Insurers’ Disclaimer Involving Environmental Damage Not Subject to Insurance Law §3420(d) Notice Requirements

KeySpan Gas East Corp. v. Munich Reinsurance America, Inc. (New York Court of Appeals; June 10, 2014)

This environmental coverage action involved a dispute over whether the insurers had a duty to provide coverage for the remediation of environmental damage at several manufactured gas plant (MGP) sites formerly owned by Long Island Lighting Company (LILCO) and the timeliness of the excess insurers’ latenotice defense asserted as an affirmative defense in its answer. The defendants issued excess insurance policies to LILCO that required, as a threshold condition for coverage, LILCO to provide prompt notice of any occurrence that potentially implicated defendants’ duty of indemnification.

LILCO commenced a declaratory action and the insurer defendants moved for summary judgment based on late notice. The trial court denied the motion, holding that the reasonableness of LILCO’s delay in notifying the defendant of environmental occurrences at its MGP sites presented a question of fact for the jury. The court further rejected LILCO’s claim that the defendants waived their late notice defense by failing to disclaim coverage prior to interposing their answers.

On appeal, the Appellate Division held that “issues of fact remain as to whether defendant insurers waived their right to disclaim coverage based on late notice” by “fail[ing] to timely issue a disclaimer.” Thus, the Appellate Division granted the defendants leave to appeal, certifying to the Court of Appeals the question of whether its order was proper.

On appeal to the Court of Appeals, the insurers argued that the Appellate Division wrongly applied the strict timeliness standard from Insurance Law §3420(d) (2) in considering whether the defendants waived their right to disclaim coverage of LILCO’s environmental damage claims. The court held that by its plain terms, §3420(d)(2) applies only in a particular context: insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy.

The court noted the insurer would not be barred from disclaiming coverage “simply as a result of the passage of time,” and its delay in giving notice of disclaimer should be considered under common-law waiver and/ or estoppel principles. As the environmental contamination claims at issue did not fall within the scope of §3420(d)(2), which the legislature chose to limit to accidental death and bodily injury claims, the matter was remanded.