The Appellate Division, Third Department recently addressed in Bahnuk v Countryway Ins. Co. the level of specificity necessary when an insurer seeks to disclaim coverage for bodily injury arising out of an accident. The Court held that the insurer must provide written notice of the disclaimer to both its insured and the injured party, and the notice must indicate with "a high degree of specificity...the ground or grounds on which the disclaimer is predicated."
The Bahnuk case concerns a personal-injury case where an emergency medical technician filed a lawsuit against the property owner after sustaining injuries at the property. The technician also sent a copy of the complaint to the insurance company (the defendant) that provided homeowner's insurance for the property.
The insurance company disclaimed coverage. By way of a detailed, six-page letter to the property owner, the defendant insurer advised that it was disclaiming coverage and refered to the policy exclusions upon which it was relying. That is, the defendant insurer explained that the property did not meet the definitions of "residence premises" or "insured location" as set forth in the policy, and further stated that the circumstances also fell within the exclusion pertaining to incidents arising out of a business on the premises. In that letter, the defendant insurer provided additional information as to why these exclusions applied under the circumstances.
The defendant insurer wrote separately with the injured plaintiff, stating in one sentence that there was no coverage available for his claim because the property did not constitute an "insured location" as defined by the policy. After the the plaintiff's attorney disputed the defendant insurer's position, the defendant insurer followed up with a second letter indicating only that coverage was excluded "based upon the circumstances of the loss and the policy language." The Third Department noted that the term "insured location" "carries eight distinct definitions" under the applicable policy.
In the absence of a defense provided by the defendant insurer, the property owner defended the property owner's lawsuit with her own attorney (rather than one provided by the insurer). During the course of the litigation between the plaintiff (injured party) and the property owner, the parties agreed that the property owner would sign a confession of judgment for $100,000 — the limit of the property owner's policy with the defendant insurer — in exchange for the plaintiff's agreement not to execute the judgment against the property owner but, instead, to pursue a claim against the defendant insurer under Insurance Law § 3420 (a) (2).
The plaintiff commenced the action against the defendant insurer, seeking satisfaction of the $100,000 judgment. Following discovery, the parties each moved for summary judgment, and Supreme Court denied both motions. In so doing, the court held that the plaintiff had demonstrated, as a matter of law, that the defendant insurer failed to provide him with adequate notice of the bases for the disclaimer of coverage, such that the defendant was precluded from relying on those policy exclusions.
The Appellate Division concluded that Supreme Court properly determned that the defendant insurer's notice of disclaimer to the plaintiff was insufficient. Quoting Ability Transmission, Inc. v. John's Transmission, Inc., the Appellate Division stated that when an insurer seeks to disclaim coverage for bodily injury arising out of an accident, it must provide written notice of the disclaimer to both its insured and the injured party, and the notice must indicate with " 'a high degree of specificity . . . the ground or grounds on which the disclaimer is predicated.' " The Ability Court quoted the well-settled Court of Appeals opinion General Acc. Ins. Grp. v. Cirucci, which is a cornerstone case regarding disclaimer letters for bodily injury arising out of an accident. Quoting Cirucci, the Appellate Division in Bahnuk Court wrote, "Absent such specific notice, a claimant might have difficulty assessing whether the insurer will be able to disclaim successfully[, and this] uncertainty could prejudice the claimant's ability to ultimately obtain recovery."
As far as disclaimer letters go, the Bahnuk opinion does not offer any surprises. The holding is one more reminder to injured parties, insureds, and insurers to consider whether the language of the disclaimer letter has a level of specificity that exposes the insurer to a challenged disclaimer. If not, the insurer loses those disclaimer grounds in an insurance coverage lawsuit.
In a second part to this post, I will discuss the procedural/strategic thinking the plaintiff and the property owner took to protect themselves.
Image credit to Nick Youngson.
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