Court Avoids Dangerous Precedent with Respect to Insurance Law (For Now)

Very few cases in New York have substantially addressed the new(ish) prejudice rule of the Insurance Law.  Insurance Law §3420(a)(5) and (c)(2)(A) provide that for claims made under policies issued or renewed on or after January 17, 2009, an insurer seeking to disclaim coverage based upon late notice must demonstrate prejudice if the insured's notice is provided within two years of the time it was due.  Insurance Law §3420(c)(2)(C), states an “insurer's rights shall not be deemed prejudiced unless the failure to timely provide notice materially impairs the ability of the insurer to investigate or defend the claim." Therefore, it is the burden of the insurer to show that it was prejudiced by the insured's delay in providing notice.

In Goldshmidt v Endurance Am. Specialty Ins. Co., Plaintiffs Aleksandr Goldschmidt and Inna Goldschmidt (“Plaintiffs” or “Goldschmidts”) moved for summary judgment seeking a declaration that they were entitled to defense and indemnity from Defendant Endurance American Specialty Insurance Company (“Defendant” or “Endurance”) on a primary and non-contributory basis in an underlying action pending in Supreme Court, Kings County.  The Defendant cross-moved for summary judgment seeking a declaration that it had no duty to defend or indemnify Plaintiffs in the underlying action.  While the court ultimately punted on the issue, the reasoning in the court’s decision may be useful in future cases involving the Insurance Law’s prejudice rule. 

In the underlying action, the plaintiff claimed that on January 5, 2012, he was injured when he fell on a stairway while performing construction work at the building owned by the Goldschmidts. The underlying plaintiff was an employee of Kadar Elite Construction, Inc., the contractor hired by the Goldschmidts to perform the construction work at the premises. Kadar Elite was insured by Endurance. 

Prior to notifying Endurance of the underlying action, the Goldschmidts answered the complaint, participated in substantial discovery, and were served with a motion to strike their answer based upon spoliation of evidence, as the stairway where the underlying plaintiff allegedly fell had been removed by the Goldschmidts. 

The Goldschmidts finally provided notice of the accident on June 26, 2013, after receiving the motion to strike in the underlying action. Endurance responded to the Goldscmidts’ request for coverage in the underlying action by offering to defend the Goldschmidts subject to co-insurance with their insurance on a 50/50 basis while reserving the right to deny coverage based upon late notice.   

While Plaintiffs failed to notify Endurance of the occurrence “as soon as practicable,” there was no dispute that notice Plaintiffs provided notice to Endurance less than two years after the alleged accident occurred. Therefore, under Insurance Law §3420(c)(2)(C), in order to deny coverage, Endurance was required to show that Plaintiffs' late notice prejudiced Endurance in a way that materially impaired its ability to investigate the claim.

In her decision, Justice Joan M. Kenney denied both the motion and cross-motion.  However, Justice Kenney did find that “the condition of the stairs and the determination of the motion to strike the answer for spoliation of evidence in the underlying action is indeed critical to whether Endurance was prejudiced by the delay in notice.” Right or wrong, based upon the language of her decision, it appears Justice Kenney’s ultimate determination regarding prejudice in this action will be based upon the findings in the underlying action with respect to the spoliation of evidence.