Question from an IIABNY member: My client that was advised more than three years after an alleged accident involving one of their employees. They are being asked to defend themselves in a non-owned auto liability claim. Apparently, the employee mentioned in a hearing that he had been working for our pizza shop client. This was when they were advised that they had been added to the complaint. The carrier is denying, saying not only was our client too slow in reporting (they reported it as soon as they were advised,) but also the other parties claiming damages were too slow, or “Not Prompt.” After reviewing the auto policy, I don’t see an escape clause for management if they were never advised. Now, not only is the one store being dragged in, but corporate is as well. Corporate has no ownership interest at all, other than all the stores go by one name. I do not expect the assigned risk departments to roll over unless you have some precedent you can share.
Answer: I think this may be a tough one for your insured. Here’s what the “Duties In The Event Of Accident, Claim, Suit Or Loss” condition says in the ISO Business Auto Coverage Form (CA 00 01 03 10), as amended by New York Changes In Business Auto, Business Auto Physical Damage, Motor Carrier And Truckers Coverage Forms (CA 01 12 11 11):
2. Duties In The Event Of Accident, Claim, Suit Or Loss
We have no duty to provide coverage under this policy if the failure to comply with the following duties is prejudicial to us:
a. In the event of "accident", claim, "suit" or "loss", you or someone on your behalf must give us or our authorized representative notice as soon as reasonably possible of the "accident" or "loss". Include:
(1) How, when and where the "accident" or "loss" occurred;
(2) The "insured's" name and address; and
(3) To the extent possible, the names and addresses of any injured persons and witnesses.
Written notice by or on behalf of the injured person or any other claimant to our authorized representative shall be deemed notice to us.b. Additionally, you and any other involved "insured" must:
(1) Assume no obligation, make no pay¬ment or incur no expense without our consent, except at the "insured's" own cost.
(2) Send us copies of any request, demand, order, notice, summons or legal paper received concerning the claim or "suit" as soon as reasonably possible.
(3) Cooperate with us in the investigation or settlement of the claim or defense against the "suit".
(4) Authorize us to obtain medical records or other pertinent information.
(5) Submit to examination, at our expense, by physicians of our choice, as often as we reasonably require.
In addition, New York Insurance Law Section 3420 states:
(a) No policy or contract insuring against liability for injury to person… or against liability for injury to, or destruction of, property shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions that are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors: …
(4) A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, an injured person or any other claimant if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as was reasonably possible thereafter. …
(c)(2)(A) In any action in which an insurer alleges that it was prejudiced as a result of a failure to provide timely notice, the burden of proof shall be on: (i) the insurer to prove that it has been prejudiced, if the notice was provided within two years of the time required under the policy; or (ii) the insured, injured person or other claimant to prove that the insurer has not been prejudiced, if the notice was provided more than two years after the time required under the policy.
(B) Notwithstanding subparagraph (a) of this paragraph, an irrebuttable presumption of prejudice shall apply if, prior to notice, the insured's liability has been determined by a court of competent jurisdiction or by binding arbitration; or if the insured has resolved the claim or suit by settlement or other compromise.
C) The 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.
So, the policy requires the named insured (or someone acting on the named insured’s behalf) to the insurer notice as soon as reasonably possible in the event of an accident, claim, suit or loss. Further, if the notice of loss is provided to the insurer more than two years after the time the policy requires, New York law puts on the insured, injured person or other claimant the burden of proving the insurer’s ability to investigate or defend the claim was not impaired. Here, the accident happened more than three years ago; a reasonable person might conclude that it would be hard for the insurer to investigate the accident, get reliable statements from witnesses, examine the wreckage, etc. Therefore, it would be difficult for the insured or claimant to prove that the insurer has not been prejudiced.
Now, the named insured just found about this suit, so they can honestly say they notified the insurer as soon as they found out. However, the insured needs to come up with a pretty good explanation as to why they were unaware of a serious car accident one of its drivers had three years ago. The insurer could reasonably say, “Hey, your business is making sure pizzas get to the people who buy them. Even if you didn’t know, you should have known.” There are a number of reasons why the employer should have known: The driver might have been injured and sought Workers’ Comp benefits; even if he didn’t make a WC claim, he might have missed a few days of work due to soreness; he might have been unable to deliver pizzas for some period of time because his vehicle was damaged; he might have been upset following the accident and spoken about it to other employees; the injured person might have called the pizza shop to complain; and so on. The claim is not invalidated if the insured or claimant can show that it was not reasonably possible for them to give notice sooner, but it might be a struggle for the insured to show that the delay was reasonable.
All in all, I think the law and the contract are on the insurer’s side here. I realize this is terrible news for your client, but unless there are some very good explanations handy, it doesn’t look to me like the insurer has a duty to defend.
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