KeySpan Gas East Corporation, Respondent,v.Munich Reinsurance America, Inc. et al., Appellants.BriefN.Y.May 6, 2014To Be Argued By: JAY T. SMITH Time Requested: 30 Minutes APL-2013-00216 New York County Clerk’s Index No. 604715/97 Court of Appeals STATE OF NEW YORK KEYSPAN GAS EAST CORPORATION, Plaintiff-Respondent, —against— MUNICH REINSURANCE AMERICA, INC., CENTURY INDEMNITY COMPANY and NORTHERN ASSURANCE COMPANY OF AMERICA, Defendants-Appellants. BRIEF FOR PLAINTIFF-RESPONDENT d COVINGTON & BURLING LLP The New York Times Building 620 Eighth Avenue New York, New York 10018 Telephone: (212) 841-1000 Facsimile: (212) 841-1010 Attorneys for Plaintiff-Respondent December 5, 2013 - i - CORPORATE DISCLOSURE STATEMENT Pursuant to 22 N.Y.R.C.C. §§ 500.1(f) and 500.13(a), Plaintiff-Respondent KeySpan Gas East Corporation states that it is a wholly-owned subsidiary of KeySpan Corporation. KeySpan Corporation is a wholly-owned subsidiary of National Grid USA. All of National Grid USA’s common shares are owned by National Grid North American Inc., which is wholly-owned by National Grid (US) Partner 1 Limited. National Grid (US) Partner 1 Limited is wholly-owned by National Grid (US) Investments 4 Limited, which is wholly-owned by National Grid (US) Holdings Limited, which is wholly-owned by National Grid plc. National Grid plc’s ordinary shares are listed on the London Stock Exchange. National Grid plc’s stock is also held by U.S. investors through American Depositary Shares that are listed on the New York Stock Exchange. Plaintiff-Respondent further states that the following is a list of its parent companies, subsidiaries, and affiliates: 65 Willis Lane, Inc. Assethall Limited Beegas Nominees Limited Birch Sites Limited Blackwater A Limited Blackwater B Limited Blackwater C Limited Blackwater D Limited Blackwater E Limited Blackwater H Limited Blackwater J Limited Boston Gas Company ii British Transco Capital Inc British Transco Finance (No 1) Limited British Transco Finance (No 2) Limited British Transco Finance (No 3) Limited British Transco Finance (No 5) Limited British Transco Finance Inc British Transco International Finance Bv Britned Development Limited Broken Bridge Corp. Clean Line Energy Partners LLC Colonial Gas Company Connecticut Yankee Atomic Power Company Coreso Sa Direct Global Power, Inc. Elexon Limited Energis Plc Eua Energy Investment Corporation Evionyx, Inc. Gridamerica Holdings Inc Gridcom Limited Greeneru Inc Inversiones Abc Ltda Icelink Interconnector Ltd Iroquois Gas Transmission System, L.P. Iroquois Pipeline Operating Company Islander East Pipeline Company, LLC Joint Radio Company Limited Keyspan (U.K.) Keyspan C.I. Ii, Ltd Keyspan C.I., Ltd Keyspan Ci Midstream Limited Keyspan Corporation Keyspan Energy Corporation Keyspan Energy Development Co. Keyspan Energy Services Inc. Keyspan International Corporation Keyspan Mhk, Inc. Keyspan Midstream Inc. Keyspan Plumbing Solutions, Inc. Ksi Contracting, LLC iii Ksi Electrical, LLC Ksi Mechanical, LLC Land Management And Development, Inc Landranch Limited Landwest, Inc Lattice Energy Services Limited Lattice Group Employee Benefit Trust Limited Lattice Group International Holdings Limited Lattice Group Plc Lattice Group Trustees Limited Lattice Opsco Limited Lattice Telecom Finance (No 1) Limited Maine Yankee Atomic Power Company Mainstream Forty-Seven Limited Massachusetts Electric Company Melmar Limited Metro Energy, L.L.C. Metrowest Realty LLC Millennium Pipeline Company, LLC Myhomekey.Com, Inc. Mystic Steamship Corporation Nantucket Electric Company Natgrid Finance Holdings Limited Natgrid Finance Limited Natgrid Investments Limited Natgrid Limited Natgrid One Limited Natgridtw1 Limited National Grid (Iom) UK Ltd National Grid (Ireland) 1 Limited National Grid (Ireland) 2 Limited National Grid (Southall) General Partner Limited National Grid (Southall) Lp Limited National Grid (Us) Holdings Limited National Grid (Us) Investments National Grid (Us) Investments 2 Limited National Grid (Us) Investments 3 National Grid (Us) Investments 4 Limited National Grid (Us) Partner 1 Limited National Grid (Us) Partner 2 Limited iv National Grid Australia Pty Limited National Grid Belgium Limited National Grid Blue Power Finance Limited National Grid Blue Power Limited National Grid Brazil B.V. National Grid Brazil Finance National Grid Carbon Limited National Grid Chile B.V. National Grid Commercial Holdings Limited National Grid Development Holdings Corp. National Grid Eight National Grid Eighteen Limited National Grid Electric Services LLC National Grid Electricity Group Trustee Limited National Grid Electricity Transmission Plc National Grid Eleven National Grid Energy Management, LLC National Grid Energy Services, LLC National Grid Energy Trading Services LLC National Grid Engineering & Survey Inc. National Grid Fifteen Limited National Grid Finance B.V. National Grid Five Limited National Grid Four Limited National Grid Fourteen Limited National Grid Gas Finance (No 1) Plc National Grid Gas Holdings Limited National Grid Gas Plc National Grid Generation LLC National Grid Glenwood Energy Center, LLC National Grid Gold Limited National Grid Grain Lng Limited National Grid Holdings B.V. National Grid Holdings Limited National Grid Holdings One Plc National Grid Igts Corp. National Grid India B.V. National Grid Indus B.V. National Grid Insurance Company (Ireland) Limited National Grid Insurance Company (Isle Of Man) Limited v National Grid Interconnector Holdings Limited National Grid Interconnectors Limited National Grid International Limited National Grid Islander East Pipeline LLC National Grid Jersey Holdings Five Limited National Grid Jersey Investments Limited National Grid Land And Properties Limited National Grid Land Developments Limited National Grid Land Investments Limited National Grid Lng Gp LLC National Grid Lng LLC National Grid Lng Lp LLC National Grid Manquehue B.V. National Grid Metering Limited National Grid Middle East Fzco National Grid Millennium LLC National Grid Ne Holdings 2 LLC National Grid Nemo Link Limited National Grid Netherlands One Bv National Grid Netherlands Three Bv National Grid Netherlands Two Bv National Grid Nine Limited National Grid Nineteen Limited National Grid North America Inc National Grid North East Ventures Inc National Grid Nsn Link Limited National Grid Offshore Ltd National Grid One Limited National Grid Overseas Limited National Grid Overseas Two Limited National Grid Plc National Grid Poland B.V. National Grid Port Jefferson Energy Center, LLC National Grid Procurement Bv National Grid Property (High Wycombe) Limited National Grid Property (Northampton) Limited National Grid Property (Northfleet) Limited National Grid Property (Taunton) Limited National Grid Property (Warwick) Limited National Grid Property Developments Limited vi National Grid Property Holdings Limited National Grid Property Limited National Grid Services, Inc. National Grid Seven Limited National Grid Seventeen Limited National Grid Six Limited National Grid Sixteen Limited National Grid Technologies Inc. National Grid Ten National Grid Thirty Limited National Grid Three Limited National Grid Transmission Services Corporation National Grid Twelve Limited National Grid Twenty Eight Limited National Grid Twenty Four Limited National Grid Twenty Limited National Grid Twenty Nine Limited National Grid Twenty One Limited National Grid Twenty Seven Limited National Grid Twenty Three Limited National Grid Twenty-Five Limited National Grid Twenty-Six Limited National Grid Two Limited National Grid UK Limited National Grid UK Pension Services Limited National Grid US 6 LLC National Grid US LLC National Grid USA National Grid USA Service Company, Inc. National Grid Zambia Limited Nees Energy, Inc. New England Electric Transmission Corporation New England Energy Incorporated New England Hydro Finance Company, Inc. New England Hydro-Transmission Corporation New England Hydro-Transmission Electric Company, Inc. New England Power Company Newport America Corporation Ng Jersey Limited Ng Leasing Limited vii Ng Luxembourg 3 Sarl Ng Luxembourg 4 Sarl Ng Luxembourg 5 Sarl Ng Luxembourg Holdings Limited Ng Luxembourg Sa Ng Nominees Limited Ng Procurement Holdings Limited Ng Villiers Limited Partnership Ngc Employee Shares Trustee Limited Ngc Indus Limited Ngc Two Limited Ngc Zambia Limited Nget / Spt Upgrades Ltd Ngg Finance (No 1) Limited Ngg Finance Plc Ngg Telecoms Holdings Limited Ngg Telecoms Limited Ngm1 (Gbr) Limited Ngne LLC Ngp(Im7s) Limited Ngp(Im7s) Sub Limited Ngrid Intellectual Property Limited Ngt Five Limited Ngt Four Limited Ngt Holding Company (Isle Of Man) Limited Ngt Luxembourg One Limited Ngt One Limited Ngt Telecom No. 1 Limited Ngt Telecom No. 2 Limited Ngt Three Ngt Two Limited Niagara Mohawk Energy, Inc. Niagara Mohawk Holdings, Inc. Niagara Mohawk Power Corporation Nm Properties, Inc. Nm Uranium, Inc. Nmp Limited North East Transmission Co., Inc. Nysearch Rmld LLC Nysearch Robotics LLC viii Opinac North America, Inc. Pcc Land Company, Inc. Philadelphia Coke Co., Inc. Port Greenwich Limited Port Of The Islands North LLC Scc Uno Sa Stargas Nominees Limited Supergrid Electricity Limited Supergrid Energy Transmission Limited Supergrid Limited Telecom International Holdings Limited Thamesport Interchange Limited The Brooklyn Union Gas Company The Narragansett Electric Company The National Grid Group Quest Trustee Company Ltd The National Grid Youplan Trustee Limited The National Grid Investments Company Transco Limited Transgas, Inc. Unit 40 Sublessor LLC Upper Hudson Development Inc Valley Appliance And Merchandising Company Villiers Finance Sa Wayfinder Group, Inc. Xoserve Limited Yankee Atomic Electric Company ix TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENT ......................................................... i TABLE OF CONTENTS ......................................................................................... ix TABLE OF CITATIONS ....................................................................................... xii PRELIMINARY STATEMENT .............................................................................. 1 QUESTION PRESENTED ....................................................................................... 3 COUNTER-STATEMENT OF THE CASE ............................................................ 4 A. LILCO’S Communications With The Insurers Regarding Possible Occurrences At Bay Shore And Hempstead .......................... 4 1. October 28, 1994: LILCO Provides Notice For Bay Shore. ......................................................................................... 4 2. November 3, 1994: Century Responds To LILCO’s Request For Coverage At Bay Shore By Reserving Its Rights And Requesting Additional Information. ....................... 6 3. November 11, 1994: LILCO Provides Notice For Hempstead. ................................................................................. 7 4. November 22, 1994: Century Responds To LILCO’s Request For Coverage At Hempstead By Reserving Its Rights And Requesting Additional Information. ....................... 8 5. December 6, 1994: American Re Responds To LILCO’s Request For Coverage At Bay Shore And Hempstead By Reserving Its Rights, Denying Coverage On Grounds Other Than Late Notice, And Requesting Additional Information. ................................................................................ 9 6. February 10, 1995: LILCO Provides Additional Information Regarding Bay Shore. .......................................... 10 x 7. March 3, 1995: The London Insurers Deny Coverage For Bay Shore Based On Late Notice. ..................................... 11 8. August 4, 1995: Northern Responds To LILCO’s Request For Coverage At Bay Shore And Hempstead By Reserving Its Rights Under Policies Not At Issue Here And Requesting Additional Information. ................................ 12 9. August 28, 1995: LILCO Informs Its Insurers of DEC’s Demand. ................................................................................... 12 10. November 22, 1995: LILCO Provides Additional Information Regarding All MGP Sites. ................................... 13 11. December 18, 1995: The London Insurers Deny Coverage For Hempstead Based On Late Notice. ................... 15 12. January 19, 1996: LILCO Provides Additional Information Regarding All MGP Sites. ................................... 15 13. January 30, 1996: American Re’s Internal Documents Note LILCO’s Delay In Providing Notice. .............................. 15 14. 1997-1999: The Insurers Deny Coverage After Litigation Begins. ..................................................................... 17 B. Proceedings Below ............................................................................. 17 1. Trial Court’s Decision .............................................................. 17 2. Appellate Division’s Decision ................................................. 19 SUMMARY OF ARGUMENT .............................................................................. 20 ARGUMENT .......................................................................................................... 24 I. Whether The Insurers Waived A Late-Notice Defense Is A Question Of Fact That Must Be Resolved By A Jury. ................................................. 24 A. Common-Law Waiver Is A Fact Question Regarding The Insurers’ Intent And May Be Inferred From Their Actions Or Inaction. .............................................................................................. 24 xi B. The Appellate Division Correctly Held That A Jury Must Decide The Waiver Issue In This Case. ............................................. 30 1. A Jury Could Find Waiver Based On the Insurers’ Knowledge That They Could Have Asserted The Defense And Failure To Do So. ............................................................. 30 2. The Appellate Division Correctly Refused To Hold That A Reservation-of-Rights Letter Forever Immunizes An Insurer From A Finding Of Waiver. ........................................ 36 II. Although A Duty To Act Is Not A Precondition To Finding Waiver, A Jury May Consider The Insurers’ Duty To Provide Prompt Coverage Decisions In Evaluating Their Inaction. ....................................................... 41 A. A Legal Duty To Act Is Not A Precondition To Finding Waiver. ............................................................................................... 42 B. The Insurers Have A Duty To Make Prompt Coverage Determinations. .................................................................................. 44 1. The Insurers Have A Common Law Duty To Make Prompt Coverage Determinations Under This Court’s Decisions. ................................................................................. 46 2. Insurance Law Section 2601 And Implementing Regulations Confirm The Existence And Broad Scope Of This Common Law Duty. ........................................................ 49 C. The Insurers’ Focus On Section 3420(d) Is Misplaced. ..................... 52 1. The Traditional Common-Law Waiver Principles Apply When Claims Are Not Governed By Section 3420(d). ........... 53 2. Section 3420(d) Did Not Abrogate The Generally Applicable Duty To Make Prompt Coverage Determinations. ........................................................................ 55 3. The Insurers’ Policy Arguments Against “Extending” The Duty To Make Prompt Coverage Determinations Miss The Mark. ........................................................................ 57 CONCLUSION ....................................................................................................... 63 xii TABLE OF CITATIONS Page(s) CASES 151 E. 26th St. Assocs. v. QBE Ins. Co., 33 A.D.3d 452 (1st Dep’t 2006) ................................................................... 46-47 Agway, Inc. v. Agway Petroleum Corp., 1993 WL 771008 (N.D.N.Y. Dec. 6, 1993) ....................................................... 38 Albert J. Schiff Assocs., Inc. v. Flack, 51 N.Y.2d 692 (1980) ..................................................................................passim Allstate Ins. Co. v. Gross, 27 N.Y.2d 263 (1970) ..................................................................................passim Alsens Amer. Portland Cement Works v. Degnon Contr. Co., 222 N.Y. 34 (1917) ........................................................................... 25, 26, 28, 29 Amer. Home Assur. Co. v. Int’l Ins. Co., 90 N.Y.2d 433 (1997) ......................................................................................... 60 Arbegast v. Bd. of Educ. of S. New Berlin Cent. Sch., 65 N.Y.2d 161 (1985) ......................................................................................... 56 Argo Corp. v. Greater N.Y. Mut. Ins. Co., 4 N.Y.3d 332 (2005) ........................................................................................... 60 Ashland Window & Housecleaning Co. v. Metro. Cas. Ins. Co. of N.Y., 269 A.D. 31 (1st Dep’t 1945) ............................................................................. 48 Avondale Indus., Inc. v. Travelers Indem. Co., 887 F.2d 1200 (2d Cir. 1989) ............................................................................. 60 Bi-Economy Mkt., Inc. v. Harleysville Ins. Co., 10 N.Y.3d 187 (2008) ................................................................................... 48, 49 Brabender v. Northern Assur. Co. of Am., 65 F.3d 269 (2d Cir. 1995) ................................................................................. 61 xiii Brassil v. Maryland Cas. Co., 210 N.Y. 235 (1914) ........................................................................................... 48 Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 126 F. Supp.2d 596 (W.D.N.Y. 2001), aff’d in part, rev’d in part, 302 F.3d 83 (2d Cir. 2002) ...................................................................................................... 40 Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83 (2d Cir. 2002) ........................................................................... 40, 57 Colonial Tanning Corp. v. Home Indem. Co., 780 F. Supp. 906 (N.D.N.Y. 1991) ..................................................................... 60 Dalton v. Educ. Testing Serv., 87 N.Y.2d 384 (1995) ......................................................................................... 48 Estee Lauder Inc. v. OneBeacon Ins. Group, LLC, 62 A.D.3d 33 (1st Dep’t 2009) ..................................................................... 40, 46 Firemen’s Fund Ins. Co. of Newark v. Hopkins, 88 N.Y.2d 836 (1996) ................................................................................... 46, 47 First Fin. Corp. v. Jetco Contracting Corp., 1 N.Y.3d 64 (2003) ....................................................................................... 44-45 Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt, L.P., 817 N.Y.S.2d 606 (2006) .............................................................................passim Gen’l Accident Ins. Group v. Cirucci, 46 N.Y.2d 862 (1979) ................................................................................... 39, 45 Gen. Motors Acceptance Corp. v. Clifton-Fine Cent. Sch. Dist., 85 N.Y.2d 232 (1995) ..................................................................................passim George Campbell Painting v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 92 A.D.3d 104 (1st Dep’t 2012) ......................................................................... 54 Gibson Elec. v. Liverpool & London & Globe Ins. Co., 159 N.Y. 418 (1899) ............................................................................... 26, 27, 28 Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966 (1988) ............................................................................. 32, 34, 35 xiv Griggs v. Bertram, 88 N.J. 347 (1982) .............................................................................................. 47 Grow-Kiewit-MK-Maclean Grove v. Lexington Ins. Co., 232 A.D.2d 329 (1st Dep’t 1996) ....................................................................... 61 Hadden v. Consol. Edison Co., 45 N.Y.2d 466 (1978) ......................................................................................... 26 Hotel Des Artistes, Inc. v. Gen. Acc. Ins. Co. of Am., 9 A.D.3d 181 (1st Dep’t 2004) ........................................................................... 47 Interstate Cas. Co. v. Wallins Creek Coal Co., 164 Ky. 778 (1915) ............................................................................................. 47 Isadore Rosen & Sons, Inc. v. Sec. Mut. Ins. Co., 31 N.Y.2d 342 (1972) ......................................................................................... 49 Kirchner v. Fireman’s Fund Ins. Co., 1991 WL 177251 (S.D.N.Y. Sept. 4, 1991) ....................................................... 38 Malca Amit N.Y., Inc. v. Excess Ins. Co., 258 A.D.2d 282 (1st Dep’t 1999) ....................................................................... 47 People ex rel. McLaughlin v. Bd. of Police Comm’rs of City of Yonkers, 174 N.Y. 450 (1903) ........................................................................................... 28 NYU v. Cont’l Ins. Co., 87 N.Y.2d 308 (1995) ............................................................................. 48-49, 50 O’Dowd v. Am. Sur. Co. of N.Y., 3 N.Y.2d 347 (1957) ........................................................................................... 37 Olin Corp. v. Certain Underwriters at Lloyd’s London & London Mkt. Ins. Cos., 347 F. App’x 622 (2d Cir. 2009) ........................................................................ 38 Palma v. National Fire Insurance Co. of Hartford, 240 A.D. 454 (4th Dep’t 1934) ........................................................................... 27 Preserver Insurance Co. v. Ryba, 10 N.Y.3d 625 (2008) ......................................................................................... 55 xv Readco, Inc. v. Marine Midland Bank, 81 F.3d 295 (2d Cir. 1996) ................................................................................. 28 S. & E. Motor Hire Corp. v. New York Indem. Co., 255 N.Y. 69 (1930) ............................................................................................. 32 Sillman v. Twentieth Century-Fox Film Corp., 3 N.Y.2d 395 (1957) ..................................................................................... 26, 28 State of New York v. Amro Realty Corp., 936 F.2d 1420 (2d Cir. 1991) ....................................................................... 40, 43 Titus v. Glens Falls Ins. Co., 81 N.Y. 410 (1880) ................................................................................. 26, 27, 28 Weatherwax v. Royal Indem. Co., 250 N.Y. 281 (1929) ........................................................................................... 37 Yonkers Contracting Co. v. Gen. Star Nat’l Ins. Co., 14 F. Supp. 2d 365 (S.D.N.Y. 1998) .................................................................. 50 STATUTES AND REGULATIONS Insurance Law Section 2601 .............................................................................passim Insurance Law Section 3420(d) ........................................................................passim 11 N.Y.C.R.R. § 216.0 ............................................................................................. 51 11 N.Y.C.R.R. § 216.2 ............................................................................................. 51 11 N.Y.C.R.R. § 216.4 ............................................................................................. 51 11 N.Y.C.R.R. § 216.5 ............................................................................................. 51 11 N.Y.C.R.R. § 216.6 ............................................................................................. 52 OTHER AUTHORITIES 1-5 Appleman on Insurance § 5.07 (2013) ............................................................. 28 14 Couch on Insurance § 198:31 (3d ed. 2013) ....................................................... 46 14 Couch on Insurance § 202:38 (3d ed. 2013) ....................................................... 37 xvi Mem. of Eric R. Dinallo, Superintendent of Insurance, Re: Stop-Loss Insurance, Prompt Claim Settlement, N.Y. General Counsel Opinion 4-17-2009 .............. 60 13 Williston on Contracts § 39:21 (4th ed. 2013) ................................................... 26 PRELIMINARY STATEMENT Appellants Century Indemnity Company (“Century”), Munich Reinsurance America f/k/a American Re-Insurance Company (“American Re”), and Northern Assurance Company of America (“Northern”) (together, “the Insurers”) devote all but six pages of their brief to two issues that are not relevant here: whether Insurance Law Section 3420(d) governs their denials of coverage in this case, and whether they are estopped from asserting a late-notice defense. Respondent KeySpan Gas East Corporation (“KeySpan”) has never argued – and the Appellate Division did not hold – that Section 3420(d) applied. Nor has KeySpan ever relied on the doctrine of estoppel. The controlling issue – which the Insurers address only briefly – is whether the Appellate Division correctly held that a jury must determine whether they waived their late-notice defense. Contrary to the Insurers’ assertions, the Appellate Division’s ruling creates no new common-law duties, but simply applies settled principles of common-law waiver to the facts of this case. This Court has long held that, because waiver turns on an insurer’s intent, it presents a fact question that can rarely be resolved as a matter of law. Moreover, this Court repeatedly has made clear that a jury may infer waiver from inaction, including where, as here, an insurer had sufficient information to assert a defense but did not do so until after litigation began. 2 Ignoring these principles of common-law waiver, the Insurers seek a broad ruling that an insurer has no obligation to make a coverage determination after receiving notice of an underlying “occurrence” unless Section 3420(d) applies. In the Insurers’ view, when a policyholder seeks insurance coverage for liability resulting from property damage, an insurer is free under New York law to ignore the coverage demand and wait until the policyholder brings a lawsuit before deciding whether to deny coverage. This Court has never suggested that an insurer could take this approach. To the contrary, this Court’s decisions make clear that insurers always have a common-law duty to make prompt coverage determinations. The Insurers also ask the Court to create a new exception to the common- law rules of waiver. According to the Insurers, when an insurer responds to a request for coverage by generally reserving its right to deny coverage, all other evidence of its intent (including what it does after the purported reservation) becomes irrelevant. Such a “reservation-of-rights” exception, in the Insurers’ view, entitles them to judgment as a matter of law on the waiver issue, and it is simply irrelevant whether they later learned of grounds for disclaimer and failed to assert them. The Appellate Division correctly refused to adopt such a rule, and this Court should do the same. 3 In short, the evidence in the summary judgment record was sufficient to allow a jury to infer that the Insurers intended to waive their late-notice defense. A jury could find that, after KeySpan’s predecessor gave notice of the environmental occurrences at issue here, it provided supplemental information that informed the Insurers that they could deny coverage based on late notice. Indeed, after receiving the supplemental information, one insurer group (not involved in this appeal) did precisely that. But not Century, American Re, or Northern. They did nothing for a period between 15 months and four years, and then denied coverage based on late notice only after KeySpan, faced with escalating demands from environmental regulators and ongoing uncertainty over the Insurers’ intentions, was forced to sue them for coverage. The Appellate Division correctly held that disputed factual questions precluded a ruling on waiver as a matter of law. That decision should be affirmed. QUESTION PRESENTED Whether a jury could reasonably find that an insurer had waived a late- notice defense where it waited until litigation began to disclaim coverage on the basis of late notice despite having knowledge of the facts needed to make such a disclaimer for more than a year. 4 COUNTER-STATEMENT OF THE CASE A. LILCO’S Communications With The Insurers Regarding Possible Occurrences At Bay Shore And Hempstead KeySpan seeks insurance coverage under a series of excess general liability policies for legal liabilities associated with the investigation and remediation of environmental damage at seven manufactured gas plant (“MGP”) sites formerly owned or operated by Long Island Lighting Company (“LILCO”). LILCO gave notice to its insurers of potential environmental occurrences at Bay Shore, Hempstead, and other MGP sites in late 1994. At the time, the New York State Department of Environmental Conservation (“DEC”) had neither filed suit against LILCO nor demanded that LILCO investigate or remediate the sites. But approximately nine months later, on August 11, 1995, DEC demanded that LILCO pay for the investigation, and if necessary, the clean-up of six MGP sites, including Bay Shore and Hempstead. A34. Following this demand, LILCO and DEC spent several years negotiating the terms on which the sites would be investigated and (if necessary) remediated, before ultimately executing consent orders to resolve the issues. A31-32. The Insurers chose not to participate in those negotiations. 1. October 28, 1994: LILCO Provides Notice For Bay Shore. On October 28, 1994, LILCO notified its insurers of a possible occurrence at the Bay Shore MGP site. A33-34; A173-75. The notice letter stated that the Bay 5 Shore MGP operated between 1898 and 1973, and was demolished in the 1970s. A173. The letter notified the insurers that the site contained certain MGP waste byproducts and “overlies a plume of contaminated groundwater.” Id. As the letter explained, the site was “an environmental concern” because this sort of “residual contamination is often associated with retired MGP properties.” Id. Although it had not been sued or ordered by DEC to investigate and remediate the site, LILCO said it anticipated that agency action would be forthcoming at some point. Id. The letter informed the insurers that LILCO had completed a “Remedial Investigation/Feasibility Study” for the site, but that the “amount of LILCO’s liability, if any, cannot be ascertained until the regulatory agencies have reviewed the [study] . . . and selected a remedy from among the cleanup alternatives.” Id. The letter also stated that Summers Lumber and Supply Corporation (“Summers Lumber”), a neighboring property owner, “brought a claim in the amount of $1,305,000 against LILCO for diminution of its property value allegedly caused by the migration of environmental contamination from the Site.” A174. LILCO’s notice letter requested coverage from the insurers, provided a list of known policies issued by each insurer, and asked each insurer to “acknowledge [its] duty to indemnify [LILCO] for any damages that it may incur within [the] policy limits.” Id. 6 2. November 3, 1994: Century Responds To LILCO’s Request For Coverage At Bay Shore By Reserving Its Rights And Requesting Additional Information. A week later, on November 3, 1994, Century responded to LILCO’s request for coverage at Bay Shore. A179-82. The letter recounted Century’s understanding that: (1) contamination had been found at the site; (2) a “Remedial Investigation/Feasibility Study” had been completed; (3) LILCO had not been ordered to investigate or remediate the site, but it expected that agency action would be forthcoming at some point; (4) a cleanup remedy had not been selected; and (5) LILCO’s potential liability could not be determined at that time. A180. Based on this understanding, Century informed LILCO that its policies “might not provide coverage for this claim,” but that “further investigation” was necessary to make a coverage determination. A180. The letter listed 13 issues that Century asserted were “often” encountered in environmental cases, including whether the policyholder had “provided notice to the insurance carrier as required by the policies.” A180-81. The letter included a general statement that Century “reserve[s] the right to deny coverage for this claim,” A181, but – with the exception of the boilerplate reference to the possibility of late notice as one of many possible defenses in environmental cases generally – the letter did not specifically reserve Century’s right to assert it against LILCO, let alone explain the factual basis for such a defense. 7 Century told LILCO that it may be contacted by an inspector “assigned to conduct a factual investigation of the matter,” and asked that LILCO give the inspector its “complete cooperation.” A182. The letter also requested that LILCO provide supplemental information about the occurrence, including all correspondence with environmental agencies and information regarding the nature of the contamination and when LILCO learned of it. Id. Century’s letter also specifically addressed the Summers Lumber claim. It noted that this “adjacent land owner” had asserted “a claim against LILCO in the amount of $1,305,000 for diminution of its property value allegedly caused by the migration of environmental contamination from the Site.” A180. Century requested more information about the claim, including: “When did the Insured receive notice of claim from Summers Lumber and Supply Corporation? Please provide a copy of all correspondence, claim/suit papers, etc. regarding this claim.” A182. Century closed its letter by asking LILCO to keep it “apprised of developments in this matter, and [to] provide [it] with any information that could be relevant to the resolution of the coverage issues listed above.” Id. 3. November 11, 1994: LILCO Provides Notice For Hempstead. On November 11, 1994, LILCO sent a notice letter for the Hempstead MGP site. A176-77. Like the Bay Shore notice letter, the Hempstead notice letter 8 notified LILCO’s insurers of contamination at the site and that LILCO had not been sued or ordered by DEC to investigate and remediate the site, but that it anticipated that agency action would be forthcoming at some point. A176. As with Bay Shore, the Hempstead letter informed the insurers that LILCO had completed a “Remedial Investigation/Feasibility Study” for the site, but that the “amount of LILCO’s liability, if any, cannot be ascertained until the regulatory agencies have reviewed the [study] . . . and selected a remedy from among the cleanup alternatives.” A176-77. The Hempstead notice letter requested coverage from the insurers, provided a list of known policies issued by each insurer, and requested that the insurer “acknowledge [its] duty to indemnify [LILCO] for any damages that it may incur within [the] policy limits.” A177. 4. November 22, 1994: Century Responds To LILCO’s Request For Coverage At Hempstead By Reserving Its Rights And Requesting Additional Information. On November 22, 1994, Century responded to the Hempstead notice the same way it had responded to the Bay Shore notice. A183-87. Century’s letter recounted the information provided by LILCO and stated that Century’s policies “might not provide coverage for this claim.” A185. As with Bay Shore, Century noted 13 different issues that “often” arise in environmental cases, including whether the policyholder had “provided notice to 9 the insurance carrier as required by the policies.” Id. As with Bay Shore, the letter contained a general statement that Century “reserve[s] the right to deny coverage for this claim,” id., but nowhere asserted that a late notice defense existed based on Century’s examination of the specific facts before it, let alone specifically reserved Century’s rights with respect to a late-notice defense. Century stated that an inspector may be “assigned to conduct a factual investigation of the matter,” and asked that LILCO give the inspector its “complete cooperation.” A186. Century’s letter also requested that LILCO provide supplemental information about the Hempstead occurrence, including all correspondence with environmental agencies and information regarding the nature of the contamination and when LILCO learned of it. Id. The letter closed by asking LILCO to keep Century apprised of developments and to provide it with any information relevant to making a coverage determination. A187. 5. December 6, 1994: American Re Responds To LILCO’s Request For Coverage At Bay Shore And Hempstead By Reserving Its Rights, Denying Coverage On Grounds Other Than Late Notice, And Requesting Additional Information. On December 6, 1994, American Re sent LILCO a response addressing both Bay Shore and Hempstead. A509-10. The letter initially stated that American Re “reserves the right to deny coverage,” including on the ground of “late notice.” A509. But the letter then stated that, because LILCO’s liability had not yet reached its policies, “American Re-Insurance Company must respectfully deny the 10 request for indemnification at this time.” Id. American Re also “suggest[ed]” that coverage “discussions be deferred until our coverage is actually impacted.” Id. But American Re nevertheless instructed LILCO to keep it “apprised of the factual, liability, and damage issues as these matters develop.” Id. 6. February 10, 1995: LILCO Provides Additional Information Regarding Bay Shore. As requested, on February 10, 1995, LILCO provided its insurers with supplemental information about Bay Shore. A420-25. This six-page letter provided extensive details regarding LILCO’s historical MGP operations at Bay Shore, its investigation of residual contamination at the site, and its dealings with government agencies and Summers Lumber. Id. The letter informed the insurers that “LILCO has engaged environmental consultants to conduct a regional groundwater study (1979) and a Site investigation (1993) at Bay Shore,” and that these studies showed soil contamination and off-site contaminated groundwater plumes. A422. The letter also stated that LILCO had informed the U.S. Environmental Protection Agency (“EPA”) that it owned MGP sites in 1981, and that EPA had conducted preliminary site investigations in 1981 and 1989, but that “[n]o further action ha[d] been taken by EPA to date.” A423. LILCO also disclosed its communications with DEC, beginning in 1991, and its unsuccessful attempts to pay for its voluntary investigation and remediation 11 activities through rate increases, which required approval by the New York Public Service Commission (“PSC”). Id. LILCO also explained that the 1993 investigation was “prompted by the claim of an adjoining commercial property owner, Summers Lumber,” and that the investigation showed damage to the Summers Lumber property. A422. LILCO disclosed that the parties had reached an agreement in principle and that LILCO would purchase the entire Summers Lumber property for $825,000. A424-25. 7. March 3, 1995: The London Insurers Deny Coverage For Bay Shore Based On Late Notice. Less than a month after LILCO’s initial supplemental disclosure, on March 3, 1995, certain Underwriters at Lloyd’s and certain London Market Insurance Companies (“the London Insurers”) denied coverage of the Bay Shore claims on late-notice grounds. SA140-41. According to the London Insurers, “in light of the fact that certain groundwater studies were completed in connection with potential environmental contamination resulting from LILCO’s operation of the Bay Shore site as early as 1979, it does not appear to us that LILCO’s notification of claim was given to the subscribing insurers in a timely fashion as required by the policies.” SA141. Century, American Re, and Northern did not respond to the February 1995 supplemental disclosure. 12 8. August 4, 1995: Northern Responds To LILCO’s Request For Coverage At Bay Shore And Hempstead By Reserving Its Rights Under Policies Not At Issue Here And Requesting Additional Information. On August 4, 1995, nearly a year after LILCO’s initial notices, Northern sent LILCO a response addressing both Bay Shore and Hempstead. A416-19. Northern informed LILCO that it “has verified the existence of . . . two sixth layer excess policies” – neither of which are at issue in this case – but that it could not locate any of the policies that are at issue here. A417. Northern stated that it “specifically reserves all its rights and defenses in this matter,” including whether LILCO’s liability will reach the sixth-layer policies that it had identified, and whether the terms of those policies covered the contamination at the sites. Id. Despite reserving its rights under the high-level policies, Northern informed LILCO that “it will maintain a file and will closely monitor these matters to determine its potential involvement.” A418. It also requested that LILCO provide “status reports on the captioned claims.” Id. 9. August 28, 1995: LILCO Informs Its Insurers of DEC’s Demand. On August 28, 1995, LILCO sent its insurers a copy of the demand that DEC issued on August 11, 1995. A437. As LILCO explained, DEC “served a formal demand on LILCO requesting that the Company conduct site investigations 13 and, if necessary, remediate its former MGP sites,” including both Bay Shore and Hempstead. Id. 10. November 22, 1995: LILCO Provides Additional Information Regarding All MGP Sites. On November 22, 1995, LILCO sent its insurers a detailed, 17-page “Supplemental Report” discussing the history of each of the six MGP sites subject to the DEC order. SA119-39. In the report’s general background section, LILCO disclosed that: “[I]n June 1981, LILCO notified EPA that it owned the referenced MGP sites; EPA thereafter conducted Preliminary Site Assessments at all six (6) of these sites.” SA123. “[I]n 1989, EPA conducted screening site inspections of the Company’s Bay Shore, Sag Harbor and Rockaway Park sites after LILCO re-notified EPA of its ownership of all six (6) of the sites.” Id. “LILCO notified DEC that it owned these sites in 1991.” Id. “[I]n August 1991, DEC issued a generic information request to all electric and gas utilities regarding their respective MGP sites.” Id. The PSC “issued an MGP information request to all utilities in 1992.” SA124. 14 LILCO considered the possibility of a regulatory mandate to clean up its MGP sites in submissions to the PSC in a 1993 rate case. SA124 n.3. “Discussions between DEC and LILCO were held in 1994 to explore the possibility of entering into an Administrative Consent Order which would address investigation and remediation activities at all six of LILCO’s former MGP sites.” SA123. LILCO’s “Form 10-K (1995), filed with the Securities and Exchange Commission” stated that, “although the exact amount of clean-up costs associated with these six sites cannot yet be determined, based on findings of investigations undertaken at two of the sites, Bay Shore and Hempstead, preliminary estimates indicate that it may cost approximately $35 million to remediate all of these sites over the next five to ten years.” SA124-25. The report also included separate four-page sections on both Bay Shore and Hempstead. Each section summarized all of the previous information provided about the sites and provided lengthy updates regarding “environmental investigations,” “regulatory oversight,” and the “actual and estimated site investigation costs.” SA125-28. 15 11. December 18, 1995: The London Insurers Deny Coverage For Hempstead Based On Late Notice. On December 18, 1995, less than a month after LILCO’s November 1995 supplemental disclosure, the London Insurers denied coverage of the Hempstead claims on late-notice grounds. SA146-47. As with their Bay Shore disclaimer, the London Insurers stated that “[t]his denial is based upon LILCO’s failure to provide [the London Insurers] with timely notice of occurrence . . . .” SA146. Century, American Re, and Northern did not respond to the November 1995 supplemental disclosure. 12. January 19, 1996: LILCO Provides Additional Information Regarding All MGP Sites. On January 19, 1996, LILCO provided still more information to the insurers regarding Bay Shore, Hempstead, and other MGP sites. A450-52. LILCO provided the insurers with copies of its submission to the PSC, which included the 1993 final report on remedial alternatives for the Hempstead site. A450. LILCO also provided the 1993 Site Investigation Report for Bay Shore addressing contamination at the site. A451. 13. January 30, 1996: American Re’s Internal Documents Note LILCO’s Delay In Providing Notice. On January 30, 1996, an American Re employee drafted a “Memo to File,” entitled “UPDATE -- MGP Sites.” SA26. The memo stated that “LILCO recently sent follow up documentation to their previous MGP update.” Id. 16 For Hempstead, the memo states: LILCO was notified of contamination by USEPA in 1981, and re-notified in 1989. NY authorities notified LILCO in 1991. This site has not been classified by the EPA. LILCO hired a consultant in 1990 to conduct a Phase I Investigation - Petroleum residuals found on site. In 1991, another consultant was hired to perform a Phase II investigation[.] [S]oil and groundwater contamination is primarily on site, but some off site migration to the south and west. Consultant costs to date = $500,000. Id. For Bay Shore, the memo states: LILCO was notified of contamination by USEPA in 1981, and re-notified in 1989. NY notified LILCO in 1991. No classification. In 1977, NY authorities requested a regional groundwater study. Contaminated groundwater plume detected on site and to the south. Suffolk County officials determined that no remediation was necessary. Phase II investigation performed by outside consultant in 1993. Consultant costs to date = $450,000. Id. In conclusion, the memo states: “There is no explanation in the reports as to why LILCO waited until 1994 to put AmRe on notice of these claims, considering it was notified in 1981.” SA27. 17 14. 1997-1999: The Insurers Deny Coverage After Litigation Begins. Century, American Re, and Northern – unlike the London Insurers – did not deny coverage based on late notice after receiving the supplemental information from LILCO. Instead, the Insurers waited until LILCO sued them for coverage, and only then did they assert late-notice defenses in their answers to LILCO’s complaints. For Bay Shore, the denials of coverage by American Re and Northern came more than two years after LILCO’s February 1995 disclosure, and Century’s denial came more than four years later. For Hempstead, American Re and Northern denied coverage approximately 15 and 16 months after LILCO’s November 1995 disclosure, respectively, and Century waited more than three years to assert the defense.1 B. Proceedings Below 1. Trial Court’s Decision For all MGP sites except Bay Shore, the trial court denied the Insurers’ motions for summary judgment on the defense of late notice. A63. Despite noting 1 American Re and Northern asserted their late-notice defense in federal court litigation on February 18, 1997 and March 19, 1997, respectively. A511-27; A568.1-.17. Although the evidence in the summary judgment record suggests that Century asserted the defense on August 31, 1999, SA13; SA64 ¶ 24, KeySpan believes that the date should have been listed as March 1, 1999. This difference is immaterial given that both dates are more than four years after KeySpan’s supplemental disclosure regarding Bay Shore in February 1995, and three years after the November 1995 disclosure regarding Hempstead. 18 the long history of interactions between LILCO and government agencies for these sites, A14-35, the court held that this evidence was insufficient to find that LILCO’s notices were late as a matter of law given the disputed issues of fact regarding the likelihood that LILCO would be legally compelled to investigate or remediate the sites and because projected “costs for investigation and remediation were purely speculative.” A57-61. The court reached a different result for the Bay Shore site, based on the claim asserted by a neighboring property owner, Summers Lumber. A55-56. Because Summers Lumber had asserted a claim against LILCO in 1991, the court held that LILCO’s notice for Bay Shore was untimely as a matter of law. Id. The trial court also held, as a matter of law, that the Insurers had not waived their late-notice defenses. A61-63. The court’s primary ground for granting summary judgment on the waiver issue was the law-of-the-case doctrine. A62. Because it had found no waiver in an earlier ruling with respect to the Syosset site – a third-party landfill, not an MGP site – the court concluded that the law-of-the- case doctrine precluded it from revisiting the waiver issue with respect to the MGP sites. Id. The trial court also held that summary judgment was warranted because waiver is the relinquishment of a known right, and LILCO had failed “to provide clear, complete information on the notice issue.” A63. According to the court, 19 “[t]he facts LILCO provided were to some extent sketchy and incomplete; for instance, it did not provide any information as to the [Long Island Fishermen’s] demand as to the Sag Harbor site, which was learned about later in discovery.” Id. The court did not explain why a jury could not reasonably find, based on LILCO’s extensive supplemental disclosures, that the Insurers knew that they could assert a late-notice defense long before they were sued. Nor did it explain why LILCO’s failure to disclose a demand concerning the Sag Harbor site warranted summary judgment on the waiver issue for every MGP site. 2. Appellate Division’s Decision The Appellate Division unanimously vacated the trial court’s summary judgment ruling on waiver, holding that resolution of the Insurers’ late-notice defense was “premature because issues of fact remain as to whether defendants waived their right to disclaim coverage based on late notice.” A7. The court rejected the Insurers’ argument that their reservation-of-rights letters necessarily resolved the waiver issue because “additional information was provided such that a jury could determine that the insurers possessed sufficient knowledge to require that they meet the obligation to issue a written notice of disclaimer on the ground of late notice as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability.” A8. The Appellate Division explained that waiver could not be decided as a matter of law because “issues of fact exist as to 20 whether sufficient information was provided to insurers in 1995 such that their subsequent failure to issue a notice of disclaimer on the grounds of late notice, until raising it as a defense in their answers filed in 1997, resulted in a waiver.” Id.2 The Insurers moved for reconsideration of the Appellate Division’s waiver ruling and for permission to appeal. The court denied reconsideration, but granted leave to appeal. A4-5. Although the Appellate Division’s waiver ruling applied to all sites, the Insurers seek review only insofar as it applies to the Bay Shore and Hempstead sites. See, e.g., Insurers Br. 11, 38.3 SUMMARY OF ARGUMENT I. The Appellate Division correctly held that a jury must decide whether the Insurers waived their late-notice defense in this case. As this Court has repeatedly held, waiver presents a fact-intensive question that rarely can be resolved as a matter of law. Under this Court’s prior decisions, a jury may consider both direct 2 The Appellate Division’s statement that the Insurers raised the defense in 1997 is correct for America Re and Northern, but Century did not assert the defense until 1999. See supra p. 17 & n.1. 3 The Appellate Division also held, in a single sentence, that LILCO’s notice was late as a matter of law for both Bay Shore and Hempstead. A7. KeySpan did not seek permission to take an interlocutory appeal on the late-notice ruling, as that issue can be raised, if necessary, following a final judgment. As a result, even if the Court were to rule for the Insurers, it cannot – as the Insurers urge – “hold that, as a matter of law, LILCO is not entitled to coverage for the Bay Shore and Hempstead sites,” because the late-notice issue has not been finally determined. 21 and circumstantial evidence of an insurer’s intent, and can find an intent to waive based not only on an insurer’s affirmative conduct but also its failure to act. The evidence in this case is sufficient to permit a jury to infer waiver. Based on LILCO’s extensive supplemental disclosures, a jury clearly could find that the Insurers were aware of the late-notice defense by 1995, and yet they waited as long as four years before denying coverage. Contrary to the Insurers’ assertions, the Appellate Division correctly refused to give conclusive weight to their boilerplate “reservation-of-rights” letters. This Court has never suggested, much less held, that such a pro forma letter – which insurers issue as a matter of course in response to environmental occurrences – categorically insulates an insurer from a finding of waiver no matter what may be inferred from an insurer’s subsequent conduct. Rather than creating an arbitrary rule that a reservation-of-rights letter always defeats waiver as a matter of law, the Court should allow a jury to weigh those letters in light of all of the evidence in the record. II. The Insurers’ focus on whether the prompt disclaimer requirement in Insurance Law Section 3420(d) applies to them is misplaced. This Court has previously applied the well-settled rule that inaction can reveal an intent to waive without suggesting that a legal duty to act is a precondition to inferring waiver from inaction. A factfinder could certainly conclude that inaction in the face of a 22 legal duty to act is powerful evidence of an intent to waive, but it does not follow that this is the only way to demonstrate waiver. In any event, the Insurers are wrong to argue that they have no duty to make prompt coverage determinations when Section 3420(d) does not apply. This Court and other New York courts have consistently recognized that insurers have a common-law duty to investigate claims and make reasonably prompt coverage determinations. This duty does not depend on Section 3420(d), but instead flows directly from the implied covenant of good faith and fair dealing found in every contract. In the insurance context, the duty includes an insurer’s obligation to investigate in good faith and pay covered claims, and it requires an insurer to act honestly and promptly in communicating a coverage position, rather than subjecting its policyholder to the uncertainty of lengthy and indefinite delays that may adversely impact its underlying litigation and settlement strategy. Insurance Law Section 2601 and its implementing regulations confirm the existence and broad scope of an insurer’s common-law duties. The statute and regulations codify certain of these duties by requiring all insurers to reply promptly to all pertinent communications, to promptly commence investigations, to make prompt coverage determinations, and to inform the policyholder as soon as it decides to disclaim liability because of an alleged breach of policy provisions. 23 Insurers’ extensive discussion of Section 3420(d) is also misplaced for additional reasons. Section 3420(d) creates an “absolute rule” that turns solely on the passage of time – a rule which KeySpan has never invoked and on which the Appellate Division did not rely. Had this case been decided under Section 3420(d), there would have been no factual question of intent to waive for the jury; the Appellate Division would have been required to grant KeySpan judgment as a matter of law. Insurers are also wrong that, by virtue of the enactment of Section 3420(d), they owe no obligation to respond at all to their policyholders’ requests for coverage when the provision does not apply. Nothing in the text of Section 3420(d) purports to derogate from insurers’ longstanding common law duties of conducting a prompt investigation and providing a timely coverage determination. Since KeySpan does not argue that this Court should “extend” Section 3420(d), the Insurers’ putative policy arguments against such an extension are beside the point. In any event, their argument that they should be relieved from their duty to make prompt coverage determinations is meritless. Rather than relieving the Insurers of their established common-law duties and stripping a jury of the power to draw reasonable inferences from their inaction, the Court should reaffirm its prior holdings that a jury may infer waiver from an insurer’s inaction, and that an insurer has a common-law duty to make prompt coverage determinations. 24 ARGUMENT I. Whether The Insurers Waived A Late-Notice Defense Is A Question Of Fact That Must Be Resolved By A Jury. This Court has repeatedly held that, because waiver is a matter of intent, it presents a fact question that typically must be resolved by a jury. A jury may consider both direct and circumstantial evidence of intent, and can base its finding not only on an insurer’s affirmative conduct but also its failure to act. The Appellate Division correctly held that a jury must decide whether the Insurers waived their late-notice defense under the circumstances presented here. A. Common-Law Waiver Is A Fact Question Regarding The Insurers’ Intent And May Be Inferred From Their Actions Or Inaction. The Insurers (Br. 14-17) purport to set forth the principles of common-law waiver, but their discussion is glaringly deficient in two key respects. First, they fail to acknowledge that, because waiver turns on a party’s intent, it presents a fact question that can rarely be resolved as a matter of law. Second, they state that waiver may only be inferred from a party’s actions, and that their inaction is irrelevant. That is squarely contrary to this Court’s decisions, which have held that waiver “may be established by affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage . . . .” Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt, L.P., 817 N.Y.S.2d 606, 611 (2006) (emphasis added). 25 As this Court explained nearly a century ago, because waiver “is essentially a matter of intention,” it “is rarely established as a matter of law rather than as a matter of fact.” Alsens Amer. Portland Cement Works v. Degnon Contr. Co., 222 N.Y. 34, 37 (1917). Nor is a jury limited in the evidence it can consider when determining whether an insurer intended to waive a defense. As the Court has recognized, waiver may be “proved by various species of proofs and evidence, by declarations, by acts and by non-feasance, permitting differing inferences and which do not directly, unmistakably or unequivocally establish it. Then it is for the jury to determine from the facts as proved or found by them whether or not the intention existed.” Id. (emphasis added). This Court has never departed from Alsens’s statement of the principles of common-law waiver. To the contrary, the Court has repeatedly reaffirmed that waiver is a fact-intensive question to be resolved by a jury, and that the jury may infer waiver based on “direct or circumstantial proof” of an insurer’s “acts or failure to act.” See, e.g., Fundamental Portfolio Advisors, 817 N.Y.S.2d at 611 (waiver “may be established by affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage” (emphasis added)); id. (“Generally, the existence of an intent to forgo such a right is a question of fact.” (quotation marks and citations omitted)); Gen. Motors Acceptance Corp. v. Clifton- Fine Cent. Sch. Dist., 85 N.Y.2d 232, 236 (1995) (“GMAC”) (“Waiver may be 26 established by affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage.”); Albert J. Schiff Assocs., Inc. v. Flack, 51 N.Y.2d 692, 698 (1980) (“courts find waiver where there is direct or circumstantial proof that the insurer intended to abandon the defense”); Hadden v. Consol. Edison Co., 45 N.Y.2d 466, 469 (1978) (waiver may be established by “conduct or failure to act”); Sillman v. Twentieth Century-Fox Film Corp., 3 N.Y.2d 395, 403 (1957) (waiver may be “‘proved by various species of proofs and evidence, by declarations, by acts and by non-feasance’” (quoting Alsens, 222 N.Y. at 37)).4 Ignoring these decisions, the Insurers instead rely on two 19th century cases to argue that waiver may be inferred only from their affirmative conduct, not their failure to act. Insurers Br. 11 (quoting Titus v. Glens Falls Ins. Co., 81 N.Y. 410 (1880); Gibson Elec. v. Liverpool & London & Globe Ins. Co., 159 N.Y. 418 (1899)). In both cases, the policyholder sought coverage under fire insurance policies for damage to foreclosed properties, notwithstanding contractual provisions stating that the policies would be void if foreclosure proceedings were initiated for the property. In Titus, the Court held that an insurer had waived the 4 One prominent treatise quotes Alsens at length as the definitive statement of common-law waiver. See 13 Williston on Contracts § 39:21 (4th ed. 2013) (waiver “‘is rarely established as a matter of law rather than as a matter of fact. . . . Commonly it is sought to be proved by various species of proofs and evidence, by declarations, by acts, and by nonfeasance . . . .’”(quoting Alsens, 222 N.Y. at 37)). 27 forfeiture provision and had reaffirmed the policy by exercising its rights under the policy after learning of the foreclosure proceedings. 81 N.Y at 419. In Gibson, the Court held that an insurer had not reaffirmed the policy after the foreclosure proceedings had voided it. 159 N.Y. at 426. In so doing, the Court concluded that, unless an insurer expressly waived the forfeiture, “some of the elements of an estoppel must exist,” and thus waiver or estoppel based on inaction were insufficient to bring the policy back into effect. Id. These decisions do not purport to apply the general common law rules of waiver. Rather, they addressed the very different situation in which an insurer was specifically alleged to have reaffirmed a policy that had already been voided by a designated forfeiture event.5 As this Court later clarified, waiver principles reflect courts’ disfavor of loss of coverage where “an insured breached a policy condition” such as “failure to give timely notice of a loss,” but the same principles cannot create coverage that otherwise would not exist. Albert J. Schiff Assocs., 51 N.Y.2d at 698. The issue in Titus and Gibson – reaffirmation of a voided policy – is akin to the creation of new coverage, a context where the Court has recognized that conventional waiver rules do not apply. 5 Palma v. National Fire Insurance Co. of Hartford, 240 A.D. 454 (4th Dep’t 1934), a 1934 decision that is the only authority the Insurers have cited as relying on Titus, similarly concerned a situation where “the policy was void.” Id. at 456. 28 In any event, even if Titus and Gibson purported to state a general rule that common law waiver cannot be proven based on inaction, that rule has not been followed for more than a century. Just four years after Gibson, this Court held that common law waiver could be found based on “silence” and “failure to protest.” People ex rel. McLaughlin v. Bd. of Police Comm’rs of City of Yonkers, 174 N.Y. 450, 458 (1903) ( “If [the plaintiff challenging his termination as police captain] intended to insist that the office was his as a matter of right, can there be any doubt that it was his duty to notify the police commissioners and those seeking the position of his intention?”). And, as discussed above, the Court has repeatedly recognized that waiver may be found based on “non-feasance” or “failure to act.” See supra pp. 25-26.6 Federal courts applying New York law have also recognized that waiver may be established based on inaction. See, e.g., Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 303 (2d Cir. 1996) (waiver may be established “by conduct or failure to act” (quotations and citation omitted)). And a leading insurance treatise has similarly acknowledged that “silence or inaction can also be a basis for waiver.” 1-5 Appleman on Insurance § 5.07 (2013). 6 In Sillman, a majority of this Court applied Alsens to hold that “non-feasance” can establish waiver despite the dissent’s reliance on Gibson in support of the view that inaction should be insufficient. Compare 3 N.Y.3d at 403, with 3 N.Y.2d at 406 (Fuld, J., dissenting). 29 Contrary to the Insurers’ assertion (Br. 15), nothing in Allstate Ins. Co. v. Gross, 27 N.Y.2d 263 (1970), suggests that waiver cannot be inferred from inaction. In Gross, this Court distinguished common-law waiver from the “time limit” imposed by Insurance Law Section 3420(d) by noting that common-law waiver depends on “the insurer’s manifested intention,” while Section 3420(d) depends “merely on the passage of time,” without regard to an insurer’s intent. Id. at 269. This distinction, however, does not suggest that a jury cannot rely on an insurer’s inaction as manifesting an intent to waive a policy condition defense. Indeed, decisions issued before and after Gross have expressly held that a jury may consider such inaction. See, e.g., Fundamental Portfolio Advisors, 817 N.Y.S.2d at 611; Alsens, 222 N.Y. at 37. In short, waiver is a fact question regarding an insurer’s intent, which “is rarely established as a matter of law rather than as a matter of fact.” Alsens, 222 N.Y. at 37. In deciding this fact question, a jury may rely on both “direct or circumstantial proof,” including evidence of an insurer’s actions as well as its “failure to act” when the circumstances establish that a diligent insurer would have acted if it had intended to preserve a policy condition. Albert J. Schiff Assocs., 51 N.Y.2d at 698; Fundamental Portfolio Advisors, 817 N.Y.S.2d at 611. 30 B. The Appellate Division Correctly Held That A Jury Must Decide The Waiver Issue In This Case. The Appellate Division held that disputed issues of fact precluded a ruling on waiver as a matter of law. The evidence is sufficient to permit a jury to find waiver because, as the court noted, a jury could find that the Insurers were aware of the late-notice defense but waited between 15 months and four years to assert it. The court also correctly refused to grant summary judgment to the Insurers based solely on the general reservation-of-rights letters and in spite of all of the other relevant evidence in the record. 1. A Jury Could Find Waiver Based On the Insurers’ Knowledge That They Could Have Asserted The Defense And Failure To Do So. Beginning in February 1995, LILCO provided more detailed information to its insurers regarding the MGP sites at issue in this case. The supplemental information included summaries of MGP historical operations, environmental investigations, regulatory oversight, communications with regulatory agencies, and investigative reports and feasibility studies regarding the MGP sites. See supra pp. 10-11, 12-14, 15. This information informed the Insurers that, among other things: (1) some localized contamination was found at Bay Shore and Hempstead in 1979 and 1990, respectively; (2) EPA conducted preliminary site surveys in 1981 and 1989; (3) DEC inquired about MGP operations in 1991; (4) environmental consultants had investigated both Bay Shore and Hempstead and had completed 31 reports discussing remediation alternatives by 1993; and (5) that Summers Lumber had asserted a claim against LILCO for property damage related to Bay Shore by at least 1993. Id. Given these extensive disclosures, the Appellate Division was correct to hold that a jury could find that the Insurers were aware of facts supporting a disclaimer of coverage based on late notice by 1995. This conclusion is confirmed by other evidence in the record. Upon receiving the same information, the London Insurers (a group of LILCO’s excess insurers not involved in this appeal) formally disclaimed coverage based on late notice with respect to Bay Shore in March 1995 and with respect to Hempstead in December 1995. See supra pp. 11, 15. Moreover, after receiving LILCO’s supplemental disclosures, an employee of Defendant American Re-Insurance Company drafted a memo in January 1996 noting the history of regulatory involvement at the MGP sites. Id. at 15-16. The memo expressly notes the possibility of a late-notice defense: “There is no explanation in the reports as to why LILCO waited until 1994 to put AmRe on notice of these claims, considering it was notified in 1981.” Id. Yet American Re and the other Insurers chose not to disclaim coverage at that time, but instead waited between 15 months and four years to disclaim coverage based on late notice. Id. at 17. The Insurers do not argue that they were unaware of a late-notice defense before the coverage litigation began. Instead, they argue that their awareness of 32 the defense and failure to assert it for years is irrelevant because it cannot show that they intended to waive the defense. Insurers Br. 36-37. According to the Insurers, even prolonged and inexcusable delays by an insurer “in enforcing a coverage condition while investigating a claim does not create a factual issue as to whether the insurer intentionally waived the condition.” Id. (citing Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966 (1988)). Contrary to the Insurers’ assertions, the law is clear that, if a jury finds that they knew they had a late-notice defense but did not assert it for years until after litigation began, a jury could justifiably infer waiver based on this inaction. As this Court has recognized, “[i]f the insurance company had known the facts upon which its rights depended, failure to assert them at the proper time might permit the inference that it intentionally waived its rights. The intention to waive those rights might even be inferred from deliberate disregard of a notice sufficient to excite attention and call for inquiry . . . .” S. & E. Motor Hire Corp. v. New York Indem. Co., 255 N.Y. 69, 75 (1930). This Court’s more recent decisions have also held that waiver could be inferred from evidence that a party was aware that its contract was breached but took no action in response to the breach. For example, in GMAC, a school district was supposed to make payments directly to GMAC, but instead made numerous payments to the local automobile dealership. 85 N.Y.2d at 234-35. The school 33 district argued that GMAC had waived, as a matter of law, its right to receive the payments by not objecting earlier, and GMAC responded that, as a matter of law, its silence could not constitute waiver. Id. at 233-34. This Court rejected both arguments, holding that waiver was a fact question that could not be resolved either way as a matter of law. Id. at 236. Noting that waiver may be established based on a “failure to act,” the Court held that, if the evidence showed that GMAC was aware of the payments to the local dealership and did not object, its inaction would support a finding that it “impliedly waived the direct payment requirement.” Id. Similarly, in Fundamental Portfolio Advisors, Inc., the Court held that a jury could find waiver of a non-compete agreement based on failure to enforce it. In that case, in order to facilitate a potential transfer of management duties for certain mutual funds, the parties agreed that Tocqueville would not compete with FPA for management of the funds if the deal fell through. When the relationship between Tocqueville and FPA turned hostile, FPA “sent a letter to Tocqueville reminding it of the terms of the noncompete agreement” and stating that it “intend[ed] to enforce this covenant.” 7 N.Y.3d at 102-03. However, although Tocqueville continued to “campaign” for business from the funds, FPA took no legal action to enforce its contractual rights, and instead competed directly with Tocqueville. Id. at 103-06. This Court concluded that a jury could rule either way on the question 34 of waiver: it could find that FPA had sufficiently “put Tocqueville on notice that it should halt its dealings with the Funds,” but it could also “question why FPA competed with Tocqueville rather than utilizing the simple expedient of a cease and desist demand or seeking injunctive relief through legal recourse.” Id. at 105- 06. Thus, while waiver was not conclusively established as a matter of law, FPA’s inaction in enforcing its rights provided a factual basis on which a jury could find waiver. The Court in Gilbert Frank did not hold, as the Insurers assert, that a delay in denying coverage during an insurer’s investigation cannot provide grounds for waiver of policy conditions. Insurers Br. 36. In Gilbert Frank, the policyholder did not argue that the insurer’s inaction or its delay in denying coverage evinced its intent to waive a defense; it argued that the insurer waived a contractual limitations period by engaging in settlement discussions and continuing to investigate the claim after the limitations period had expired. 70 N.Y.2d at 968. The Court held that the insurer’s conduct did not provide evidence of waiver because waiver of a contractual limitations period cannot be established based on “[e]vidence of communications or settlement negotiations.” Id. As this Court recognized, attempting to avoid litigation costs by settling a non-meritorious claim for pennies on the dollar – specifically, an $8000 offer to settle a greater than $100,000 claim – cannot reasonably be construed as an intent to waive a time-bar defense in the 35 event litigation does become necessary. See id. Nothing about this common-sense conclusion is relevant to, let alone contradicts, this Court’s longstanding recognition that failure to act with reasonable diligence in asserting one’s rights can provide a basis for a jury to infer intent to waive. In any event, even if Gilbert Frank held that waiver cannot be inferred from a hypothetical delay attributable to an insurer’s investigation, Insurers Br. 36, it would not help the Insurers. They point to no evidence in the record to show that they were investigating the underlying MGP claims at all, much less evidence establishing as a matter of law that this supposed investigation was the reason for their delay.7 In sum, a jury could find that, by 1995, the Insurers were aware that they could deny coverage based on late notice, but they instead sat in silence for years, failing to disclaim coverage based on late notice until after coverage litigation began. See supra p. 17. Given this evidence, the Appellate Division correctly held 7 Any evidence that insurers had undertaken an investigation would not provide a basis for deciding the waiver issue at the summary judgment stage, but rather would simply be evidence on which the Insurers could argue to a jury that it should not infer waiver from their delay in denying coverage. Of course, if the evidence demonstrated that the Insurers conducted only a perfunctory investigation or none at all, or were only investigating possible defenses other than late notice, it would not provide a valid explanation for their lengthy delay in disclaiming based on late notice. 36 that a jury could reasonably infer from their inaction over a period of years that the Insurers intended to waive their late-notice defense. 2. The Appellate Division Correctly Refused To Hold That A Reservation-of-Rights Letter Forever Immunizes An Insurer From A Finding Of Waiver. The Insurers do not contest that a jury could reasonably find that they were aware of the facts supporting a late-notice defense long before they asserted it. They instead argue that their letters purporting to reserve their rights preclude any possible waiver of the defense. In the Insurers’ view, a boilerplate reservation-of- rights letter issued as an initial response to a policyholder’s notice of a claim or occurrence forever immunizes an insurer from a finding a waiver, no matter how clearly its subsequent conduct demonstrates an intent to waive. To support this extreme argument, the Insurers rely on the Court of Appeals’ statement in Gross that “[r]eservation of rights . . . are effective only against the defense of waiver under the decisional rule.” 27 N.Y.2d at 269. But that statement in Gross plainly was intended to contrast common law waiver from the “absolute” time limit of Section 3420, under which a reservation of rights can never be effective. It cannot be read so broadly as to establish that a reservation of rights letter always precludes common-law waiver as a matter of law. In Gross, the Court cited Mason-Henry Press v. Aetna Life Ins. Co., 146 App. Div. 181 (1911), to illustrate how a “reservation of rights” could be 37 “effective” against waiver. That case did not hold that a reservation-of-rights letter will immunize an insurer from a finding of waiver for all time and in all circumstances; it simply applied the well-settled rule that an insurer who undertakes a defense of a policyholder subject to a reservation of rights does not waive its ability to contest its indemnity obligations. Id. at 188; see also O’Dowd v. Am. Sur. Co. of N.Y., 3 N.Y.2d 347, 355 (1957) (“it is also well established that an insurer may, by timely notice to the insured, reserve its right to claim that the policy does not cover the situation at issue, while defending the action”); Weatherwax v. Royal Indem. Co., 250 N.Y. 281, 287 (1929) (same). This rule is inapplicable here because insurers did not agree to provide a defense to LILCO under a reservation of rights.8 The Appellate Division correctly refused to read Gross so broadly as to hold that any letter sent by an insurer that generally reserves its rights will forever prevent a finding of waiver. Courts applying New York law have repeatedly held 8 A reservation of rights “is a notice given by the insurer that it will defend but reserves all rights it has based on noncoverage under the policy.” 14 Couch on Insurance § 202:38 (3d ed. 2013). The central purpose of such a written reservation is to enable an insurer to discharge its broad duty to defend without surrendering its right to contest coverage if the facts developed in the underlying action show that there is no duty to indemnify. As a result, “[a] reservation of rights is a means by which an insurer avoids breaching its duty to defend, and seeks by agreement to suspend operation of the doctrine of waiver and estoppel prior to a determination of the insured’s liability.” Id. This scenario is simply not presented in this case. 38 that an insurer may waive a late-notice defense despite having previously reserved its rights. For example, in Olin Corp. v. Certain Underwriters at Lloyd’s London & London Mkt. Ins. Cos. 347 F. App’x 622, 628 (2d Cir. 2009), the Second Circuit affirmed a finding that an insurer had waived a late-notice defense – despite “expressly reserv[ing] certain rights regarding coverage upon receiving notice of the claim” – because the insurer “had sufficient knowledge of the circumstances regarding the unasserted defense” but delayed asserting it. Id.9 Rather than precluding waiver as a matter of law, the Insurers’ letters should be treated simply as part of the compendium of evidence that a jury may consider in determining whether they intended to waive a late-notice defense. A letter that expressly reserves the right to assert a particular defense might provide evidence that, as of the time the letter was written, an insurer did not intend to relinquish the defense. But nothing in Gross suggests that the general common-law rules of waiver no longer apply after a reservation-of-rights letter is sent, and especially 9 Other courts have similarly refused to treat reservation-of-rights letters as conclusive proof that an insurer did not waive a defense. See, e.g., Agway, Inc. v. Agway Petroleum Corp., 1993 WL 771008 (N.D.N.Y. Dec. 6, 1993) (“While Travelers reserved its rights in all correspondence between 1990 and 1991, the fact that it took 13 months for them to assert the defense of late notice of claim may constitute an ‘implied waiver’ of that right.”); Kirchner v. Fireman’s Fund Ins. Co., 1991 WL 177251 (S.D.N.Y. Sept. 4, 1991) (rejecting insurers’ argument that “it cannot be seen as having waived any defenses because it has sent only reservation of rights letters”). 39 after additional information is disclosed to the insurer. Cf. Fundamental Portfolio Advisors, Inc., 7 N.Y.3d at 103-06 (finding that a jury could infer waiver based on the plaintiff’s failure to enforce its rights, despite an earlier letter stating that it “fully intend[ed] to enforce” those rights). To the contrary, a jury could reasonably infer that where an insurer reserves its rights and asks for more information to evaluate particular defenses, the policyholder provides that information, and the insurer then takes no action despite receiving information establishing the factual basis for the defense, any earlier intent to reserve its rights has been superseded by an intent to waive. This is a logical corollary of this Court’s admonition that once an insurer is actually or constructively aware of grounds for disclaimer, it must either “promptly apprise the [insured] with a high degree of specificity of the ground or grounds on which the disclaimer is predicated” or waive the defense. Gen’l Accident Ins. Group v. Cirucci, 46 N.Y.2d 862, 864 (1979). In any event, even if the Court were to adopt a categorical and novel rule that a “reservation of rights” letter could be conclusive proof that an insurer did not intend to waive a defense, the Insurers would still not be entitled to summary judgment here. That is because fact questions would remain regarding whether the letters LILCO received from these Insurers qualify as the sort of “reservation-of- rights” letters that could grant an insurer immunity from waiver. For example, American Re’s letter initially stated that it “reserves the right to deny coverage,” 40 but then later in the same letter it said that, for reasons unrelated to late notice, “American Re-Insurance Company must respectfully deny the request for indemnification at this time.” A509-10. A jury must decide which language is controlling.10 Similarly, Northern’s letter states that it could identify only two policies covering LILCO, neither of which is at issue here, and that it was unaware of the policies involved in this case. See supra p. 12. Given its refusal to acknowledge these policies, a jury could reasonably find that Northern’s reservation of rights covered only the policies that it had acknowledged, and thus Northern never reserved its rights for the policies at issue here.11 And Century’s letters contain a vague statement that it reserves all rights, but they do not specifically state that it is reserving the right to disclaim coverage based on late notice or any other concrete 10 If this letter is treated as a denial of coverage and the evidence establishes that American Re was aware of the late-notice defense at the time, then the late-notice defense would be waived as a matter of law because it did not deny coverage on that ground. See Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83, 95 (2d Cir. 2002); State of New York v. Amro Realty Corp., 936 F.2d 1420, 1431- 32 (2d Cir. 1991). 11 See, e.g., Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 126 F. Supp.2d 596, 632-33 (W.D.N.Y. 2001) (dispute over existence of policies does not relieve insurer of obligation to promptly disclaim based on late notice), aff’d in part, rev’d in part, 302 F.3d 83 (2d Cir. 2002); see also Estee Lauder Inc. v. OneBeacon Ins. Group, LLC, 62 A.D.3d 33, 37 (1st Dep’t 2009) (noting that the Second Circuit in Burt Rigid Box “implicitly rejected” the insurer’s argument that it could not waive a defense after denying the existence of a policy, and agreeing that accepting such an argument would be an “extraordinary proposition”). 41 ground. Id. at 6-7, 8-9. A jury would have to decide whether this amorphous reservation of rights was sufficient to preserve the specific defense at issue here. Ultimately, the Court should not parse the language of the reservation-of- rights letters to decide which letters supposedly reserved the Insurers’ late-notice defense for all time, and which ones did not. As the Appellate Division correctly held, the determination of the weight to be given to those letters, particularly in light of the Insurers’ subsequent conduct, is a fact question for a jury to resolve. II. Although A Duty To Act Is Not A Precondition To Finding Waiver, A Jury May Consider The Insurers’ Duty To Provide Prompt Coverage Decisions In Evaluating Their Inaction. The Insurers devote more than half of their brief to arguing that the prompt disclaimer requirement in Section 3420(d) is inapplicable to them. That argument is at best a distraction, and is misconceived for several reasons. First, the Insurers’ extended discussion of Section 3420(d) incorrectly assumes that the existence of a legal duty to act is a precondition to finding waiver. That view has no support in the law and is inconsistent with how common-law waiver principles traditionally operate. Second, the Insurers do have a duty to make prompt coverage determinations – they are simply looking in the wrong place by focusing on Section 3420(d). That duty is part of the common law duty of good faith and fair dealing, and is codified in part in Insurance Law Section 2601 and its implementing regulations. Although 42 the existence of such a duty is not a necessary condition to finding waiver, it is certainly powerful evidence that an insurer’s persistent inaction when armed with a factual basis for disclaimer reflects an intent to relinquish a known right. A jury could reasonably consider the Insurers’ disregard of their legal and contractual duties to LILCO in deciding the waiver question on the facts. Third, there is no dispute that Section 3420(d) does not apply. If it did, the Insurers’ delay would have entitled KeySpan to prevail as a matter of law. Instead, the Appellate Division properly recognized that this case is governed by common-law principles and that the issue of waiver is a fact question for the jury. A. A Legal Duty To Act Is Not A Precondition To Finding Waiver. The Insurers’ argument that they have carte blanche to sit on a request for coverage indefinitely and avoid making a prompt coverage determination while their policyholder is left in a state of uncertainty is not only baseless, it is also a red herring. The existence of a legal duty is not a precondition to a finding of waiver. Even if an insurer had no duty to investigate claims, make prompt coverage determinations, and promptly inform policyholders of coverage decisions so that they may evaluate their options, no rule of law would prevent a jury from finding an intent to waive under the circumstances of this case. Under well-settled New York law, inaction can reveal an intent to waive. See supra Part I.A. Indeed, this Court has permitted findings of waiver based on a 43 party’s failure to act without any indication that such inaction was in violation of some duty. For example, in GMAC, this Court held that a jury could find waiver of a party’s right to receive payments directly based on its failure to object to payments going to someone else. 85 N.Y.2d at 233-36. It reached this conclusion based on the well-established principle that waiver can be inferred from inaction – while giving no indication that this result was based on some separate legal duty to object to the payments. Id. Since waiver is a question of fact, a jury could reasonably consider any number of factors in deciding whether a party’s inaction demonstrated an intent to waive. A factfinder could certainly conclude that inaction in the face of a legal duty to act is powerful evidence of such intent. But the factfinder could reach the same conclusion for myriad other reasons. For example, the fact that prompt invocation of a contractual right is industry custom and practice, even if not legally mandatory, could indicate that inaction was due to waiver. Thus, as other courts have recognized, the London Insurers’ prompt decision to invoke their late notice defense after receiving LILCO’s supplemental disclosures could lead a jury to expect the Insurers to have done the same upon receiving the same information, had they not intended to waive their rights to disclaim on that basis. See, e.g., State of New York v. Amro Realty Corp., 936 F.2d 1420, 1430 (2d Cir. 1991) (insurer’s waiver of late notice defense for failure to promptly disclaim “is 44 bolstered by the fact that several other insurers which were informed . . . of the State intent-to-sue letter were able promptly to assert late notice disclaimers” and insurer “does not offer any plausible explanation why it could not have behaved similarly”). Alternatively, it may simply be that “a reasonable person [would] question why” a party with knowledge that it could assert a right would take no action, unless it intended to relinquish the right. Fundamental Portfolio Advisors, Inc., 7 N.Y.3d at 106. A jury could consider American Re’s failure to act after affirmatively recognizing its late notice defense as probative of waiver. See supra pp. 15-16. Similarly, it could read the Insurers’ letters requesting additional information as indicating an intent to investigate the timing of notice and act promptly on that information after it was provided, and conclude that the Insurers’ failure to do so evinced an intent not to pursue a late notice defense. A reasonable jury could no doubt consider other relevant factors under the specific facts of a case. The fact that the existence of a legal duty to act is one way to demonstrate that inaction indicates an intent to waive does not mean that it is the only way. B. The Insurers Have A Duty To Make Prompt Coverage Determinations. This is not a case in which an insurer seeks to justify a lengthy delay in disclaiming coverage based on the need to conduct a “prompt, diligent and good- faith investigation” of a policyholder’s claim for coverage. First Fin. Corp. v. 45 Jetco Contracting Corp., 1 N.Y.3d 64, 69 (2003). To the contrary, the Insurers seek to excuse their failure to conduct a diligent investigation, and to disclaim coverage in timely fashion, by positing that they had no obligation to investigate KeySpan’s claim, or do anything at all, until KeySpan proved that its environmental liabilities had indisputably triggered their excess coverage. Insurers Br. 31-32. Insurers provide no authority for this extreme position, which is not only at odds with New York law, but also would leave policyholders faced with potentially staggering environmental liabilities with the Hobson’s choice of either (1) delaying compliance with agency cleanup demands, with the attendant risk of enforcement actions and civil penalties, until their insurers make a coverage determination, or (2) cooperating with the agency and running the risk that their insurers will then argue that they breached the policies’ “cooperation clause” by settling without the insurers’ consent. The Court should not countenance such whipsaw tactics, especially since an insurer’s responsibility to investigate a claim and furnish reasonably prompt notice of a late notice disclaimer “is not unduly burdensome, the insurer being highly sophisticated and experienced in such matters.” Gen’l Accident Ins. Group, 46 N.Y.2d at 864. 46 1. The Insurers Have A Common Law Duty To Make Prompt Coverage Determinations Under This Court’s Decisions. Every insurer, for every kind of claim, owes a basic obligation of good faith and fair dealing to the policyholder. That duty requires them to take reasonable steps to investigate a claim, make a coverage determination on the basis of that investigation, and then communicate their conclusions with reasonable promptness. Moreover, as this Court has recognized such duties are interrelated and cannot be parsed so as to defeat the protective function of insurance coverage. See Gross, 27 N.Y.2d at 266 (explaining that the obligation to reach a coverage decision promptly is the “logical and practical” extension of the duty to provide prompt notice once a decision has been reached). These duties do not flow solely from Section 3420(d), but are embedded in the common law as well. It is hornbook insurance law that, “under both common law and statutory law, the carrier has a duty to inform an insured of [its] claims decisions in a reasonably prompt and informative manner.” 14 Couch on Insurance § 198:31 (3d ed. 2013) (emphasis added). This duty has long been recognized by New York courts, including this Court. See Firemen’s Fund Ins. Co. of Newark v. Hopkins, 88 N.Y.2d 836, 837 (1996) (noting insurer’s duty to “give written notice of disclaimer on the ground of late notice as soon as is reasonably possible”); Estee Lauder Inc. v. OneBeacon Ins. Group, LLC, 62 A.D.3d 33, 35 (1st Dep’t 2009) (discussing “the insurer’s duties to disclaim promptly and with specificity”); 151 47 E. 26th St. Assocs. v. QBE Ins. Co., 33 A.D.3d 452, 453 (1st Dep’t 2006); Hotel Des Artistes, Inc. v. Gen. Acc. Ins. Co. of Am., 9 A.D.3d 181, 193 (1st Dep’t 2004); Malca Amit N.Y., Inc. v. Excess Ins. Co., 258 A.D.2d 282, 283 (1st Dep’t 1999).12 The Insurers do not cite a single case holding that the common law imposes no duty on an insurer to make prompt coverage determinations. Their only response to the case law recognizing the duty is that the cases either could have been decided under Section 3420(d) or that they were wrongly decided because Section 3420(d) did not apply. Insurers Br. 22 n.4, 35-36. The Insurers note that, although this Court did not cite Section 3420(d) in Hopkins, it could have relied on the provision because the case involved bodily injury. Id. at 22 n.4. But the fact that the Court found it unnecessary to rely on Section 3420(d) is telling and is entirely consistent with the fact that such a duty exists under the common law. The Insurers’ attempts to characterize the duty as necessarily depending on Section 3420(d) also cannot be reconciled with the fact that New York courts had recognized and applied the duty even before the Legislature enacted that provision 12 Courts in other states have also recognized that an insurer has a common-law duty to inform its policyholder of its coverage decisions in a prompt manner. See, e.g., Griggs v. Bertram, 88 N.J. 347, 360-61 (1982) (“The insurer’s obligation to deal in good faith . . . necessarily requires that an insurer communicate to the insured in a timely fashion the results of any investigation.”); Interstate Cas. Co. v. Wallins Creek Coal Co., 164 Ky. 778 (1915) (“[T]he insured should have a right to know with reasonable promptness the attitude of the indemnity company.”). 48 or its predecessors. Indeed, more than a decade before the original version of Section 3420(d) was enacted, the Appellate Division explained that, “[w]hen an insurer wishes upon proper grounds to disclaim liability, it must inform the assured promptly of such intention . . . .” Ashland Window & Housecleaning Co. v. Metro. Cas. Ins. Co. of N.Y., 269 A.D. 31, 35 (1st Dep’t 1945). The duty to make prompt coverage determinations exists even when Section 3420(d) does not apply because that duty flows directly from the implied covenant of good faith and fair dealing found in every contract. As this Court has long recognized, the “true measure” of an insurer’s obligations to a policyholder are “not to be found in the letter of the contract of insurance,” but rather includes “the obligation of good faith in carrying out what was written” that “underlies all written agreements.” Brassil v. Maryland Cas. Co., 210 N.Y. 235, 241 (1914). This duty encompasses “any promises which a reasonable person in the position of the promisee would be justified in understanding were included.” Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995) (emphasis added). In the insurance context, the duty includes – but is by no means limited to – an insurer’s obligation “to investigate in good faith and pay covered claims.” Bi- Economy Mkt., Inc. v. Harleysville Ins. Co., 10 N.Y.3d 187, 194 (2008). As this Court has explained, “[c]ertainly, a reasonable insured would understand that the insurer promises to investigate in good faith and pay covered claims.” NYU v. 49 Cont’l Ins. Co., 87 N.Y.2d 308, 318 (1995). An insurer not only promises to investigate claims in good faith, but it must also act on the results of that investigation. Thus, the “obligation to act in good faith” proscribes “[u]nreasonable delay by the insurer[] in dealing with a claim.” Isadore Rosen & Sons, Inc. v. Sec. Mut. Ins. Co., 31 N.Y.2d 342, 347 (1972). And in processing a claim, an insurer must act “honestly, adequately, and – most importantly – promptly.” Bi-Economy, 10 N.Y.3d at 195.13 2. Insurance Law Section 2601 And Implementing Regulations Confirm The Existence And Broad Scope Of This Common Law Duty. Insurance Law Section 2601 confirms both the existence and broad scope of an insurer’s duty of good faith and fair dealing. That provision – applicable to any “insurer doing business in this state” – codifies several “unfair claim settlement practices.” Among these are “failing to acknowledge with reasonable promptness pertinent communications” from the insured; “failing to adopt and implement reasonable standards for the prompt investigation of claims”; and failure to advise the insured “of acceptance or denial of [a] claim within thirty working days” of a “properly executed proof of loss.” Ins. Law § 2601(a)(2), (3), (4). 13 The duty to promptly communicate a decision to disclaim is the “logical and practical extension” of the insurer’s responsibility to investigate and process claims promptly. Cf. Gross, 27 N.Y.2d at 266. If the duty of good faith did not encompass an obligation to make a prompt disclaimer, the other components of that duty would be rendered meaningless. 50 By enacting Section 2601, the Legislature did not impose new duties on insurers. To the contrary, as the legislative history makes clear, the statute simply created a new regulatory remedy for systematic unfair claims-handling practices by insurers, and the underlying duties were those that already existed under the common law. See Governor’s Memorandum, 1970 N.Y. Legislative Annual 305, 305-06 (“an insurance company’s obligation to deal fairly with claimants and policyholders” already existed as “a matter of private contract law”). Indeed, this Court has previously noted that Section 2601 is “properly viewed” as “regulating the insurer’s performance of its contractual obligations.” NYU, 87 N.Y.2d at 317- 18; see also Yonkers Contracting Co. v. Gen. Star Nat’l Ins. Co., 14 F. Supp. 2d 365, 373 (S.D.N.Y. 1998) (citing Insurance Law § 2601(a)(4) as reflecting the “contractual duty of good faith owed by an insurer to its insured”).14 And there is no exemption built into the statute for excess insurers, let alone those whose coverage attaches above a modest self-insured retention.15 14 KeySpan does not ask this Court to create a private remedy for statutory or regulatory violations. See NYU, 87 N.Y.2d at 317. Indeed, under KeySpan’s view, a jury is not required to infer waiver from an insurer’s violation of its responsibilities. However, the legal context in which an insurer acts (or fails to act) is nonetheless relevant to a factfinder’s interpretation of the Insurer’s conduct. 15 Although the Insurers suggest (Br. 32) that their excess coverage was a long way from being triggered, their coverage attaches at levels as low as $25,000. Their assertion that “primary coverage was not yet exhausted when notice was given” (continued…) 51 New York regulations implementing Section 2601 further clarify an insurer’s claim-processing duties. These regulations are applicable to “all insurers licensed to do business in this State,” excepting only certain expressly enumerated types of policies not at issue here. 11 N.Y.C.R.R. § 216.2. They enumerate “[c]laim practice principles to be followed by all insurers,” including to “[h]ave as your basic goal the prompt and fair settlement of all claims,” to “[c]learly inform the claimant of the insurer’s position regarding any disputed matter,” and to “[r]espond promptly, when response is indicated, to all communications from insureds . . . .” 11 N.Y.C.R.R. § 216.0(e) (emphasis added). The regulations further set out “claim practice rules which insurers must apply to the processing of all first- and third-party claims.” 11 N.Y.C.R.R. § 216.0 (emphases added). These mandatory rules include that: an insurer must make “[a]n appropriate reply” to all “pertinent communications” within 15 business days. 11 N.Y.C.R.R. § 216.4(b); an insurer must “commence an investigation of any claim” within 15 business days of receiving notice. 11 N.Y.C.R.R. § 216.5(a)(1); the claimant “shall be advised in writing of the acceptance or rejection of the claim by the insurer” within 15 business days of receipt of a properly (Br. 37) also makes no sense, as the Insurers themselves acknowledge that LILCO did not even have primary coverage. Insurers Br. 6. 52 executed proof of loss and all items the insurer has requested. 11 N.Y.C.R.R. § 216.6(c)(1). If an insurer needs more time, “it shall so notify the claimant.” Id. § 216.6(c)(2); and an insurer “shall inform the claimant in writing as soon as it is determined that . . . it is disclaiming liability because of a breach of policy provisions by the policyholder,” and must “explain its specific reasons for disclaiming coverage.” Id. § 216.6(d). These specific rules, elaborating on the requirements of Insurance Law Section 2601 and the contractual duty of good faith, confirm that insurers have an ongoing duty to diligently investigate claims, be responsive to claimants, and promptly disclose their intent to disclaim. C. The Insurers’ Focus On Section 3420(d) Is Misplaced. The Insurers ignore much of the common-law authority on waiver and the duty to make prompt coverage determinations, preferring instead to dwell on a single statutory duty to which they are not subject – Section 3420(d). Contrary to the Insurers’ assertions, that Section 3420(d) is inapplicable here does not mean that common-law waiver cannot be inferred from their inaction, or that they have no obligation to ever respond to a policyholder’s requests for coverage. 53 1. The Traditional Common-Law Waiver Principles Apply When Claims Are Not Governed By Section 3420(d). Section 3420(d) provides that, with respect to a “death or bodily injury” claim, an insurer “shall give notice as soon as is reasonably possible” of its disclaimer of coverage. Since this case does not involve a death or bodily injury claim, Section 3420(d) is inapplicable – and KeySpan has never suggested otherwise.16 However, from the undisputed premise that Section 3420(d) does not impose a duty of prompt disclaimer in this case, the Insurers leap to the illogical conclusion that inaction “per se is not relevant” “outside the context of § 3420(d).” Insurers Br. 21. In other words, the Insurers claim that Section 3420(d) not only supplements waiver principles where it does apply, it sub silentio amends them in cases where it does not apply. That is not the law. Section 3420(d) and common law waiver principles are distinct. As this Court has recognized, the “‘common law’ defenses [of waiver and estoppel] are not precluded” by the enactment of Section 3420(d), “even when the statute is invoked.” Gross, 27 N.Y.2d at 269. Unlike the fact-intensive inquiry into intent required by waiver analysis, see supra Part I, Section 3420(d) creates an “absolute rule” that hinges solely on “the passage of time.” Gross, 27 N.Y.2d at 269. Thus, 16 In the Appellate Division, KeySpan expressly disavowed any reliance on Section 3420(d), and instead stated that it relied solely on common-law waiver principles as well as Section 2601. KeySpan App. Div. Br. 47 n.21. 54 where Section 3420(d) applies, it provides policyholders with an obvious improvement over reliance on common-law waiver by relieving them of the burden of arguing complicated questions of intent to a jury, and providing the benefit of an automatic time bar to the assertion of a late-notice defense. For example, if this case were governed by Section 3420(d), the Appellate Division could not have found a fact issue on waiver. Instead, confronted with the Insurers’ delay of between 15 months to four years, it would have been compelled to grant summary judgment in favor of KeySpan. See, e.g., Gross, 27 N.Y.2d at 269 (holding a seven-month delay unreasonable “as a matter of law” under the statute); George Campbell Painting v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 92 A.D.3d 104, 105 (1st Dep’t 2012) (four-month delay unreasonable as a matter of law). But that is not what happened below. All KeySpan argued, and all the Appellate Division concluded, is that the Insurers are not entitled to summary judgment. They remain free to persuade a jury that the circumstances of their lengthy and unexplained delay did not reveal an intent to waive their late-notice defense – an argument that would be irrelevant under the “absolute rule” of Section 3420(d). By the same token, KeySpan will have the opportunity to demonstrate not just that the Insurers unreasonably delayed, but that their inaction demonstrated their intent to waive the late-notice defense. 55 Given this Court’s holding that common-law waiver principles are “not precluded” by Section 3420(d), Gross, 27 N.Y.2d at 269, the common-law rule that inaction can be evidence of waiver is plainly applicable here. 2. Section 3420(d) Did Not Abrogate The Generally Applicable Duty To Make Prompt Coverage Determinations. The Insurers also contend that, because Section 3420(d) does not apply, they have no obligation to respond to their policyholders’ requests for coverage, and can indefinitely avoid making a coverage determination while their policyholders are buffeted by coercive demands from environmental agencies. But nothing in Section 3420(d) derogates from insurers’ longstanding duties at common law, let alone suggests that they are free to engage in any claims-handling practices they choose. Nor has this Court ever endorsed such a perverse rule. The only authority the Insurers cite to support their view is Preserver Insurance Co. v. Ryba, 10 N.Y.3d 625, 639 (2008), but that case provides no support for their extreme position. In Ryba, the lower court incorrectly relied on Section 3420(d) when it was doubly inapplicable: the policy in question was not delivered in New York, and the claim at issue was not for death or bodily injury. There is nothing surprising about this Court’s statement that “§ 3420(d) requires timely disclaimer only for denials of coverage ‘for death or bodily injury’”; the statute can “only” impose those requirements when it applies. This Court was not 56 presented with the question of an insurer’s duties outside the scope of Section 3420(d), and nowhere did it suggest that in such cases anything goes. Section 3420(d) does not displace the common-law duty to make prompt coverage determinations for categories of claims not governed by the provision. For Section 3420(d) to have this effect, the statutory text must plainly abrogate the common-law rules, which it does not do. See Arbegast v. Bd. of Educ. of S. New Berlin Cent. Sch., 65 N.Y.2d 161, 169 (1985) (Legislature is presumed to “have abrogated the common law only to the extent that the clear import of the language used in the statute requires.”). Nor does the legislative history support this result. The Insurers rely on evidence that the Legislature amended the original version of Section 3420(d) to clarify that it did not apply to all liability policies. Insurers Br. 25-26. That history only supports the unremarkable conclusion that the Legislature did not want an “absolute rule” providing heightened protections to policyholders in all cases – not that the Legislature wanted to free insurers of any obligation to make prompt coverage determinations in all other circumstances.17 17 The Insurers also rely on a 1975 memorandum to the Governor concerning the amendment to broaden the scope of Section 3420(d) beyond motor vehicle accidents. As an initial matter, it is doubtful that this memorandum by the Superintendent of Insurance is entitled to weight as “legislative history,” given its admission that the Insurance Department “was not consulted on the measure.” Mem. from Thomas A. Harnett, Super. of Ins., July 18, 1975, at 1. The Insurers draw the Court’s attention to Mr. Harnett’s discussion of estoppel principles, specifically the rule that absent prejudice from delay in disclaiming liability, “the (continued…) 57 Considering not just Section 3420(d) but the full extent of the legal landscape, the Appellate Division was plainly correct: the Insurers had an “obligation to issue a written notice of disclaimer on the ground of late notice as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability.” A8. That duty is reflected in the common law obligation of good faith and fair dealing, is codified in Insurance Law Section 2601 and implementing regulations, and has been uniformly recognized by New York courts. See supra Part II.B. This Court should reject the Insurers’ attempts to shield themselves from any obligation to make coverage determinations for claims involving property damage, and should instead allow a jury to decide whether their lengthy and unexplained inaction evinced an intent to waive a late-notice defense. 3. The Insurers’ Policy Arguments Against “Extending” The Duty To Make Prompt Coverage Determinations Miss The Mark. The Insurers contrive a number of policy arguments why Section 3420(d) should not apply “outside its legislatively mandated confines.” Insurers Br. 28. The premise of this argument is incorrect: KeySpan does not argue for an extension of Section 3420(d), but rather relies on well-established common law insurer is not estopped from disclaiming liability as a matter of law.” Id. at 2. But that statement plainly does not address whether waiver, a legal principle distinct from estoppel, can be established as a matter of fact based on delay. See Burt Rigid Box, 302 F.3d at 95 (waiver and estoppel “are distinct in New York insurance law”) (citing Albert J. Schiff Assocs., 51 N.Y.2d at 692). 58 rules. If that approach were going to cause the parade of horribles the Insurers allege, then those adverse consequences presumably would have materialized sometime during the generations that these rules have been in effect. In any event, no negative policy consequences would flow from reaffirming an insurer’s duty to act as responsible professionals by handling insurance claims promptly, or continuing to allow juries to infer waiver from an insurer’s prolonged failure to do anything to act on its defenses. The Insurers contend that allowing a jury to decide waiver here will create a “disclaim now or forever forfeit” rule, creating “a strong incentive” to deny claims despite “lack[ing] the full record.” Insurers Br. 31. But an insurer cannot waive a “known right” before the right is “known.” Thus, the very premise of the Insurers’ concern – that an insurer has insufficient information to make a coverage determination – defeats its conclusion that the insurer would be at risk of waiving a policy condition. The Insurers’ fundamental concern thus cannot be that waiver rules will require them to disclaim before knowing the relevant facts. What Insurers appear to fear instead is simply that “lay jur[ies]” (Insurers Br. 31) will properly apply the law in cases where an insurer has failed to make a prompt disclaimer and left the policyholder in the lurch for years, which is what happened here. But if their argument is that insurers require special protection from submitting bona fide fact 59 questions to “lay juries,” that is an argument that should be addressed to the Legislature; it is not a basis for manufacturing an exemption from common-law waiver rules. Tellingly, the Insurers do not even claim that their need to investigate excused their prolonged delay in disclaiming coverage here, during an extended period in which KeySpan was forced to deal with the DEC’s demands as best it could. The facts of this case thus offer no evidence of the purported evils of adhering to traditional waiver principles. Ultimately, the Insurers’ focus on the need to investigate claims distracts from the real incentive they should face: to conduct reasonable investigations, make prompt coverage determinations, and communicate their disclaimers to policyholders. The Insurers avoid putting their argument in these terms, because it makes clear that their only incentive is to do exactly what the law already requires. If common law waiver rules tend to promote compliance with the law and fairness to policyholders, that is hardly a public policy argument against those rules. The Insurers further argue that, in the context of excess liability policies in which there is no duty to defend, they should not be held to the normal rules of good-faith claims-processing. They reason that in such cases a policyholder does not need “immediate action from its insurer,” and an insurer should therefore be relieved from the responsibility from taking any action at all. Insurers Br. 32. But any insurance contract entitles the policyholder to fair treatment and certainty as to 60 whether it will have coverage. The need for such certainty is especially acute for policyholders faced with strict environmental liability, where failure to respond promptly to evolving agency demands “may result in the loss of substantial rights” and dramatically increase the ultimate cost of cleanup. Avondale Indus., Inc. v. Travelers Indem. Co., 887 F.2d 1200, 1206 (2d Cir. 1989); see also Colonial Tanning Corp. v. Home Indem. Co., 780 F. Supp. 906, 916-17 (N.D.N.Y. 1991). This Court has recognized that insurers’ corresponding interest in timely notice – based on their need to “make an early estimate of potential exposure” – applies equally to excess insurers. Argo Corp. v. Greater N.Y. Mut. Ins. Co., 4 N.Y.3d 332, 339 (2005); Amer. Home Assur. Co. v. Int’l Ins. Co., 90 N.Y.2d 433, 442-43 (1997). A policyholder confronted with potentially staggering environmental liability is equally entitled to make an early estimate of potential exposure, establish reserves, and develop a litigation or settlement strategy based on the level of coverage it can expect from its excess insurers. There is no basis in policy or fairness for adopting an asymmetrical regime in which an excess insurer is entitled to know where it stands but a policyholder is not.18 18 It is therefore unsurprising that the Insurance Department has stated that the duty to “promptly inform the claimant in writing of a determination . . . that the insurer is disclaiming liability because the policyholder breached the policy provisions” applies to excess insurers. See Mem. of Eric R. Dinallo, Superintendent of Insurance, Re: Stop-Loss Insurance, Prompt Claim Settlement, N.Y. General Counsel Opinion 4-17-2009. Moreover, the Insurers’ policy argument against a (continued…) 61 The Insurers are also incorrect to argue that a duty to make prompt coverage determinations should be limited to claims governed by Section 3420(d) because property damage claims require more extensive investigations than bodily injury claims. Insurers Br. 30. The Insurers concede that nothing in the statute or legislative history supports this justification, but nevertheless contend that it is “obvious even absent a full legislative record” that a coverage investigation for a bodily injury claim will “generally be straightforward” because the “claim typically arises from a single traumatic event, involving a short time period and easily ascertainable facts.” Id. That is incorrect. Investigations for bodily injury claims covered by Section 3420(d) – for example, claims for injuries suffered as a result of asbestos exposure—will often present complex factual questions of causation that must be investigated. In any event, the complexity of the investigation is no reason to relieve an insurer of the duty to make a prompt coverage determination. Instead, a jury can consider the complexity of the investigation in determining whether the insurer took an unreasonably long time to make a coverage determination. duty to disclaim in the context of excess liability policies would apply equally to cases decided under Section 3420(d), and yet courts apply the time bar of Section 3420(d) to excess insurers. See, e,g., Brabender v. Northern Assur. Co. of Am., 65 F.3d 269, 271 (2d Cir. 1995); Grow-Kiewit-MK-Maclean Grove v. Lexington Ins. Co., 232 A.D.2d 329 (1st Dep’t 1996). 62 Thus, there is no meaningful concern that denying the Insurers summary judgment will place undue pressure on insurers to “disclaim now or forever forfeit,” and no good reason for exempting excess insurers from their duty to respond to claims promptly and in good faith. The more serious concern in this case is with the Insurers’ approach, which would defeat the very purposes of the waiver doctrine in the insurance context. As this Court has explained, “[w]aiver evolved because of courts’ disfavor of forfeitures of the insured’s coverage which would otherwise result where an insured breached a policy condition, as, for instance, failure to give timely notice of a loss.” Albert J. Schiff Assocs., 51 N.Y.2d at 698. But in the Insurers’ view, any insurer can effect an end-run around this protection simply by issuing a boilerplate reservation-of-rights letter – and then proceed to do nothing until the policyholder is compelled to litigate. That result is inconsistent with insurers’ established duties, strips a jury of the power to draw reasonable inferences from insurers’ conduct after purporting to reserve their rights, and destroys a bulwark against the very forfeitures that this Court has long “disfavored.” 63 CONCLUSION The Appellate Division’s ruling on waiver should be affirmed. Respectfully submitted, ___________________________ Mark P. Gimbel COVINGTON & BURLING LLP The New York Times Building 620 Eighth Avenue New York, New York 10018-1405 (212) 841-1000 William F. Greaney Jay T. Smith COVINGTON & BURLING LLP 1201 Pennsylvania Avenue, N.W. Washington, DC 20004-2401 (202) 662-6000 jsmith@cov.com Counsel for Plaintiff-Respondent KeySpan Gas East Corporation Dated: December 5, 2013 /s/ Jay T. Smith