” Id. at *3. Under New York law, the timeliness of disclaimer “is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage.” Id. The Court determined that Rockingham’s delay in disclaiming coverage at least 34 days after receiving the complaint was “unreasonable as a matter of law” because “the facts supporting disclaimer were apparent from the face of the complaint.” Failure to timely disclaim coverage on the basis of an exclusion causes an insurer to be “estopped from disclaiming liability or denying coverage.” Id. Thus, the Court held that Rockingham’s failure to timely disclaim coverage under the habitability exclusion and tenant special conditions endorsement rendered Rockingham’s disclaimer under the exclusion and endorsement ineffective. Id.

This case demonstrates the importance of timely disclaimer in cases of bodily injury, especially when disclaimer is based on an exclusion or endorsement. New York Courts are known for having deadlines written "in pencil," meaning there is usually some wiggle room. Not with CPLR Section 3420(d)(2). Thanks to Caroline Nelson for this post.