KeySpan Gas East Corporation, Respondent,v.Munich Reinsurance America, Inc. et al., Appellants.BriefN.Y.May 6, 2014APL-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 AMICUS CURIAE THE ENVIRONMENTAL ENERGY ALLIANCE OF NEW YORK, LLC d JOHN E. FAILLA MATTHEW J. MORRIS PROSKAUER ROSE LLP Eleven Times Square New York, New York 10036 Telephone: (212) 969-3000 Facsimile: (212) 969-2900 Attorneys for Amicus Curiae The Environmental Energy Alliance of New York, LLC March 14, 2014 i DISCLOSURE STATEMENT The Environmental Energy Alliance of New York, LLC (“EEANY”) has no parent companies, subsidiaries, or affiliates. ii TABLE OF CONTENTS Page DISCLOSURE STATEMENT ................................................................................... i THE INTERESTS OF THE AMICUS ...................................................................... 1 PRELIMINARY STATEMENT ............................................................................... 2 BACKGROUND ....................................................................................................... 9 ARGUMENT ........................................................................................................... 11 I. UNDER NEW YORK LAW, AN INSURER MAY WAIVE ENFORCEMENT OF POLICY CONDITIONS BY KNOWINGLY FAILING TO PERFORM LEGAL DUTIES OR ACT CONSISTENTLY WITH INDUSTRY NORMS, INCLUDING BY FAILING TO DISCLAIM COVERAGE PROMPTLY UPON LEARNING OF A BASIS TO DISCLAIM .................................................. 11 A. At Common Law, a Party May Waive a Right by Failing to Act When It Has a Duty to Act .................................................................. 11 B. Under New York Law, Insurers Have a Duty to Handle Claims Reasonably, Including to Disclaim Coverage within a Reasonable Time after Learning the Basis to Disclaim ...................... 14 C. Insurance Industry Professional Norms and Best Practices Likewise Foster an Expectation That Insurers Will Handle Claims Reasonably, Including by Promptly Communicating Coverage Decisions to Policyholders .................................................. 17 D. Insurance Law § 3420(d) Did Not Abrogate Insurers’ Common Law Duties .......................................................................................... 24 E. The Appellate Division Correctly Found Issues of Fact as to Whether Common Law Waiver Occurred When Insurers Failed to Disclaim Coverage within a Reasonable Time after Learning the Basis to Disclaim ........................................................................... 27 1. The Evidence Supports a Finding That Insurers Waived Their Late Notice Defense by Inaction. .................................... 27 iii 2. Blanket Reservation of Rights Letters Should Not Be Allowed to Be a Shield for Inaction by Insurers. ..................... 28 II. APPLYING COMMON LAW WAIVER WHERE WARRANTED WILL CURB UNREASONABLE CLAIM HANDLING PRACTICES .................................................................................................. 31 A. The Waiver Doctrine Provides a Necessary Remedy to Utilities and Other Insureds............................................................................... 31 1. Applying Waiver Where Appropriate Promotes Fairness and Efficiency. .......................................................................... 31 2. Estoppel Is Not a Substitute for Waiver. .................................. 35 B. Applying the Waiver Doctrine Is in the Public Interest ...................... 36 CONCLUSION ........................................................................................................ 38 iv TABLE OF AUTHORITIES Page(s) CASES 151 East 26th Street Assocs. v. QBE Ins. Co., 33 A.D.3d 452 (1st Dep’t 2006) ......................................................................... 13 Allstate Ins. Co. v. Gross, 27 N.Y.2d 263 (1970) ......................................................................................... 29 Am. Home Assurance Co. v. Int’l Ins. Co., 90 N.Y.2d 433 (1997) ......................................................................................... 32 Amrep Cor. v. Am. Home Assurance Co., 81 A.D.2d 325 (1st Dep’t 1981) ......................................................................... 13 Argo Corp. v. Greater N.Y. Mut. Ins. Co., 4 N.Y.3d 332 (2005) ........................................................................................... 32 Bi-Econ. Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187 (2008) ................................................................................... 14, 36 Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83 (2d Cir. 2002) ................................................................................. 35 Country-Wide Ins. Co. v. Preferred Trucking Servs. Corp., __ N.Y.3d __, 2014 WL 590502 (Feb. 18, 2014) ............................................... 25 E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436 (Del. 1996) ................................................................................... 23 Eighth Ave. Coach Corp. v. City of New York, 286 N.Y. 84 (1941) ............................................................................................. 18 First Fin. Ins. Co. v. Jetco Contracting Corp., 1 N.Y.3d 64 (2003) ............................................................................................. 25 Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P., 7 N.Y.3d 96 (2006) ................................................................................. 11, 12, 36 Isadore Rosen & Sons, Inc. v. Sec. Mut. Ins. Co. of N.Y., 31 N.Y.2d 342 (1972) ......................................................................................... 15 v K2 Investment Grp. LLC v. American Guarantee & Liability Ins. Co., __ N.Y.3d __, 2014 WL 590662 (Feb. 18, 2014) ............................................... 15 Kiernan v. Dutchess Cnty. Mut. Ins. Co., 150 N.Y. 190 (1896) ..................................................................................... 12, 25 Malca Amit N.Y. Inc. v. Excess Ins. Co., 258 A.D.2d 282 (1st Dep’t 1999) ....................................................................... 13 Mason-Henry Press v. Aetna Life Ins. Co., 146 A.D. 181 (4th Dep’t 1911) ........................................................................... 29 Preserver Ins. Co. v. Ryba, 37 A.D.3d 574 (2d Dep’t 2007), rev’d, 10 N.Y.3d 635 (2008) .............................................................................. 26 Preserver Insurance Co. v. Ryba, 10 N.Y.3d 635 (2008) ......................................................................................... 26 Rickerson v. Hartford Fire Ins. Co., 149 N.Y. 307 (1896) ........................................................................................... 18 S. & E. Motor Hire Corp. v. New York Indem. Co., 255 N.Y. 69 (1930) ............................................................................................. 12 Sillman v. Twentieth Century-Fox Film Corp., 3 N.Y.2d 395 (1957) ........................................................................................... 12 Skinner v. Norman, 165 N.Y. 565 (1901) ........................................................................................... 12 Weatherwax v. Royal Indem. Co., 250 N.Y. 281 (1929) ..................................................................................... 28, 29 William C. Atwater & Co., Inc. v. Panama R.R., 246 N.Y. 519 (1927) ........................................................................................... 18 Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185 (2000) ......................................................................................... 25 vi STATUTES AND RULES N.Y. Ins. Law § 2601(a)(3) ...................................................................................... 16 N.Y. Ins. Law § 3420 ............................................................................................... 29 N.Y. Ins. Law § 3420(d) ........................................................................ 24, 25, 26, 27 11 N.Y.C.R.R. § 216.4(a) ........................................................................................ 16 11 N.Y.C.R.R. § 216.4(b) ........................................................................................ 16 11 N.Y.C.R.R. § 216.5(a) ........................................................................................ 16 11 N.Y.C.R.R. § 216.6(c) ........................................................................................ 16 11 N.Y.C.R.R. § 216.6(d) ........................................................................................ 16 OTHER AUTHORITIES Brief for Appellant, Preserver Ins. Co. v. Ryba, 37 A.D.3d 574 (2d Dep’t 2007), rev’d, 10 N.Y.3d 635 (2008), (No. 2005-11373), 2007 WL 5210400 (Dec. 14, 2007) ..................................... 27 Brief for Respondent, Preserver Ins. Co. v. Ryba, 37 A.D.3d 574 (2d Dep’t 2007), rev’d, 10 N.Y.3d 635 (2008), (No. 2005-11373), 2008 WL 2229351 (Jan. 29, 2008) ...................................... 27 Reply Brief for Appellant, Preserver Ins. Co. v. Ryba, 37 A.D.3d 574 (2d Dep’t 2007), rev’d, 10 N.Y.3d 635 (2008), (No. 2005-11373), 2008 WL 2229352 (Feb. 11, 2008) ..................................... 27 Transcript of Oral Argument, Preserver Ins. Co. v. Ryba, 37 A.D.3d 574 (2d Dep’t 2007), rev’d, 10 N.Y.3d 635 (2008), (No. 2008-0097), 2008 WL 4177299 (Apr. 29, 2008) ....................................... 27 James J. Markham, The Claims Environment, (Ins. Inst. of Am., 1st ed. 1993) .............................................................. 20, 21, 22 1 George A. White, et al., Organizational Behavior in Insurance (Ins. Inst. of Am., 1st ed. 1992) ........... 22 vii Canons, Rules, and Guidelines of the CPCU Code of Professional Conduct, available at http://www.theinstitutes.org/doc/canons.pdf (last visited Mar. 12, 2014)......................................................................................... 18, 19, 22 Case 11-M-0034, Proceeding on Motion of the Commission to Commence a Review and Evaluation of the Treatment of the State’s Regulated Utilities’ Site Investigation and Remediation (SIR) Costs, 2011 WL 6764478 (N.Y.P.S.C. Nov. 3, 2011), available at http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId= {E1615A9A-C584-4ABA-8C30-1211FBD9A563} (last visited Mar. 12, 2014) ............................................................................................................... 9, 10 Ethics Guidelines, issued by The Society of Registered Professional Adjusters, available at https://www.rpa-adjuster.com/ethics.html (last visited Mar. 12, 2014) ................................................................................... 20, 22 N.Y. Pub. Serv. Comm’n, Order Concerning Costs for Site Investigation, and Remediation (N.Y.P.S.C. Nov. 28, 2012), available at http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId= {AC9EFACF-2A01-4629-9B7C-F5637530A026} (last visited Mar. 12, 2014) ................................................................................................................... 10 Unfair Property/Casualty Claims Settlement Practices Model Regulations, Model # 902 of the National Association of Insurance Commissioners, available at http://www.naic.org/store/free/MDL-902.pdf (last visited Mar. 12, 2014)..................................................................................................... 17 THE INTERESTS OF THE AMICUS The Environmental Energy Alliance of New York, LLC (“EEANY”) is a trade association of electric generating companies, transmission/distribution companies, and other providers of energy services in the State of New York. EEANY’s primary purpose is to support and enhance the efforts of its members in understanding and participating in New York State environmental statutes, regulations, policies and other environmental regulatory initiatives in order to permit them to more effectively formulate and achieve their business goals and proactively advocate cost-effective environmental regulations and policies. EEANY has a profound interest in the present case because its members1 depend on insurance to help manage costs associated with environmental liabilities and are confronted frequently with the practical problem of how to manage these costs when insurers’ unreasonable delay of coverage determinations has the effect of denying utilities the benefits of the coverage they purchased. Utilities provide an essential service to the public and are heavily regulated by the government. They also are responsible for completing long-term environmental remediation projects that require advance planning and funding. It is impossible to plan such projects and provide meaningful information to regulators when, as in this case, the 1 EEANY members participating in this Amicus Brief are Central Hudson Gas and Electric Corporation; Consolidated Edison Company of New York, Inc.; New York State Electric & Gas Corporation; and Orange & Rockland Utilities, Inc. 2 utility’s insurers fail to tell it whether they will provide coverage for many years and force the utility to commence litigation to find out. EEANY and its members thus confront an acute form of a problem that other insureds confront, which has a negative impact on utilities and, ultimately, the public they serve. For these reasons, EEANY, on behalf of regulated utilities in this state, has a strong interest in ensuring that the Court is fully informed of the problems caused by unwarranted delays by insurers in making coverage determinations and of the need to uphold common law waiver as a means to promote a fair and timely coverage determination process. PRELIMINARY STATEMENT This appeal provides a window on a serious legal problem that affects a vital interest of amicus EEANY and its members, and also on the playbook of unfair tactics that the insurance industry employs to deprive policyholders of the benefits of the insurance they purchase. Utilities, including the respondent here (“KeySpan”), owned sites that suffered environmental contamination in the past. In some cases the contamination occurred as far back as the nineteenth century, and the utility may not have owned or operated the site in fifty or a hundred years since the time of the contamination, but nevertheless the utility faces liability under federal or state law for the cost of remediation. A utility may discover that it is being held potentially responsible for conditions at a site it has not owned for 3 decades and may not even have known it once owned; it may then find that the present owner is unwilling to allow it access to the site; and it may face long periods in which environmental regulators appear uninterested in the site, followed by abrupt changes of policy and intensifications of regulatory pressure. Further, the remediation process is complex and difficult. Scientific testing and study to determine the scope and extent of environmental damage and to evaluate potential cleanup remedies is often difficult and takes a considerable period of time. Remediation thus is uncertain and costly, both financially and in terms of the managerial and planning demands it presents. These are all facts of life for utilities. The utility can defray the cost of remediation by raising rates charged to a utility’s customers and/or by purchasing and collecting on liability insurance that the utility had secured and paid for to cover such potential liability. Raising rates requires government approval. One significant obstacle to insurance recovery is that insurers often contend – as they did here – that the policyholder failed to give them prompt notice of the occurrence (i.e., the pollution) that led to the claim, or of the claim itself. Insurers almost always try to identify some agency action, in the over thirty years since CERCLA and other significant environmental statutes were enacted, about which the insured should supposedly have notified the insurer. From the point of view of a utility, the insurers’ contentions that such events 4 should have led the utility to reasonably expect that its insurance policy would be implicated is unrealistic, at best a pure example of 20-20 hindsight at work, and more often a completely disingenuous tactic to avoid coverage. Yet utilities are being held to a strict notice requirement and insurers need not show that they were prejudiced to avoid coverage based on late notice. Whether such late notice contentions are meritorious or not, they effectively deny utilities the benefits of the insurance coverage they purchased. The “sleep easy” protection against liabilities, known or unknown, that featured prominently in the insurers’ marketing campaigns and was the important protection for which utilities and other commercial policyholders bargained, is lost forever. Utilities cope as best they can with the cost of environmental remediation and with the fact that the insurance coverage for which they paid premiums often proves difficult and costly to enforce. But they must also cope with another serious problem: their insurers often do not tell them whether or not they intend to cover a claim, or to deny it based on late notice or some other ground, until literally years after the claim is submitted. Typically, after a claim is submitted, insurers issue a boilerplate reservation of rights letter identifying many possible grounds on which theoretically they might later disclaim coverage. Policyholders, as was true here with KeySpan, typically provide updates of developments, documents, reports, and other information that insurers may request. This 5 information, as here, provides everything necessary for insurers to decide whether or not to cover the claim or deny coverage. But insurers often do not investigate claims or bother to tell policyholders what they have decided for many years. Instead, the insurers sit and wait. As in this case, insurers take the position that a generic reservation of rights letter completely immunizes them from any risk of adverse consequences, unless they say or do something on which the policyholder relies or they deny coverage based on a specific ground, but not on others. If this were the law, insurers, as here, would have every incentive to do nothing to investigate claims or provide definitive coverage positions to policyholders. They would be free to lie in wait like a lurking predator, and strike the policyholder with a myriad of purported defenses once a policyholder tries to force its insurers to honor their promises. Not only are these tactics grossly unfair and inequitable, but they also significantly harm policyholders, and especially regulated public utilities that are entrusted with serving the public. While the insurers wait, the insured has no choice but to go ahead and try to resolve the underlying claim without knowing whether or not coverage will be available to defray it. Ironically, while strict notice requirements enable insurers to nullify coverage if a utility provides what a court finds to be late notice, insurers have nothing to lose by their delay tactics. Utilities must fund the remediation projects. Because they do not know whether 6 insurance will be forthcoming, they must factor these costs into requested rate increases in order to provide the funding for the projects while they confront the insurers. That can be a laborious process. If the insurer finally agrees to pay, the utility will then incur additional transaction costs to appropriately credit utility customers with the insurance proceeds. Thus, the transaction costs for utilities and their customers are increased far above what they would be if insurers proceeded without self-serving tactics that unreasonably delay coverage decisions. Throughout the process, the utility cannot plan or provide meaningful information to regulators. The insurer’s delay tactics deprive the utility of the peace of mind for which it bargained. That is exactly what happened in this case until KeySpan’s predecessor in interest, LILCO, sued its insurers, appellants herein (“Insurers”). After that action began, Insurers finally disclaimed coverage based on a late notice defense that they were aware of at least over a year (and in one instance four years) before they were sued. This appeal brings before the Court the question, which is critical to EEANY and its members, of whether the law affords an insured any remedy for the uncertainty and disruption it suffers when its carriers fail to take a position on coverage for a year or longer after they have all of the facts they need to know whether they have grounds to disclaim. 7 The Appellate Division answered that question in the affirmative. It held that there were issues of fact as to whether Insurers waived their late notice defenses by sitting silently for a year or more and doing nothing while LILCO fended for itself. And, in so doing, it also held that Insurers could not conclusively insulate themselves from the waiver claim simply by generating boilerplate reservation of rights letters. EEANY submits that those holdings were well founded in New York common law. As discussed in Point I, below, common law waiver may arise when a party fails to act under circumstances in which the other party to the agreement reasonably would expect the waiving party to assert a right. Waiver generally occurs in a context of mutual obligations or expectations; it is in that context that a party may express by action or inaction the intention not to enforce a right. When the contract is an insurance policy, the policyholder has a reasonable expectation that the insurer will process claims promptly and forthrightly. That expectation is grounded in New York common law and insurance statutes and regulations. It is also grounded in industry norms, under which insurance adjusters are expected to handle claims ethically and expeditiously. Both the laws and the industry norms under which insurers are held to a higher standard than other contracting parties are important to utilities because insurance is vital to them. 8 In light of the reasonable expectations of policyholders, if an insurer, possessing all the information it needs to decide that it has grounds to disclaim, chooses to sit and wait indefinitely, that choice constitutes a waiver. Recognizing that a trier of fact may find waiver under such circumstances is a way, consistent with settled law, of restoring some balance to a claim handling process that has become unfair due to the self-serving tactics of insurers who believe they can delay coverage decisions with impunity until their insured is forced to sue them. Common law waiver is a distinct doctrine from the remedy afforded in cases involving claims for death or bodily injury under Insurance Law § 3420(d), and that statute is neither the basis for the waiver here nor (as Insurers would have it) an implied preemption of common law waiver. In this case, the Appellate Division correctly recognized that there was an issue of fact as to whether common law waiver occurred. As discussed in Point II, the application of common law waiver has a sound practical and policy basis in insurance disputes of the kind that EEANY and its members often encounter. Insurers too often issue reservation of rights letters and then sit back and wait, even though they already have the information they need to decide whether to disclaim coverage. They do so (as here) on the pretext of needing to investigate, but then do not actually investigate. When the insured is a utility facing an environmental claim, it then faces an acute version of a 9 predicament shared by many other policyholders: it does not know whether insurance proceeds will be available to cover the claim, and this uncertainty undermines its ability to plan and resolve claims. The results are harmful not only to the insured but to the public, which, in cases like these, has a direct interest in the ability of utilities to conduct environmental remediations promptly and to offset the cost of the cleanup with insurance. Application of the waiver doctrine is a means of serving those interests and requiring insurers to perform their duties in good faith and communicate to policyholders important coverage decisions in a timely and reasonable manner. BACKGROUND In the interest of brevity, EEANY respectfully refers the Court to the detailed factual recital set forth in KeySpan’s appellate brief. Here, EEANY offers the Court additional background information about the difficulties the utility industry faces in managing its environmental cleanup obligations because of unfair claims handling practices of insurers. As found by a New York Public Service Commission administrative law judge, there are approximately 1,500 manufactured gas plant (“MPG”) sites in the United States, of which 156 are located in New York, the state with the largest number. Case 11-M-0034, Proceeding on Motion of the Commission to Commence a Review and Evaluation of the Treatment of the State’s Regulated 10 Utilities’ Site Investigation and Remediation (SIR) Costs, Recommended Decision, 2011 WL 6764478, at 10 (N.Y.P.S.C. Nov. 3, 2011) (“Recommended Decision”).2 The last MGP in New York was shuttered in 1972. Id. at 9. In their heyday in the late 19th and early 20th centuries, MGPs were a major source of power for lighting, heating and cooking. Id. Unfortunately, unbeknownst to anyone at the time (or for many decades thereafter), a by-product of their operation was the release of various substances now known to be hazardous, which, contrary to observation, study, and scientific understanding until very recently, had the potential to enter the soil and groundwater, and which now must be remediated under state and federal laws. Id. at 11-12. The cost of remediation in New York of the Site Investigation and Remediation (“SIR”) program from inception to completion is estimated to exceed $3.8 billion, or, based on recent worst-case estimates, as much as $5.5 billion. Id. at 15. Of that, utilities had spent approximately $1.95 billion as of 2011, of which they were still seeking to recover $813 million through rate increases, insurance, 2 The Recommended Decision is available at http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={E1615A 9A-C584-4ABA-8C30-1211FBD9A563} (last visited Mar. 12, 2014). Page references are to the text on the government website; the version on Westlaw is unpaginated. The Public Service Commission adopted the ALJ’s recommendation in an order dated November 28, 2012, which is available at http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={AC9EF ACF-2A01-4629-9B7C-F5637530A026} (last visited Mar. 12, 2014). 11 and third party contribution. Id. Although utilities have historically absorbed a large part of these costs through increased customer rates, they have relied on insurance proceeds for over ten percent of their expenditures to date. Id. at 38. The absence of the timely availability of such proceeds would inevitably negatively affect the rate that the utility customer would have to bear. ARGUMENT I. UNDER NEW YORK LAW, AN INSURER MAY WAIVE ENFORCEMENT OF POLICY CONDITIONS BY KNOWINGLY FAILING TO PERFORM LEGAL DUTIES OR ACT CONSISTENTLY WITH INDUSTRY NORMS, INCLUDING BY FAILING TO DISCLAIM COVERAGE PROMPTLY UPON LEARNING OF A BASIS TO DISCLAIM. A. At Common Law, a Party May Waive a Right by Failing to Act When It Has a Duty to Act. The Appellate Division recognized that insurers, like all contracting parties, may waive a right by failing to enforce it within a reasonable time, depending on the facts. (A. 7-8.) That holding was a straightforward application of settled New York law. It is elementary that “[c]ontractual rights may be waived if they are knowingly, voluntarily and intentionally abandoned”; 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’”; and that “the existence of an intent to forgo such a right is a question of fact.” Fundamental Portfolio Advisors, Inc. v. Tocqueville 12 Asset Mgmt., L.P., 7 N.Y.3d 96, 104 (2006) (citations omitted). As the case law illustrates, waiver is seldom, if ever, a unilateral act by one party that occurs in a vacuum; rather, it arises in the context of the interaction between the parties to a contract. See, e.g., id. at 105 (plaintiff waived enforcement of a noncompete agreement by encouraging certain conduct by defendant incompatible with enforcement of the agreement); Sillman v. Twentieth Century-Fox Film Corp., 3 N.Y.2d 395, 403 (1957) (waiver by failing to notify the other party within an agreed-upon period that its conduct would be treated as a breach of the parties’ agreement). The reason a party can waive a right by failing to assert it – rather than by express waiver – is that a contract creates mutual expectations and in that context inaction as well as action is meaningful to the parties as an expression of intent. Common law waiver cases involving insurance apply the same principles. Here, too, although a party may manifest its intent to waive a right in an almost infinite variety of ways, the constant in most cases is that parties to a contract assume duties to one another and, in that context of mutual expectations and responsibilities, they may waive a right expressly or impliedly, by action or inaction. See, e.g., S. & E. Motor Hire Corp. v. New York Indem. Co., 255 N.Y. 69, 73, 75 (1930) (where insurer was “under a duty to inquire” regarding facts affecting coverage, waiver could be inferred based on failure to conduct such 13 inquiry); Skinner v. Norman, 165 N.Y. 565, 570-71 (1901) (same); Kiernan v. Dutchess Cnty. Mut. Ins. Co., 150 N.Y. 190, 198 (1896) (insurer’s waiver could be inferred partly based on failure to claim a forfeiture “within a reasonable time”); 151 East 26th Street Assocs. v. QBE Ins. Co., 33 A.D.3d 452, 453 (1st Dep’t 2006) (waiver by failure to raise late notice defense for over three years after submission of claim); Malca Amit N.Y. Inc. v. Excess Ins. Co., 258 A.D.2d 282, 283 (1st Dep’t 1999) (waiver by waiting nine months after receipt of theft claim); Amrep Cor. v. Am. Home Assurance Co., 81 A.D.2d 325, 328-29 (1st Dep’t 1981) (fact issue whether insurer waived right to deny coverage based on misrepresentation in application where it waited five months after receipt of claim to issue disclaimer). As such cases illustrate, waiver may occur when, in circumstances where it would be reasonably expected to act, an insurer fails to act. Of course, a party to a contract may also waive a right when it has no (or minimal) duties to perform. But we submit that (1) most often, the waiver doctrine is an expression of courts’ recognition that parties to contracts express their intentions – including the intention to enforce a right or waive it – in a context determined by the responsibilities to one another that they assumed when they entered into the contract, and (2) this case is no exception. Thus, when the Appellate Division found an issue of fact as to whether Insurers waived the right to deny coverage 14 based on late notice, it necessarily and properly made that finding in light of the expectations the parties brought to the table when LILCO submitted its claim. B. Under New York Law, Insurers Have a Duty to Handle Claims Reasonably, Including to Disclaim Coverage within a Reasonable Time after Learning the Basis to Disclaim. Insurers owe numerous duties to their policyholders, which are founded in the insurance contract, the common law, and statutes and regulations, and which – together with all of the parties’ statements and actions – shape the context of mutual expectation within which waiver may occur. “As in all contracts, implicit in contracts of insurance is a covenant of good faith and fair dealing, such that ‘a reasonable insured would understand that the insurer promises to investigate in good faith and pay covered claims.’” Bi-Econ. Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187, 194 (2008) (citation omitted). As Bi-Economy illustrates, one aspect of the duty to investigate in good faith is the duty to conduct the investigation with reasonable promptness. See id. Contrary to Insurers’ contention, that duty is not confined to business interruption policies.3 It is equally 3 In their reply brief on this appeal (at 17-18), Insurers labored to argue that the duty the Court found in Bi-Economy for the insurer to evaluate the insured’s claim promptly was peculiar to business interruption coverage, rather than a principle applicable to insurance policies generally. But the Court did not state the overarching duty of good faith and fair dealing so narrowly, and purchasers of all kinds of insurance have the same need for “peace of mind” that the Court identified when it discussed that duty. 10 N.Y.3d at 194. That need is frustrated 15 integral to liability policies, where one of the cornerstones of this Court’s jurisprudence is the recognition that: the insurer’s obligation to act in good faith for the insured’s interest may be breached in other ways than by refusing or neglecting to defend a suit. It may be breached by neglect and failure to act protectively when the insured is compelled to make settlement at his peril; and unreasonable delay by the insurer, in dealing with a claim, may be one form of refusal to perform which could justify settlement by the insured. Isadore Rosen & Sons, Inc. v. Sec. Mut. Ins. Co. of New York, 31 N.Y.2d 342, 347 (1972). This holding merely recognizes that insurance contracts of all kinds are like other contracts: the parties reasonably expect prompt and forthright performance from one another.4 when insurers do not investigate and pay claims in good faith and with reasonable promptness, regardless of what kind of insurance the policyholder bought. There are some business interruption claims that do not involve special urgency (contrary to the premise of Insurers’ argument), and plenty of other claims that do. The measure of whether an insurer kept its promise “to investigate in good faith and pay covered claims,” id., varies from case to case, but that duty is present in every case. 4 In discussing the circumstances under which an insurer may waive defenses based on the failure of its insured to comply with policy conditions – the only issue here – EEANY has no occasion to address whether and how an insurer might waive by inaction the defense that a claim is not within the scope of coverage. Thus, the issue is not analogous to the issue presented in cases like the Court’s recent decision in K2 Investment Group, LLC v. American Guarantee & Liability Insurance Co., __ N.Y.3d __, 2014 WL 590662 (Feb. 18, 2014), which concerned the impact of the insurer’s conduct on the operation of policy exclusions, rather than on conditions precedent. 16 The same duty to handle claims reasonably and promptly is reinforced by statutes and regulations, which, to a large extent, codified common law principles. The law prohibits “unfair claim settlement practices,” which are defined to include, among other things, “failing to adopt and implement reasonable standards for the prompt investigation of claims.” Ins. Law § 2601(a)(3). Department of Financial Services regulations impose specific compliance timeframes for performance of various claims handling tasks. For example, the regulations require insurers, within 15 business days of receipt, to acknowledge in writing receipt of a claim, 11 N.Y.C.R.R. § 216.4(a); commence an investigation of a claim, 11 N.Y.C.R.R. § 216.5(a); and respond to all pertinent communications, 11 N.Y.C.R.R. § 216.4(b). Fifteen business days is likewise the timeframe to accept or deny a claim after receipt of proof of loss or other requested information. 11 N.Y.C.R.R. § 216.6(c). And the regulations require insurers to disclaim liability because of a breach by a policyholder “as soon as it is determined . . . that it is disclaiming liability because of a breach of policy provisions by the policyholder.” 11 N.Y.C.R.R. § 216.6(d). Although the statute and regulations do not provide a private right of action (and reliance on such a right is not necessary for or implicit in our analysis), they clearly confirm that insurers have legal duties to handle claims promptly, which are consistent with the case law. The presence of those duties is one important context 17 in which an insurer’s action or inaction may impliedly communicate its intent to enforce or not enforce a right. C. Insurance Industry Professional Norms and Best Practices Likewise Foster an Expectation That Insurers Will Handle Claims Reasonably, Including by Promptly Communicating Coverage Decisions to Policyholders. Failure to act when a party has a legal duty to act is not the only way waiver by inaction may arise. Waiver is broader; even in the absence of a legal duty, a jury could find a waiver where a party acts, or fails to act, in a manner contrary to industry norms, custom and practice. The regulations reviewed above point to further examples of how the broader context of activity within an industry shapes the expectations in light of which a waiver may occur. The regulations are substantially similar to the Unfair Property/Casualty Claims Settlement Practices Model Regulations, Model # 902 of the National Association of Insurance Commissioners (“NAIC”).5 NAIC’s effort to encourage codification of claims handling standards parallels the activities of industry and professional groups that have developed voluntary norms for handling claims. Those norms, and the industry customs and practices that they inform, are another significant source of the expectation policyholders have that insurers will 5 Model # 902 is available at http://www.naic.org/store/free/MDL-902.pdf (last visited Mar. 12, 2014). 18 process claims promptly and forthrightly. This is true even when that expectation is not directly rooted in a legal duty, although generally the expectations fostered by industry norms, custom and practice and by the common law are mutually- reinforcing.6 The Canons, Rules, and Guidelines of the CPCU Code of Professional Conduct (“CPCU Code”) are a case in point.7 Promulgated by the American Institute for Chartered Property Casualty Underwriters, perhaps the foremost credentialing body in the property and casualty insurance industry, the CPCU Code sets forth multiple canons and rules binding on holders of the prestigious Chartered Property Casualty Underwriters (“CPCU”) credential. Those canons and rules express and enforce the industry’s recognition that its practitioners have responsibilities to their customers and the public that go beyond the ethics of the 6 Although it is too soon to anticipate evidentiary issues that may arise when the issue of waiver is tried, reference to industry norms and customs may be highly appropriate in that context. It is well settled that the “usage of a particular business when it is reasonable, uniform, well settled, not in opposition to the fixed rules of law, not in contradiction of the express terms of the contract, is deemed to form a part of the contract and to enter into the intention of the parties.” Rickerson v. Hartford Fire Ins. Co., 149 N.Y. 307, 315-16 (1896); see also Eighth Ave. Coach Corp. v. City of New York, 286 N.Y. 84, 89 (1941) (concluding that the “situation and circumstances” of the parties confirmed the Court’s construction of an agreement); William C. Atwater & Co., Inc. v. Panama R.R., 246 N.Y. 519, 524 (1927) (“The court should examine the entire contract and consider the relation of the parties and the circumstances under which it was executed.”). 7 The CPCU Code is available at http://www.theinstitutes.org/doc/canons.pdf (last visited Mar. 12, 2014). 19 marketplace and beyond the terms, narrowly construed, of individual insurance policies. For example, Canon 1 provides that “[i]nsurance professionals should endeavor to place the public interest above their own,” and is accompanied by a rule that requires CPCUs to accord claimants “prompt, equitable, and otherwise fair treatment.” CPCU Code Canon 1 & R1.1. Canon 3 requires insurance professionals to “obey all laws and regulations” and “avoid any conduct or activity that would cause unjust harm to others.” CPCU Code Canon 3. Its accompanying rules make clear that these principles are not limited to passive compliance with the law, but rather entail positive obligations: R3.1: A CPCU shall exercise the utmost good faith in the conduct of business or professional activities…. A CPCU shall not willfully misrepresent or conceal any fact or information, or fail to furnish any fact or information that is material to the business or professional activity. R3.2: A CPCU shall not allow the pursuit of financial gain or other personal benefit to interfere with the exercise of sound professional judgment and skills. CPCU Code R3.1, 3.2. Other Code provisions add that professionals “should be diligent in the performance of their occupational duties and should continually strive to improve the functioning of the insurance mechanism” (id. Canon 4) and should “maintain dignified and honorable relationships with those whom they 20 serve” (id. Canon 6). In short, the CPCU Code expresses a professional norm of claims handling incompatible with stalling the process or misleading the claimant. The Ethics Guidelines issued by the Society of Registered Professional Adjusters (“Ethics Guidelines”) embody the same values and aspirations.8 Among other things, they state that: The work of adjusting insurance claims is a profession of public trust. Accordingly, RPA’s must maintain a standard of integrity that will promote the goal of building public confidence and trust in the insurance industry. Ethics Guidelines. They also state that registered professional adjusters “will seek only information they believe to be relevant, timely and accurate,” and that they “will not place the interests of their employer above those of the insured.” Id. The instructional literature used in training claims representatives reinforces the same principles. For example, the standard industry textbook for claims handlers, which is used to train for an Associate in Claims designation, advises: The primary duty of the claim representative is to deliver the promise to pay. Therefore, the claim representative’s chief task is to seek and find coverage, not to seek and find coverage controversies or to deny or dispute claims…. The claim professional handling claims should honor the company’s obligations under the implied covenant of good faith and fair dealings. 8 The Ethics Guidelines are available at https://www.rpa-adjuster.com/ethics.html (last visited Mar. 12, 2014). 21 James J. Markham, The Claims Environment 13 (Ins. Inst. of Am., 1st ed. 1993). Of particular interest here, Markham repeatedly acknowledges that prompt investigation and communication with policyholders are among the basic norms of the profession, and that these norms go above and beyond the duties imposed by policy language or law: It is beyond policy requirements but within the duties of the professional claim representative to provide promptly all benefits due the policyholder under the terms of the contract, provided there are no indications of fraud. Id. at 374-75. Markham also observes that “the basics of good claim handling” include “prompt, knowledgeable, and thorough investigation, evaluation and settlement.” Id. at 249. Significantly, in contrast to Insurers here, Markham acknowledges that a reservation of rights letter is not a talisman that wards off forever the insurer’s duty to resolve claims promptly and forthrightly: Neither the nonwaiver agreement nor the reservation of rights letter gives the insurer a license to delay the claim handling. All issues of coverage must be investigated and quickly resolved. Id. at 34. Further, as another Insurance Institute of America publication observes, the relationship between the parties to an insurance policy is one of “utmost good faith”: The business of insurance, perhaps more than any other, is based on trust and commitment. Insurance products are intangible and simply reflect a promise on the part of insurance companies to indemnify 22 insureds for financial loss if an insured event occurs in the future. The contract between the insurer and the insured is a contract of utmost good faith and requires honesty and truth from both parties. 1 George A. White, et al., Organizational Behavior in Insurance 62 (Ins. Inst. of Am., 1st ed. 1992). The norms of good claim handling practice expressed in the CPCU Code, the Ethics Guidelines, The Claims Environment and similar texts are part of the context of mutual expectations between insurers and policyholders within which the question of waiver arises. Behind the development of such norms lies the industry’s realization that the insurer-insured relationship is unlike other contractual relationships. Insurance policies are generally contracts of adhesion, and are unlike transactions “between parties of comparable bargaining power.” Markham, The Claims Environment, at 5. They are also exceptional in that the policyholders who purchase them do so knowing that the promise to pay is “conditional” and not “certain to ever be performed,” but accept the bargain anyhow in order to obtain “peace of mind.” Id. That bargain is acceptable if insurers adhere to their professional norms, but if they do not, the vulnerability of the policyholder facing a claim is extreme. Furthermore, the conditions under which insurance becomes payable create disparate incentives that may exacerbate the vulnerability of the insured. As the Supreme Court of Delaware has commented: 23 Insurance is different. Once an insured files a claim, the insurer has a strong incentive to conserve its financial resources balanced against the effect on its reputation of a ‘hard-ball’ approach. Insurance contracts are also unique in another respect. Unlike other contracts, the insured has no ability to ‘cover’ if the insurer refuses without justification to pay a claim. Insurance contracts are like many other contracts in that one party (the insured) renders performance first (by paying premiums) and then awaits counter-performance in the event of a claim. Insurance is different, however, if the insurer breaches by refusing to render the counter-performance. In a typical contract, the non-breaching party can replace the performance of the breaching party by paying the then-prevailing market price for the counter- performance. With insurance this is simply not possible. E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436, 447 (Del. 1996) (footnotes omitted). The disparity between the incentives insurers and policyholders have when a claim is made and the resources available to them at that time is one of the reasons that insurers must be held to a higher standard – and, at minimum, that the professional norms they aspire to follow are a necessary part of the context in which the issue of waiver should be adjudicated. And, as any potential policyholder knows, insurance company advertising is awash with suggestions that, like a good neighbor, the carrier will be there with support in its policyholder’s time of need. Those assurances, too, are part of the context of expectations within which waiver may occur. As discussed further below, common law remedies like the waiver doctrine are important because in many contexts (including cases like this one involving environmental claims, which are of acute interest to EEANY, but not limited to 24 such cases), insurers often do not handle claims promptly and forthrightly. But even in the absence of bad faith, the bottom line is that claims handling occurs in a context of mutual expectations between insurer and insured, and those expectations, in turn, determine whether and when a waiver arises. D. Insurance Law § 3420(d) Did Not Abrogate Insurers’ Common Law Duties. On this appeal, Insurers have cited the Insurance Law in an effort to confine the scope of the waiver doctrine. Their contention is that because Insurance Law § 3420(d) requires insurers to disclaim based on late notice “as soon as is reasonably possible” when the underlying claim is for death or bodily injury, it follows that when the underlying claim is for any other kind of liability, there is no “duty of prompt disclaimer.” (E.g., Insurers’ opening brief at 22.) To be clear, EEANY (like KeySpan) does not contend that the requirement set forth in § 3420(d) applies in all cases. Nor, we submit, would such an extension of the statutory standard be necessary to sustain the conclusion the Appellate Division reached here. Rather, the common law rule on waiver is sufficient to effectuate the intentions of insurers and policyholders, provided it is not confined within the overly narrow limits, unwarranted by the case law, that Insurers advocate. For example, the cases cited in Point I.A., above, at pages 11-13, were all common law cases where the underlying claims did not involve death or bodily injury. 25 Furthermore – and contrary to the implication of Insurers’ argument – it is clear that in creating an enhanced statutory remedy for policyholders facing death or bodily injury claims, the Legislature certainly did not diminish the scope of the existing common law remedies applicable where other kinds of claims are at issue. Under § 3420(d), there are essentially only two issues: whether the insurer “delay[ed] in giving written notice of disclaimer,” and, if it did, whether it met “the burden of justifying the delay.” First Fin. Ins. Co. v. Jetco Contracting Corp., 1 N.Y.3d 64, 69 (2003). Thus, the statute reduces the insured’s prima facie case to a single element (whether the insurer delayed giving notice of disclaimer) and puts the burden on the insurer to justify its delay.9 By contrast, the elements a proponent of common law waiver must establish include whether the opposing party intended to waive its right, which necessarily entails establishing that it had “full knowledge of all the facts” relevant to that right. See, e.g., Kiernan, 150 N.Y. at 195. That is obviously a different (and steeper) burden than the statute places on the proponent of coverage. That difference is explained by legislative concern about problems that often arise in the personal injury context, such as the impact of 9 The Court recently provided guidance on the circumstances under which an insured’s non-cooperation may excuse an insurer’s delay in disclaiming under § 3420(d). See Country-Wide Ins. Co. v. Preferred Trucking Servs. Corp., __ N.Y.3d __, 2014 WL 590502 (Feb. 18, 2014). Because the present case is not statutory, and also because there is no non-cooperation issue in this case, Country- Wide is inapposite here. 26 a denial of coverage on injured third party claimants. See, e.g., Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 190 (2000). But the fact that the Legislature chose to augment the remedies available in personal injury and wrongful death coverage cases does not mean it intended to detract from the remedies otherwise available in other insurance cases. No such intention is expressed in the statute, and it clearly does not preclude the possibility that an unreasonable delay in disclaiming coverage may be a fact that supports a claim of common law waiver, assuming the evidence establishes the remaining elements of waiver. Insurers contend that the Court eliminated common law waiver based on delay in disclaiming in Preserver Insurance Co. v. Ryba, 10 N.Y.3d 635, 642 (2008), where it stated that “Insurance Law § 3420(d) requires timely disclaimer only for denials of coverage ‘for death or bodily injury.’” But Ryba merely addresses where § 3420(d) does and does not apply; it does not address, much less exhaustively delimit, the range of facts that may support a claim of common law waiver when the statute does not apply. In fact, neither the Appellate Division in its Ryba decision nor the parties in their briefs on the appeal from that decision to this Court made any attempt to invoke common law waiver, so this Court had no occasion to address the doctrine.10 10 See Preserver Ins. Co. v. Ryba, 37 A.D.3d 574 (2d Dep’t 2007), rev’d, 10 N.Y.3d 635 (2008), and the briefs and argument before this Court: 2007 WL 27 In short, the debate about § 3420(d) is a red herring: no contention is being advanced on behalf of policyholders that the statutory requirement should be imported into cases that do not involve death or bodily injury; no such importation is necessary for timing to be considered in common law waiver cases involving other kinds of coverage; and there is no basis to assume that the statute is intended to preclude consideration of the timeliness of disclaimers in such cases. E. The Appellate Division Correctly Found Issues of Fact as to Whether Common Law Waiver Occurred When Insurers Failed to Disclaim Coverage within a Reasonable Time after Learning the Basis to Disclaim. 1. The Evidence Supports a Finding That Insurers Waived Their Late Notice Defense by Inaction. Because common law waiver depends on the expectations the parties reasonably have of one another, the question of whether an insurer intended to waive the right to enforce policy conditions against its insured depends on the law applicable to their contract as well as its specific terms and conditions and the actual communications between the parties. Here, EEANY as amicus will not review in detail the facts presented by KeySpan in its brief. Suffice it to say that on this record, a trier of fact could conclude that LILCO provided notice of claim 5210400 (appellant’s brief, Dec. 14, 2007); 2008 WL 2229351 (respondent’s brief, Jan. 29, 2008); 2008 WL 2229352 (appellant’s reply, Feb. 11, 2008); 2008 WL 4177299 (oral argument transcript, April 29, 2008). 28 for the sites at issue in late 1994; Insurers requested additional information in some instances, which LILCO provided in 1995 and early 1996; Insurers possessed the information based on which they ultimately disclaimed by January 1996; and they did not finally disclaim based on late notice until over a year later, after LILCO sued them. Indeed, one Insurer, Century Indemnity Co., waited until nearly four years after the initial notice of claim before it finally asserted late notice as a defense in a pleading in 1999. (SA. 13, 64 ¶ 24.) What the record does not show is why Insurers waited so long to disclaim, or that they ever did anything whatsoever to “investigate.” 2. Blanket Reservation of Rights Letters Should Not Be Allowed to Be a Shield for Inaction by Insurers. Insurers rely heavily on the fact that they issued reservation of rights letters. The cases cited by Insurers merely state that if an insurer defends under a reservation of rights, its doing so is not construed as a waiver when the policyholder accepts the benefit of the defense with knowledge of, and either actual or tacit agreement with, the insurer’s reservation of rights. For instance, in Weatherwax v. Royal Indem. Co., 250 N.Y. 281, 287 (1929), the Court held that by conducting the insured’s defense under a reservation of rights, the insurer did not waive its late notice defense, in light of the insured’s “tacit acquiescence” in the reservation of rights. As the Court added: 29 This was done at successive stages. The papers in the lawsuit were accepted with a reservation of all rights, and the answers were interposed with a warning, prompt and unequivocal, that the insurer would withdraw if it found that it had been prejudiced by the dilatory notice. Id. Obviously this is a far cry from stating the rule Insurers advocate here – namely, that a single reservation of rights letter, delivered when the insurer is doing nothing for the policyholder, inoculates it for all time against a finding of waiver. Allstate Insurance Co. v. Gross, 27 N.Y.2d 263, 269 (1970), which Insurers cite repeatedly, is equally unavailing. There, in an Insurance Law § 3420 case, the Court stated in dictum that reservation of rights by defending insurer are “effective … against the defense of waiver” in non-statutory cases. The case the Court cited for that proposition, Mason-Henry Press v. Aetna Life Insurance Co., 146 A.D. 181, 186-88 (4th Dep’t 1911), was another case in which the insurer provided and the insured accepted a defense. The key to the waiver analysis in Mason-Henry, as in Weatherwax, was not that the insurer reserved its rights, but that the insured accepted the defense and agreed to the reservation of rights. It is the insured’s conduct of acceptance and agreement that affected waiver. Of course an insurer can state that specific contractually-mandated conduct is not intended to waive defenses to other contractual obligations, and if the insured accepts the benefit of the insurer’s performance, it, in effect, waives any claim of waiver by the insurer. 30 And obviously under those circumstance the problem of insurer neglect exemplified by the present case does not arise. But cases like Weatherwax do not mean that issuance of a reservation of rights letter provides an insurer a defense in all circumstances, including against the inference of waiver that may arise when, by inaction, it departs from the expectations that arise from law and industry norms, custom and practice. And, of course, Insurers here are excess insurers that did not provide a defense, so cases holding that an insurer may defend under a reservation of rights without waiver are inapplicable here. Moreover, Insurers’ letters (e.g., A. 179-82) are all too typical of the kind of boilerplate that carriers resort to when they intend not to conduct a prompt investigation, but merely to wait and see. Even if an insurer issues a reservation of rights letter in good faith, doing so should not enable it to sit on the fence indefinitely. Rather, insurers are obligated to do what they say they are doing: cooperate with their policyholders to find out what they need to know to make a coverage determination, make it, and promptly notify the insured of it. There is not an iota of evidence in the record that Insurers did any of this. Yet they surely knew it was what LILCO expected of them and that LILCO needed to resolve the regulatory claims it faced and know whether or not it had insurance coverage to help meet the costs of those claims. The Appellate Division appropriately concluded that under all the circumstances, there is an issue of fact whether 31 Insurers waived their late notice defenses by failing to raise them within a reasonable time once they knew the basis for them. II. APPLYING COMMON LAW WAIVER WHERE WARRANTED WILL CURB UNREASONABLE CLAIM HANDLING PRACTICES. A. The Waiver Doctrine Provides a Necessary Remedy to Utilities and Other Insureds. 1. Applying Waiver Where Appropriate Promotes Fairness and Efficiency. Policyholders in general have a legitimate and important interest in knowing where they stand with their insurers, even with excess insurers before damages reach the excess layers. That interest is particularly acute for policyholders in the energy sector, like EEANY’s members, because the industry is exposed to the potential of environmental claims and other significant liability exposures, and it relies on insurance to enable it to manage the resulting risk. As discussed in the Background section above, the cost of remediating contaminated sites is substantial – billions of dollars in New York State alone. To meet these costs, utilities can recover insurance or raise rates. The need to unnecessarily raise rates when the utility has purchased insurance to cover these liabilities is an unattractive option. The better option is for insurers to make fair and timely coverage determinations. It follows that utilities, like policyholders in general, need their insurers to handle claims fairly, including disclaiming coverage within a reasonable time 32 when warranted, and otherwise agree to pay within a reasonable time. Requiring insurers to make these decisions promptly helps policyholders in many ways. It enables them to plan for environmental litigation and remediation and set reserves knowing what insurance funding, if any, will be available. It also enables them to administer and settle claims based on the same knowledge. In this context, it is ironic that Insurers argue that strict enforcement of notice requirements against policyholders is justified because it helps insurers to evaluate exposure, establish adequate reserves, and settle claims. (Insurer’ Opening Brief at 12-13, citing Argo Corp. v. Greater N.Y. Mut. Ins. Co., 4 N.Y.3d 332, 339 (2005).) Those are exactly the same interests that are served by holding insurers, in turn, to the requirement that they investigate and make coverage determinations promptly. Applying the common law waiver doctrine is a way, consistent with New York law, to preserve a measure of balance in the standards to which carriers and policyholders are held. It is also ironic that Insurers argue repeatedly that they should not face any risk of waiver given that they were excess insurers with no duty to defend and whose policies sat above primary coverage that was not yet exhausted. First, when this Court held that excess insurers should benefit from being able to hold their insureds to strict notice requirements, it did so based on an analysis that emphasized that excess insurers had the same planning and participation needs as primary insurers. See Am. Home Assurance Co. v. Int’l Ins. Co., 90 N.Y.2d 433, 33 441-42 (1997). By the same token, policyholders have similar needs to plan that make it reasonable for them to expect excess insurers like primary insurers to promptly use the information their insureds are required to promptly furnish. In any event, the difference between primary and excess insurers is not a reason excess insurers should be relieved of the risk of waiver, but merely a consideration their counsel may present to the trier of fact. Further, where a claim cannot be settled, knowing where its insurer stands on the claim enables the insured to determine to what extent it must expend time and effort to keep the insurer abreast of developments. Keeping an insurer informed and involved is a costly process and a risky one, because insurers and policyholders do not necessarily have common interests. An insured may be reluctant to jeopardize evidentiary privileges by disclosing attorney-client communications or attorney work product to its insurers, with whom it may have an adversarial relationship, yet know that if it does not make the disclosure, an insurer may argue that it forfeited coverage by violating its duty to cooperate with the insurer. Policyholders thus must walk a tightrope while their insurers decide whether to accept or deny a claim. Even where the interaction with the carrier does not jeopardize evidentiary privileges, it entails at least the cost of the time spent by management and counsel keeping insurers abreast of developments – an 34 expenditure insureds should not have to make if their insurers have already effectively decided to deny coverage. Requiring timely notice of disclaimer enables insureds to resolve underlying liabilities more promptly. An insured that receives clear and timely guidance from its insurer knows whether it is free to settle with the underlying claimant or must build insurer participation and consent into the settlement process. For these reasons, insureds need to be able to rely on the doctrine of waiver as a lever to counteract the inertial tendency of insurers to wait and see rather than provide a prompt coverage determination. The risk of being found to waive defenses such as late notice is sometimes the only inducement insurers have to conduct a real investigation and make a decision. Requiring insurers to timely disclaim is a matter of fundamental fairness. Insurance claims should not be adjusted on a whipsaw approach that holds policyholders to strict claim reporting obligations but allows insurers to wait before investigating and communicating a coverage position until they see how serious the underlying cases are or whether insureds run afoul of another policy condition or exclusion. This case is typical of what happens in coverage disputes involving environmental claims arising from contamination at MGPs. Insurers ultimately disclaimed because, after a series of communications with regulators in the 1980s and early 1990s – none of which was a claim – and in the awareness that the DEC 35 was adopting increasingly activist policies, LILCO voluntarily undertook testing and became aware of contamination by late 1993 or early 1994. (A. 17-32, 46-47.) The claim was submitted in late 1994 and Insurers had all the information they needed to disclaim by late 1995 (and the London Insurers accordingly denied coverage at that time). (SA. 26-27, 119-39, 140-41, 146-47.) Yet Insurers sat on the information for over a year longer, and perhaps would have sat on it for many more years if they had not been sued. There was no reasonable basis for such delays. Insurers say the rationale for letting them wait to disclaim is so that they can have time to investigate, but they rarely do, and did not in this case. 2. Estoppel Is Not a Substitute for Waiver. In this case, Insurers have argued that it is unnecessary to apply waiver because the doctrine of estoppel provides the only remedy policyholders need for dilatory or misleading claims handling practices. However, the doctrines are distinct, and estoppel is not necessarily a substitute for waiver. Estoppel, as Insurers themselves contend (for instance, in their opening brief at 17-18 and 37- 38) requires proof that the insured relied on some representation the insurer made and suffered prejudice as a result. See, e.g., Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83, 95 (2d Cir. 2002). Such proof may be difficult if not impossible, for instance, where the insurer simply remains silent and bides its time, or where the prejudice consists of intangible but significant detriments such as 36 having to make decisions about how to handle a claim without knowing what funds are available to cover it. Enforcing the waiver doctrine may be the only way to ensure that policyholders obtain the benefit of their insurance when they need it. Furthermore, in asking the Court to graft a prejudice requirement on to the waiver doctrine, Insurers are trying to alter New York law, which has never identified such a requirement as an element of waiver. See, e.g., Fundamental Portfolio Advisors, 7 N.Y.3d at 104. In short, dilatory claim handling practices such as those which Insurers engaged in here, and which they are now asking the Court to condone, deprive policyholders of the peace of mind they bargained for – the essence of insurance. See Bi-Economy, 10 N.Y.3d at 194. Applying the waiver doctrine will help restore that peace of mind. B. Applying the Waiver Doctrine Is in the Public Interest. The benefits of applying the waiver doctrine in cases like this one extend not only to the policyholders directly concerned, but also to the general public. As noted above, utilities like KeySpan and the members of EEANY bought insurance for years because they anticipated that they might incur various kinds of liabilities, including liability for environmental contamination. If insurers are required to make coverage determinations promptly, utilities in turn will be able to conduct 37 environmental remediation expeditiously and return the sites to beneficial uses. The benefit of this to the public is clear. Having certainty about coverage has other positive effects that ultimately serve the public interest. If a utility knows what insurance funding is available for immediately mandated cleanup projects, it is in a better position to judge what other funds are available for mandatory projects that are less pressing and voluntary projects that may benefit the environment. Conversely, if the funding is uncertain because insurers are able to delay making a determination with impunity, a utility’s flexibility in balancing such priorities is diminished. The underlying investigations, lawsuits, and remediations may last a decade or longer, and if a utility must conduct them at multiple sites (as was the case here), the managerial problems can be enormous. Under these circumstances, and in light of the tactics insurers commonly employ, the waiver doctrine provides a remedy necessary for policyholders, beneficial to the public, and grounded in New York law. 38 CONCLUSION For all of the foregoing reasons, the Appellate Division’s ruling on waiver should be affirmed. Dated: New York, New York March 14, 2014 Respectfully submitted, PROSKAUER ROSE LLP /s/ John E. Failla John E. Failla Matthew J. Morris Eleven Times Square New York, NY 10036 (212) 969-3000 jfailla@proskauer.com Attorneys for Amicus Curiae The Environmental Energy Alliance of New York, LLC