KeySpan Gas East Corporation, Respondent,v.Munich Reinsurance America, Inc. et al., Appellants.BriefN.Y.May 6, 2014To be Argued by: JONATHAN D. HACKER Pro Hac Vice (Time Requested: 30 Minutes) APL 2013-00216 New York County Clerk’s Index No. 604715/97 Court of Appeals of the 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. JOINT REPLY BRIEF FOR DEFENDANTS-APPELLANTS JONATHAN D. HACKER, ESQ. O’MELVENY & MYERS LLP 1625 Eye Street, NW Washington, DC 20006 Tel.: (202) 383-5300 Fax: (202) 383-5414 LAWRENCE A. NATHANSON, ESQ. SIEGAL & PARK 533 Fellowship Road, Suite 120 Mount Laurel, New Jersey 08054 Tel.: (856) 380-8900 Fax: (856) 380-8901 JOHN L. ALTIERI, JR., ESQ. BOUTIN & ALTIERI, P.L.L.C. P.O. Box 630 Carmel, New York 10512 Tel.: (845) 306-7076 Fax: (866) 585-9604 Attorneys for Defendant-Appellant Century Indemnity Company (For Continuation of Appearances See Inside Cover) Date Completed: December 23, 2013 MICHAEL L. GIOIA, ESQ. LANDMAN CORSI BALLAINE & FORD P.C. 120 Broadway, 27th Floor New York, New York 10271 Tel.: (212) 238-4800 Fax: (212) 238-4848 – and – ROBERT J. BATES, JR., ESQ. BATES CAREY NICOLAIDES LLP 191 North Wacker Drive, Suite 2400 Chicago, Illinois 60606 Tel.: (312) 762-3100 Fax: (312) 762-3200 Attorneys for Defendant-Appellant Munich Reinsurance America, Inc. ROBERT F. WALSH, ESQ. WHITE AND WILLIAMS LLP One Penn Plaza, Suite 4110 New York, New York 10119 Tel.: (212) 244-9500 Fax: (212) 244-6200 Attorneys for Defendant-Appellant Northern Assurance Company of America TABLE OF CONTENTS Page -i- INTRODUCTION .................................................................................................... 1 ARGUMENT ............................................................................................................ 4 A. New York Courts Routinely Resolve Claims Of Waiver At The Summary Judgment Stage .................................................................... 4 B. The Summary Judgment Record Does Not Permit A Waiver Finding .................................................................................................. 5 C. KeySpan’s Arguments Do Not Establish Any Basis For A Waiver Finding On This Record .......................................................... 7 1. KeySpan’s Waiver Argument Depends On A General Obligation To Deny Coverage “As Soon As Reasonably Possible” ..................................................................................... 7 2. There Is No New York Precedent Finding Waiver On A Comparable Factual Record ..................................................... 10 3. The Common Law Does Not Impose A General Obligation On All Insurers To Deny Coverage “As Soon As Reasonably Possible” ......................................................... 14 4. Respecting A Specific Reservation Of Rights Does Not Permit Insurers To Stand Silent “Forever” .............................. 19 D. The Policy Dispute Over Whether § 3420(d)’s Prompt- Disclaimer Standard Should Apply To All Insurers Is A Legislative Matter ............................................................................... 21 CONCLUSION ....................................................................................................... 24 TABLE OF AUTHORITIES Page(s) ii CASES Agway, Inc. v. Agway Petroleum Corp., 1993 WL 771008 (N.D.N.Y. Dec. 6, 1993) ....................................................... 21 Albert J. Schiff Assocs. v. Flack, 51 N.Y.2d 692 (1980) ........................................................................................... 8 Allstate Ins. Co. v. Gross, 27 N.Y.2d 263 (1970) ........................................................................................... 8 Alsens Am. Portland Cement Works v. Degnon Contracting Co., 222 N.Y. 34 (1917) ......................................................................................... 4, 12 Ashland Window & Housecleaning Co. v. Metro. Cas. Ins. Co. of N.Y., 269 A.D. 31 (1st Dep’t 1945) ................................................................. 15, 16, 19 Bhattacharyya v. Quincy Mut. Fire Ins. Co., 5 Misc. 3d 1029(A) (N.Y. Sup. Ct. 2004) ............................................................ 5 Bi-Economy Mkt., Inc. v. Harleysville Ins. Co., 10 N.Y.3d 187 (2008) ................................................................................... 17, 18 Brown v. Royal Ins. Co. of Am., 210 A.D.2d 279 (2d Dep’t 1994) .......................................................................... 5 Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83 (2d Cir. 2002) ................................................................................. 10 Carat Diamond Corp. v. Underwriters at Lloyd’s, London, 123 A.D.2d 544 (1st Dep’t 1986) ......................................................................... 5 Echostar Satellite LLC v. ESPN, Inc., 79 A.D.3d 614 (1st Dep’t 2010) ....................................................................... 4, 8 Estee Lauder Inc. v. OneBeacon Ins. Group, LLC, 62 A.D.3d 33 (1st Dep’t 2009) ........................................................................... 10 Fotochrome, Inc. v. Am. Ins. Co., 26 A.D.2d 634 (2d Dep’t 1966) ............................................................................ 5 TABLE OF AUTHORITIES (Continued) Page(s) iii Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P., 7 N.Y.3d 96 (2006) ....................................................................................... 11, 12 Gen. Accident Ins. Group v. Cirucci, 46 N.Y.2d 862 (1979) ................................................................................... 16, 17 Gen. Ins. Co. of Am., Inc. v. Marvel Enters., Inc., 2 Misc. 3d 1003(A) (N.Y. Sup. Ct. 2004) ............................................................ 5 Gen. Motors Acceptance Corp. v. Clifton-Fine Cent. Sch. Dist., 85 N.Y.2d 232 (1995) ......................................................................................... 13 Gibson Elec. Co. v. Liverpool & London & Globe Ins. Co., 159 N.Y. 418 (1899) ............................................................................................. 8 Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966 (1988) ........................................................................................... 8 Graziane v. Firemen’s Ins. Co. of Newark, N.J., 63 A.D.2d 1087 (3d Dep’t 1978) .......................................................................... 5 Greater N.Y. Sav. Bank v. Travelers Ins. Co., 173 A.D.2d 521 (2d Dep’t 1991) ........................................................................ 20 Hadden v. Consol. Edison Co., 45 N.Y.2d 466 (1978) ......................................................................................... 12 Hotel des Artistes, Inc. v. Gen. Accident Ins. Co. of Am., 9 A.D.3d 181 (1st Dep’t 2004) ........................................................................... 10 Kirchner v. Fireman’s Fund Ins. Co., 1991 WL 177251 (S.D.N.Y. Sept. 4, 1991) ....................................................... 21 Long Island Lighting Co. v. Allianz Underwriters Ins. Co., 24 A.D.3d 172 (1st Dep’t 2005) ........................................................................... 5 Luyster v. Joseph, 179 N.Y. 53 (1904) ............................................................................................... 6 McGivney v. Liberty Mut. Fire Ins. Co., 305 A.D.2d 559 (2d Dep’t 2003) .......................................................................... 4 TABLE OF AUTHORITIES (Continued) Page(s) iv Nat’l Sur. Corp. v. Valentin, 87 A.D.2d 769 (1st Dep’t 1982) ........................................................................... 6 New York v. Amro Realty Corp., 936 F.2d 1420 (2d Cir. 1991) ............................................................................. 20 Notaro v. Allstate Ins. Co., 17 Misc. 3d 136(A) (N.Y. App. Term 2007) ........................................................ 5 NYU v. Cont’l Ins. Co., 87 N.Y.2d 308 (1995) ......................................................................................... 19 Olin Corp. v. Certain Underwriters at Lloyd’s London & London Mkt. Ins. Cos., 347 F. App’x 622 (2d Cir. 2009) ........................................................................ 20 People ex rel. McLaughlin v. Bd. of Police Comm’rs of City of Yonkers, 174 N.Y. 450 (1903) ........................................................................................... 12 Preserver Ins. Co. v. Ryba, 10 N.Y.3d 635 (2008) ..................................................................................... 2, 14 Raniolo v. Travelers Indem. Co., 279 A.D.2d 514 (2d Dep’t 2001) .......................................................................... 4 Readco, Inc. v. Marine Midland Bank, 81 F.3d 295 (2d Cir. 1996) ................................................................................. 12 S & E Motor Hire Corp. v. N.Y. Indem. Co., 255 N.Y. 69 (1930) ............................................................................................. 12 Shkolnik v. Hosp. for Joint Diseases Orthopaedic Inst., 211 A.D.2d 347 (1st Dep’t 1995) ......................................................................... 6 Sillman v. Twentieth Century-Fox Film Corp., 3 N.Y.2d 395 (1957) ........................................................................................... 12 Titus v. Glens Falls Ins. Co., 81 N.Y. 410 (1880) ........................................................................................... 8, 9 TABLE OF AUTHORITIES (Continued) Page(s) v Travelers Indem. Co. v. Northrop Grumman Corp., 2013 U.S. Dist. LEXIS 161552 (S.D.N.Y. Nov. 4, 2013) .................................... 6 White v. Church of Our Lady of Sorrows, 255 A.D.2d 109 (1st Dep’t 1998) ......................................................................... 5 STATUTES N.Y. Ins. Law § 2601 ......................................................................................... 18, 19 N.Y. Ins. Law § 3420(d) ...................................................................................passim OTHER AUTHORITIES 69 N.Y. Jur. 2d Insurance § 1447 (2013) ................................................................ 19 N.Y. Pattern Jury Instr. Civil 4:79 (3d ed. 2013) .................................................... 19 1 INTRODUCTION The First Department held in this case that KeySpan violated a condition of its excess policies requiring that it give the Insurers timely notice of an occurrence at the Bay Shore and Hempstead sites. KeySpan does not challenge that holding. This appeal accordingly starts from the uncontested premise that KeySpan has no right to coverage for those sites under the plain terms of the policies. The issue before this Court is whether, under New York common law, the Insurers may be prohibited from enforcing the timely-notice requirement of their policies. There is no basis in New York law for precluding enforcement of that condition. As KeySpan acknowledges, insurers may be denied the right to enforce their policies as written in only two circumstances. One is when estoppel applies, i.e., when an insurer’s action or inaction prejudices the insured. New York courts routinely invoke estoppel to protect insureds from the consequences of their insurers’ failure to make prompt coverage determinations. KeySpan admits, however, it has never argued that it suffered prejudice warranting estoppel here. KeySpan Br. 1. The only other circumstance in which a coverage condition will not be enforced is when the insurer knowingly and intentionally chooses not to enforce it. KeySpan relies solely on this waiver principle, but cannot point to any facts even suggesting that the Insurers consciously elected to forgo their valid late-notice 2 defense and charitably grant KeySpan coverage to which it was not contractually entitled. No such facts exist. Indeed, the First Department was able to identify a jury question on waiver only by creating a new legal duty, i.e., “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 . . . grounds for disclaimer.” A8. In the court’s view, a jury could find that the Insurers violated that obligation, and thereby waived their late-notice coverage defense, if the jury determined that the Insurers had “sufficient information” by 1995 to assert the defense. Id. The decision below thus turns entirely on whether the common law actually imposes on all insurers a general obligation to disclaim coverage “as soon as reasonably possible” after becoming aware of a possible defense to coverage. The common law imposes no such duty. That obligation exists only in Insurance Law § 3420(d), which was enacted to change the common law in the specific context of bodily injury cases. As this Court explicitly held in Preserver Insurance Co. v. Ryba, 10 N.Y.3d 635 (2008), there is no legal requirement that an insurer “make [a] timely disclaimer of coverage” outside the context of § 3420(d). Id. at 642. KeySpan does not cite a single case holding otherwise. Every coverage case cited by KeySpan involves either an estoppel or some affirmative act by the insurer revealing the insurer’s intent to forgo a defense. And no case cited by KeySpan 3 finds a coverage defense waived where, as here, the insurer specifically reserved the right to assert that defense. KeySpan’s entire argument thus reduces to a policy-based plea: a jury simply must be allowed to find a coverage defense waived after a sufficient period of time, even after a specific reservation, because otherwise an insurer could simply reserve rights and then decline to act “forever.” Wrong. The estoppel doctrine ensures that an insured will have a remedy if it can show prejudice from an insurer’s inaction, even after a reservation. And of course an insured can seek a judicial declaration of coverage at any time, long before “forever” arrives. There is, in short, no basis in law or policy for a conclusion that the Insurers intended to waive their late-notice defense merely because they did not assert that defense before KeySpan sued. Because the Insurers had no duty to deny coverage “as soon as reasonably possible,” no jury could reasonably conclude from the mere fact of inaction alone that, after having specifically reserved the right to assert a late-notice defense, the Insurers intentionally chose to forgo that defense and provide KeySpan unwarranted coverage. Summary judgment for the Insurers on the Bay Shore and Hempstead sites is required. 4 ARGUMENT A. New York Courts Routinely Resolve Claims Of Waiver At The Summary Judgment Stage The starting point for KeySpan’s argument is the assertion that because waiver turns on the insurer’s intent, it “presents a fact question that rarely can be resolved as a matter of law.” KeySpan Br. 1. The point is a crucial building block in KeySpan’s argument—as shown by its many appearances in KeySpan’s brief, see KeySpan Br. 1, 20, 24, 25—and it is fundamentally wrong. Summary judgment on waiver claims may have been rare in 1917—the date of the decision KeySpan cites for this principle, see Alsens American Portland Cement Works v. Degnon Contracting Co., 222 N.Y. 34, 37 (1917)—but modern courts routinely resolve claims of waiver on summary judgment,1 including in this very case.2 Summary judgment here would be entirely consistent with current judicial practice. 1 See, e.g., Echostar Satellite LLC v. ESPN, Inc., 79 A.D.3d 614, 618 (1st Dep’t 2010) (affirming summary judgment for Disney on its right to collect interest and rejecting Echostar’s waiver claim because it pointed “to no affirmative action on Disney’s part from which one can infer that Disney surrendered its contractual right to demand interest”); McGivney v. Liberty Mut. Fire Ins. Co., 305 A.D.2d 559, 560 (2d Dep’t 2003) (affirming summary judgment for insurer where insured “failed to offer any evidence from which a clear manifestation of intent by the defendant to relinquish the protection of the contractual limitations period could be reasonably inferred” (quotation omitted)); Raniolo v. Travelers Indem. Co., 279 A.D.2d 514, 515 (2d Dep’t 2001) (affirming summary judgment for insurer that “reserved its rights and defenses under the policy while attempting to negotiate the sums due” because the “plaintiffs did not demonstrate the existence of an issue of fact as to whether the defendant waived its right to assert the 5 B. The Summary Judgment Record Does Not Permit A Waiver Finding The issue before this Court is framed by the following undisputed facts: • the Insurers’ excess policies included no duty to defend KeySpan; • the Insurers specifically requested that KeySpan advise them when its liability reached the excess policies’ attachment levels; • KeySpan never told the Insurers that its lower-level coverage or self- insured retentions had been exhausted, nor did KeySpan ever request that the Insurers indemnify any actual loss; • the Insurers specifically reserved their rights to deny coverage on the basis of late notice; and • KeySpan does not and cannot contend that it suffered any prejudice resulting from the lack of an earlier coverage denial. limitations period as a defense”); Gen. Ins. Co. of Am., Inc. v. Marvel Enters., Inc., 2 Misc. 3d 1003(A) (N.Y. Sup. Ct. 2004) (no waiver of late notice defense where insurer expressly reserved all of its rights); see also Notaro v. Allstate Ins. Co., 17 Misc. 3d 136(A) (N.Y. App. Term 2007); Bhattacharyya v. Quincy Mut. Fire Ins. Co., 5 Misc. 3d 1029(A) (N.Y. Sup. Ct. 2004); White v. Church of Our Lady of Sorrows, 255 A.D.2d 109, 109 (1st Dep’t 1998); Brown v. Royal Ins. Co. of Am., 210 A.D.2d 279 (2d Dep’t 1994); Carat Diamond Corp. v. Underwriters at Lloyd’s, London, 123 A.D.2d 544, 546 (1st Dep’t 1986); Graziane v. Firemen’s Ins. Co. of Newark, N.J., 63 A.D.2d 1087 (3d Dep’t 1978); Fotochrome, Inc. v. Am. Ins. Co., 26 A.D.2d 634 (2d Dep’t 1966). 2 Justice Gammerman granted the Insurers’ motion for summary judgment based on late notice for the Syosset site, rejecting KeySpan’s contention that the Insurers waived that defense by delaying their disclaimers. A583-84. Justice Gammerman awarded the Insurers summary judgment because they specifically reserved their rights to deny coverage based on late notice while investigating KeySpan’s claim. A584. The ruling was affirmed on appeal by a different panel of the First Department. See Long Island Lighting Co. v. Allianz Underwriters Ins. Co., 24 A.D.3d 172 (1st Dep’t 2005). 6 Under traditional waiver principles, no reasonable jury could find on that record that the Insurers knowingly and intentionally decided to rescind their specific reservation and provide KeySpan coverage despite its late notice. In particular, this Court, and others applying New York law, have consistently held that an insurer’s reservation of a specific defense precludes a waiver finding as to that particular defense. Insurers Br. 16-17 & n.2.3 That rule has even more force here, given that KeySpan had no need—and never expressed any need—for the Insurers to make an immediate coverage determination. See Travelers Indem. Co. v. Northrop Grumman Corp., 2013 U.S. Dist. LEXIS 161552, at *33 (S.D.N.Y. Nov. 4, 2013) (“Under New York law, inaction alone constitutes a waiver only when the insured has been prejudiced by the delay.”). Because the Insurers accordingly had no reason to assert their coverage defenses, it would be wholly unreasonable to infer from their inaction alone that each had affirmatively decided to rescind its specific reservation, forgo its late-notice defense, and provide KeySpan coverage to which it was not entitled. 3 KeySpan suggests in passing that “fact questions” exist as to whether the insurers adequately reserved their rights to enforce their policies’ timely-notice condition (KeySpan Br. 39), but the First Department squarely held that the Insurers’ reservations “specifically reserved, among other things, the defense of late notice.” A7. KeySpan did not appeal that ruling, which therefore necessarily governs this appeal. See Luyster v. Joseph, 179 N.Y. 53, 56-57 (1904); Shkolnik v. Hosp. for Joint Diseases Orthopaedic Inst., 211 A.D.2d 347, 351 (1st Dep’t 1995); Nat’l Sur. Corp. v. Valentin, 87 A.D.2d 769, 770 (1st Dep’t 1982). 7 In the end, under traditional waiver principles, the simplest factual point is this: if the Insurers had consciously decided to abandon their late-notice defenses, they would not have asserted those defenses when KeySpan filed suit. The Insurers of course did assert them, which was entirely consistent with their conduct to that point. Summary judgment for the Insurers is warranted. C. KeySpan’s Arguments Do Not Establish Any Basis For A Waiver Finding On This Record Like the First Department decision below, KeySpan can avoid summary judgment only by urging a new rule of law—drawn verbatim from § 3420(d)—that imposes on all insurers an obligation to issue coverage denials “as soon as reasonably possible.” KeySpan denies that its position requires such an obligation, while nevertheless insisting that the obligation is long settled. KeySpan is wrong in both respects: its argument depends on establishing that the Insurers had a duty to act as soon as reasonably possible, and the Insurers had no such duty. 1. KeySpan’s Waiver Argument Depends On A General Obligation To Deny Coverage “As Soon As Reasonably Possible” KeySpan’s first argument is that a jury could find an intentional waiver under “traditional” waiver principles on the basis of just two facts: (1) the Insurers were aware of information suggesting they had a valid coverage defense, and (2) the London Insurers denied coverage. KeySpan Br. 30-31. But those facts alone 8 would not permit a jury to infer that the Insurers consciously intended to forgo a valid late-notice defense. The fact that the Insurers were aware of a potential defense establishes only that much—that the Insurers were aware of a potential defense. But that much was already clear from the fact that the Insurers reserved their right to assert the defense. An insurer’s mere awareness of a possible defense says nothing about its intent to relinquish the defense, especially where—as here—it has no claim to defend against. See Gibson Elec. Co. v. Liverpool & London & Globe Ins. Co., 159 N.Y. 418, 424-25 (1899) (waiver requires “some affirmative action on the part of the insurer which indicated that it intended to waive the result of the plaintiff’s breach” (emphasis added)); Titus v. Glens Falls Ins. Co., 81 N.Y. 410, 419 (1880) (“mere silence” following coverage request does not establish waiver, because it does not show the insurer’s manifested intention to release a right); accord Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966, 968 (1988); Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 269 (1970); Echostar, 79 A.D.3d at 618.4 An insurer’s 4 KeySpan says that Titus and Gibson do not apply “general common law rules of waiver,” but rather address 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.” KeySpan Br. 27. That forfeiture situation is not “different” at all from what happened here: Keyspan’s “failure to give timely notice of [a] loss” created a “forfeiture[] of the insured’s coverage.” Albert J. Schiff Assocs. v. Flack, 51 N.Y.2d 692, 698 (1980). It was accordingly proper for 9 knowledge of a defense is relevant only if the insurer bears an obligation to assert that known defense “as soon as reasonably possible”—as the First Department recognized in applying that obligation here. The second fact cited by KeySpan—that the London Insurers denied coverage—is even less relevant to the remaining Insurers’ intent. The London Insurers’ own decision to deny coverage says exactly nothing about whether the remaining Insurers consciously made their own decision, or what that decision was. The only possible inference is what actually happened: the London Insurers decided they knew enough to deny coverage under the specific terms of their own policies, while the other Insurers did not.5 The Insurers’ intent is reflected not in the London Insurers’ actions, but in the Insurers’ own statements and actions, not the Insurers to “wait until [a] claim [wa]s made under the policy, and then . . . in defense of a suit commenced therefor, allege the forfeiture.” Titus, 81 N.Y. at 419. 5 As the record makes clear, the Insurers had ample reasons to seek more information before making a coverage decision. KeySpan filed its claims only after completing “an archeological survey of its general liability insurance coverage” indicating “possible coverage . . . from nearly 80 primary or excess liability insurers, on approximately 420 separate policies, dating back to 1937.” A563 (emphasis added). KeySpan’s shotgun approach understandably led to varying responses and requests for information from its insurers. Defendant NOAC, for example, could not locate the specific excess policies under which KeySpan had provided notice, and therefore requested that KeySpan produce the evidence of the policies in its possession so that NOAC could complete its investigation. A416-19. But Keyspan failed to provide NOAC with the requested evidence of the policies until after this litigation began. A323-28. 10 one of which suggests they had decided to revoke their reservation and forgo their valid late-notice defense. 2. There Is No New York Precedent Finding Waiver On A Comparable Factual Record KeySpan next argues that under New York law, a jury may find a conscious waiver based on nothing more than an insurer’s failure to issue a prompt coverage denial. This Court has long held to the contrary, see supra at 8 & n.4, and none of the cases KeySpan cites suggests otherwise. In particular, none of the cases involves a specific reservation of rights, an excess insurer with no duty to defend, or an insured who expressed no need for a prompt coverage determination and suffered no prejudice from the alleged delay. KeySpan in fact relies almost exclusively on cases that do not involve insurance coverage at all.6 And those cases actually confirm the long-settled rule that mere inaction, absent some legal compulsion or practical need to act, will not establish waiver. See supra at 8. Rather, the knowing waiver of a right can be implied only by an act or omission that, given the circumstances, is inconsistent 6 The few insurance cases KeySpan cites involve not inaction, but the affirmative act of asserting certain coverage defenses while forgoing others. See Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83, 95 (2d Cir. 2002); Estee Lauder Inc. v. OneBeacon Ins. Group, LLC, 62 A.D.3d 33 (1st Dep’t 2009); Hotel des Artistes, Inc. v. Gen. Accident Ins. Co. of Am., 9 A.D.3d 181 (1st Dep’t 2004). In that situation—which does not apply here—the act of asserting particular defenses is seen as evidence that the insurer intentionally decided not to assert the omitted defenses. Insurers Br. 15-16. 11 with an intent to assert the right. Here, the Insurers’ “inaction,” after specifically reserving their late-notice defense, was entirely consistent with their continued intent to assert a late-notice defense to coverage if and when a coverage determination actually became necessary. KeySpan’s principal authority—Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Management, L.P., 7 N.Y.3d 96 (2006)—demonstrates KeySpan’s profound misunderstanding of New York waiver law. This Court in Fundamental Portfolio did not find waiver based on mere failure to act. Rather, this Court found waiver on the basis of affirmative acts. Specifically, the Court found waiver of a non-compete agreement because the party seeking enforcement “actively encouraged and assisted” the other party “in developing [the challenged] business relationship.” Id. at 105. And the Court further emphasized that the party had strong economic reasons to waive its enforcement of the non-compete agreement. Id. Here, the Insurers committed no affirmative acts demonstrating their intent to waive the late-notice defense. Just the opposite: the Insurers affirmatively acted to reserve the defense. And the Insurers had no conceivable economic reason to relinquish their late-notice defense. Just the opposite: they had every incentive to assert the defense. The other non-insurance cases cited by KeySpan are to similar effect—each involves some affirmative act evidencing a party’s intention to forgo rights it did 12 not reserve, and then later attempted to assert. See Alsens, 222 N.Y. at 36-37 (cement seller may have waived contractual purchase price by shipping barrels to purchaser after the contractual cutoff date); Sillman v. Twentieth Century-Fox Film Corp., 3 N.Y.2d 395, 403 (1957) (Fox may have waived contractual prohibition on assignments by, among other things, exercising rights under a contract making assignments to another party); People ex rel. McLaughlin v. Bd. of Police Comm’rs of City of Yonkers, 174 N.Y. 450, 458 (1903) (former employee may have waived continued employment by accepting pension benefits and turning in tools of employment). To the extent mere inaction is ever relevant, it is only where a party fails to act in circumstances that “evince an intent not to claim a purported advantage.” Fundamental Portfolio, 7 N.Y.3d at 104 (quotation omitted); see Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 303 (2d Cir. 1996) (same); Hadden v. Consol. Edison Co., 45 N.Y.2d 466, 469 (1978) (same); S & E Motor Hire Corp. v. N.Y. Indem. Co., 255 N.Y. 69, 75 (1930) (waiver “might . . . be inferred from deliberate disregard of a notice sufficient to excite attention and call for inquiry”). That principle has no application here, where the Insurers never had any obligation or practical need to assert their rights under the policy’s notice condition until KeySpan filed suit. 13 The difference is illustrated by another non-insurance case cited passim by KeySpan, General Motors Acceptance Corp. [“GMAC”] v. Clifton-Fine Central School District, 85 N.Y.2d 232 (1995). In that case, a school district bought buses from a dealer, which assigned its right to payment to the district’s creditor, GMAC. The district, however, began making payments to the dealer rather than GMAC, and did so “over a substantial period of time.” Id. at 236. This Court found that if GMAC was aware that payments were being made to the dealer over a long period and let them continue, a jury could find that GMAC had decided to waive its right to direct payments. Id. That holding makes sense, because GMAC would hardly be expected to sit by and let someone else receive payments to which it was entitled, unless it had decided not to enforce its right to direct payment. And of course GMAC never explicitly reserved its right to insist on direct payments. In this case, by contrast, the Insurers were not required or expected to do anything until KeySpan advised them that its lower-level coverage or self-insured retention was at least nearing exhaustion. And the Insurers explicitly stated that, at that point, they might assert a late-notice defense. KeySpan does not cite a single case—not one—authorizing a jury to find waiver of a coverage defense under such circumstances. 14 3. The Common Law Does Not Impose A General Obligation On All Insurers To Deny Coverage “As Soon As Reasonably Possible” Because settled waiver principles do not permit a waiver finding on this record, KeySpan—like the First Department—ultimately urges a new principle of law, viz., that all insurers have a general obligation to deny coverage “as soon as reasonably possible” upon learning of potential grounds for denial. Only on that basis can KeySpan contend that inaction is tantamount to a decision not to assert a coverage defense, as shown above, supra at 8-9. But the premise is false: absolutely nothing in New York law imposes such an obligation on all insurers. This Court squarely held in Ryba, supra, that outside the context of bodily injury cases governed by Insurance Law § 3420(d), insurers are not required to “make a timely disclaimer of coverage.” 10 N.Y.3d at 642. KeySpan inexplicably contends that Ryba did not address the “question of an insurer’s duties outside the scope of Section 3420(d),” KeySpan Br. 56, but that is exactly the question addressed in Ryba. The lower courts had held that the insurer was barred from denying coverage for a breach of contract claim because of delay in issuing the denial. This Court reversed, holding that the insurer’s delay did not bar it from denying coverage precisely because, inter alia, the coverage was not governed by § 3420(d). 10 N.Y.3d at 642. Ryba makes clear that the obligation to make a 15 prompt coverage denial applies only to bodily injury cases governed by § 3420(d). No equivalent obligation applies outside that context. No case cited by KeySpan holds otherwise. KeySpan’s most remarkable citation is to Ashland Window & Housecleaning Co. v. Metropolitan Casualty Insurance Co. of New York, 269 A.D. 31, 35 (1st Dep’t 1945), which actually refutes KeySpan’s position. According to KeySpan, Ashland proves that there is a general obligation to act promptly outside the context of § 3420(d), because it was decided “more than a decade before the original version of § 3420(d) was enacted,” and in the decision “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 . . . .’” KeySpan Br. 48 (quoting Ashland, 269 A.D. at 35; ellipses inserted by KeySpan). The ellipses are as dubious as they look. The full sentence reads: “When an insurer wishes upon proper grounds to disclaim liability, it must inform the assured promptly of such intention and liberate the latter to make defense in his own behalf.” 269 A.D. at 35 (emphasis added). The next sentence (after a case quotation) highlights the significance of KeySpan’s omission: “Mere delay in making a disclaimer is not enough, but where prejudice to the insured as a result of unreasonable delay in disavowing is shown by adequate proof, the insurer is estopped to assert noncoverage and becomes liable.” Id. at 36 (emphasis added). 16 Ashland thus rejects exactly the rule KeySpan cites it for. Ashland instead represents a classic estoppel case: mere delay in disclaiming is not itself impermissible (the basic rule), but where unreasonable delay causes prejudice to the insured, such as by disabling it from defending itself (as in Ashland), then the insurer is estopped from denying coverage. And the delay in Ashland was surely unreasonable and prejudicial: after defending the insured for months, the insurer disclaimed coverage and stopped providing a defense one week before the insured’s trial was to begin. Id. at 33-34. Ashland thus exemplifies the proper application of long-settled coverage disclaimer rules, and simultaneously shows why those rules do not bar the Insurers’ disclaimer here, where KeySpan does not and cannot assert prejudice from any delay in disclaiming. KeySpan’s reliance on General Accident Insurance Group v. Cirucci, 46 N.Y.2d 862 (1979), is similarly misplaced. KeySpan describes Cirucci as stating a general rule 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.” KeySpan Br. 39 (alteration in original; quoting 46 N.Y.2d at 864). Cirucci, however, was an automobile accident case governed by § 3420(d)’s predecessor. See 46 N.Y.2d at 864. And the language KeySpan quotes was 17 explicitly applying the prompt-disclaimer standard prescribed by that statute, not a general common law duty, as KeySpan suggests. Id. KeySpan also relies heavily on the implied covenant of good faith and fair dealing, but yet again KeySpan’s argument defeats itself. According to KeySpan, this Court held in Bi-Economy Mkt., Inc. v. Harleysville Ins. Co., 10 N.Y.3d 187 (2008), that the implied covenant imposes on all insurers a general obligation to “act ‘honestly, adequately, and—most importantly—promptly.’” KeySpan Br. 49 (quoting 10 N.Y.3d at 195). If anything, Bi-Economy establishes exactly the opposite point. The policy at issue there provided “business interruption” insurance, which—unlike other forms of insurance—uniquely required prompt payment to give the insured the protection it bargained for. 10 N.Y.3d at 195. “[T]he purpose of the contract was not just to receive money,” the Court explained, “but to receive it promptly so that in the aftermath of a calamitous event, as Bi- Economy experienced here, the business could avoid collapse and get back on its feet as soon as possible.” Id. Accordingly, the Court continued, “this insurance contract included an additional performance-based component: the insurer agreed to evaluate a claim, and to do so honestly, adequately, and—most importantly— promptly.” Id. (emphasis added). In other words, the obligation to act “promptly” was not a general one, but arose specifically from the particular policy at issue, given the special characteristics of its coverage. The rest of the Court’s discussion 18 confirms the point: “The insurer certainly knew that failure to perform would (a) undercut the very purpose of the agreement and (b) cause additional damages that the policy was purchased to protect against in the first place. . . . When an insured in such a situation suffers additional damages as a result of an insurer’s excessive delay or improper denial, the insurance company should stand liable for these damages.” Id. In other words, under that business-interruption policy, immediate action was inherently required to avoid harm to the insured. The Court’s close analysis of the nature and purpose of the particular policy at issue obviously would have been unnecessary if all insurers have a general obligation to act immediately. Bi-Economy thus confirms that where the particular policy does not inherently require immediate action, no such general duty exists.7 Finally, KeySpan contends that Insurance Law § 2601 and its accompanying regulations confirm the existence of a general obligation to deny coverage promptly. Not so. Section 2601 confers on the Attorney General the right to take action against an insurer for a pattern of specified unfair business practices, none of which addresses the timing of coverage determinations in complex environmental liability cases. Even more important, this Court has recognized that 7 Given its focus on prejudice to the insured, Bi-Economy could be understood as much as an estoppel case as an implied covenant case. Put somewhat differently, if Bi-Economy identifies any general implied covenant duty to act promptly, it is a duty to act promptly where delay would necessarily cause prejudice, which was not the case here. 19 because § 2601 “does not permit a private right of action in favor of an insured, a fortiori, it cannot be construed to impose a tort duty of care flowing to the insured separate and apart from the insurance contract.” NYU v. Cont’l Ins. Co., 87 N.Y.2d 308, 317-18 (1995). In other words, § 2601 does not impose any duty not already included in the policy, and the policies here do not include any duty to deny coverage promptly, either by their express terms or their inherent nature. 4. Respecting A Specific Reservation Of Rights Does Not Permit Insurers To Stand Silent “Forever” KeySpan’s final argument is that the Insurers’ specific reservation of rights letters should be disregarded because otherwise, a specific reservation could “forever immunize” an Insurer against a claim of waiver. KeySpan Br. 36. The complaint comes to nothing. A specific reservation may preclude a waiver finding, but it does not preclude an estoppel finding. If an insurer reserves rights but then denies coverage at the eleventh hour, leaving the insured in an untenable situation—as in Ashland, see supra at 15-16—the insured’s prejudice could still preclude the coverage defense. See 69 N.Y. Jur. 2d Insurance § 1447 (2013) (where an insurer’s “delay in disclaiming liability under the policy” is “unreasonable and operates to the prejudice of the insured or another claimant, the insurer will be estopped from denying liability, regardless of whether the insurer has reserved its rights” (footnotes omitted)); N.Y. Pattern Jury Instr. Civil 4:79, 20 cmt on Timeliness of Disclaimer (3d ed. 2013) (insurer will be estopped from denying coverage “if prejudice to [the] insured results from the insurer’s delay”); accord Greater N.Y. Sav. Bank v. Travelers Ins. Co., 173 A.D.2d 521, 522 (2d Dep’t 1991). And of course even absent waiver or estoppel, an insured can seek a judicial declaration of coverage at any time. KeySpan also argues that “[c]ourts applying New York law have repeatedly held that an insurer may waive a late-notice defense despite having previously reserved its rights.” KeySpan Br. 37-38. KeySpan notably cites no cases from this or any other New York court. Its principal authority is an unpublished, non- precedential Second Circuit opinion, Olin Corp. v. Certain Underwriters at Lloyd’s London & London Market Insurance Cos., 347 F. App’x 622 (2d Cir. 2009), in which the insurer had reserved certain other defenses, but not the defense at issue. Id. at 628. The court thus applied the unexceptionable rule, discussed above, supra note 6, that the affirmative act of asserting (or reserving) certain defenses may reflect a conscious decision to waive other known but unasserted (or unreserved) defenses: “[U]nder New York law . . . ‘an insurer is deemed, as a matter of law, to have intended to waive a defense to coverage where other defenses are asserted, and where the insurer possesses sufficient knowledge (actual or constructive) of the circumstances regarding the unasserted defense.’” 347 F. App’x. at 628 (emphasis added; quoting New York v. Amro Realty Corp., 936 F.2d 1420, 1431 21 (2d Cir. 1991)). That rule has no application here, where the Insurers specifically reserved their rights to assert the late-notice defense from the start.8 D. The Policy Dispute Over Whether § 3420(d)’s Prompt-Disclaimer Standard Should Apply To All Insurers Is A Legislative Matter 1. As the Insurers’ opening brief explained, there are significant policy reasons not to adopt a rule denying all insurers their contractual defenses if they are not asserted as soon as reasonably possible after the insurer becomes aware of them. Perhaps most important, the estoppel doctrine already protects insureds from the prejudicial consequences of caused by insurers’ actions and inactions. See supra at 19-20. And if there is reason to think estoppel has failed to protect New York insureds, the Legislature is better equipped to investigate the problem, identify its scope, and address it by statute, just as it has done in amending and revising § 3420(d). Insurers Br. 23-27. 8 The other two cases cited by KeySpan are federal trial court decisions, neither of which provides meaningful guidance on the content of New York law. One decision involved the same partial-reservation situation as Olin, which provided an adequate ground for its decision. See Agway, Inc. v. Agway Petroleum Corp., 1993 WL 771008, at *13 (N.D.N.Y. Dec. 6, 1993). The other case involved only a general reservation letter, and it did not in any event decide any waiver issues at all, because “briefing on . . . the waiver issue was cursory and inadequate.” Kirchner v. Fireman’s Fund Ins. Co., 1991 WL 177251, at *12 (S.D.N.Y. Sept. 4, 1991). The court briefly speculated that an insurer might have a prompt disclaimer duty even with a reservation, but it cited a decision involving an “automobile accident,” id. at *11, which would be governed by § 3420(d). 22 KeySpan has no meaningful response—indeed it wilfully refuses to address the effect of estoppel on its arguments. KeySpan Br. 1. Nor does KeySpan have any effective answer to the Insurers’ submission that a general obligation to “disclaim now or forfeit forever” would provoke premature coverage denials and needless coverage litigation. Insurers Br. 31-32. Indeed, given that the assertion of certain defenses may constitute waiver of other defenses, supra note 6, insurers will be compelled to assert everything possible as soon as one defense becomes apparent, rather than—as is currently the practice—reserving rights and conducting a thorough investigation before issuing a final coverage determination. Id.9 KeySpan insists that insurers would have no reason to issue premature denials because they could trust lay juries to find waiver only when an insurer actually had fully adequate information to deny coverage. KeySpan Br. 58. But few jurors are trained coverage lawyers, and KeySpan’s own brief shows why they 9 KeySpan suggests that insurers need not conduct “extensive investigations” in cases involving “property damage claims.” KeySpan Br. 61. KeySpan is incorrect, as this very case shows. KeySpan’s notices involved potential environmental occurrences at seven MGP sites, some involving facilities that had been demolished decades earlier. Keyspan Br. 4-5. And KeySpan did not just notify the Insurers here—it lodged notices of claims with scores of carriers on hundreds of policies, see supra note 5, dramatically complicating any one insurer’s effort to determine whether its policy would provide coverage here. And KeySpan itself did little to help matters: it never provided the information the Insurers requested to facilitate a coverage decision, including whether KeySpan was nearing exhaustion of its underlying coverage or self-insured retentions. Insurers Br. 7-8. 23 are certain to be confused. KeySpan argues that juries can “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.” Id. (emphasis added). But the fact that a policyholder was “left in the lurch” is relevant to estoppel, not waiver, which is solely about whether the insurer knowingly and intentionally decided to abandon a known defense. If KeySpan itself cannot distinguish between facts relevant to intentional waiver and facts relevant only to estoppel, juries cannot be expected to draw that crucial distinction either. 2. KeySpan’s own policy reasons for applying the § 3420(d) standard to all insurers are meritless. KeySpan says that companies with large potential environmental liabilities need to know the extent of their coverage to plan their strategy; that other types of coverage cases may have the same level of complexity as bodily injury cases governed by § 3420(d); and that unless all insurers have a prompt-disclaimer duty, insurers will avoid coverage obligations by issuing “boilerplate” reservations and then “do[ing] nothing.” KeySpan Br. 60-62. But again, most of those policy objections—like most of KeySpan’s brief—ignore the estoppel doctrine, and the fact that an insured can always file a coverage action. See supra at 19-20. KeySpan also ignores the even more significant point that the Legislature can simply amend § 3420(d) at any time, if the policy concerns KeySpan raises have any salience. Insurers Br. 29. Unlike this Court, the 24 Legislature can pursue an extensive investigation into whether existing common law rules “suffice to protect insureds’ rights and interests,” and whether requiring all insurers to make prompt coverage determinations would “unduly interfere with the ability of insurers to investigate claims adequately.” Id. But the Legislature has not seen fit to extend § 3420(d)’s standard to other coverage contexts. And nothing in the common law supports the First Department’s decision to extend that standard judicially. For more than a century, this Court has held that the doctrine of waiver has no force when an insured has validly reserved its rights, and that the doctrine of estoppel provides an adequate remedy for insureds prejudiced by an insurer’s delay. Where, as here, there is no basis for concluding that an insurer intended to abandon a valid coverage defense, and no asserted prejudice to the insured, there is nothing left for a jury to decide. CONCLUSION For the foregoing reasons, as well as those set forth in the Opening Brief, the judgment of the Appellate Division should be modified. This Court should hold that the Insurers did not waive their late-notice defenses as a matter of law, and the case should be remanded with directions to enter a judgment of non-coverage on the Bay Shore and Hempstead sites. Dated: December 23, 2013 MICHAEL L. GIOIA LANDMAN CORSI BALLAINE & FORDP.C. 120 Broadway, 27th Floor New York, New York 10271 Tel.: (212) 238-4800 Fax: (212) 238-4848 -and - ROBERT J. BATES, JR. BATES CAREY NICOLAIDES LLP 191 North Wacker Drive, Suite 2400 Chicago, Illinois 60606 Tel.: (312) 762-3100 Fax: (312) 762-3200 Attorneys for Defendant-Appellant Munich Reinsurance America, Inc. ROBERT F. WALSH WHITE AND WILLIAMS LLP One Penn Plaza, Suite 4110 New York, New York 10119 Tel.: (212) 244-9500 Fax: (212) 244-6200 Attorneys for Defendant-Appellant Northern Assurance Company of America 25 Respectfully submitted, J L. ALTIER!, JR. B UTIN & ALTIERI, P.L.L.C. P.O. Box 630 Carmel, New York 10512 Tel.: (845) 306-7076 Fax: (866) 585-9604 JONATHAN D. HACKER O'MEL VENY & MYERS LLP 1625 Eye Street, NW Washington, D.C. 20006 Tel.: (202) 383-5300 Fax: (202) 383-5414 LAWRENCE A. NATHANSON SIEGAL & PARK 533 Fellowship Road, Suite 120 Mount Laurel, New Jersey 08054 Tel.: (856) 380-8900 Fax: (856) 380-8901 Attorneys for Defendant-Appellant Century Indemnity Company