The Appellate Division, Second Department's recent decision in Tully Constr., Co. v. TIG Ins. Co. demonstrates the importance of an insurer documenting its investigation of a claim to guard against allegations of late disclaimer under Insurance Law sec. 3420(d). The underlying claim concerned a fatal accident involving an automobile and a backhoe parked on the shoulder of a Staten Island highway.
A dispute arose over when the backhoe's owner gave notice of the accident to its excess carrier. The excess insurer demonstrated to the Court that once it learned of the accident and underlying lawsuit, it investigated the applicable facts in preparation to denial coverage based on the insured's late notice of the claim. The Court concluded:
Under the particular circumstances of this case, [the excess insurer] met its burden of demonstrating that its investigation was reasonably related to its completion of a thorough and diligent investigation into whether it had grounds for a disclaimer based on late notice. Therefore, its [42-day] delay in disclaiming coverage was not unreasonable for purposes of Insurance Law ยง 3420(d)
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