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Law Offices of Jonathan M. Cooper

Why It May Pay to Fight A Disclaimer of Coverage under NY Law

As noted in our New York business litigation blog, one of New York’s appellate courts recently held that OneBeacon Insurance Company’s disclaimer of coverage for environmental claims relating to the Blydenburgh and Huntington landfills was not only improper, but rendered them liable to their insured, Estee Lauder Inc., in breach of contract as well.  This decision is an important reminder to businesses, small and large alike, that you should not automatically accept defeat when your insurer disclaims coverage, particularly when it relates to expensive environmental contamination claims, whether brought by a third party, or simply are for cleanup or remediation.

Although the principles addressed in this decision aren’t particularly novel, some of the court’s language, which specifically and categorically rejected the insurance company’s linguistic gamesmanship, is significant. To understand the implications of this decision, some background discussion of the underlying facts is necessary.

In April 2000, Lauder notified OneBeacon that it had been identified as a potentially responsible party for environmental claims and remediation pertaining to the Huntington landfill. Two years later, in June 2002, OneBeacon sent a letter to Lauder rejecting their request for indemnity and that counsel be assigned to defend them, stating that it was closing its file in this case because they couldn’t locate the policy under which Lauder requested coverage, even though Lauder had supplied the policy’s number. OneBeacon reiterated this position regarding a second environmental claim in a letter dated November 1. These letters also contained a blanket, generalized reservation of rights to assert further bases for disclaiming coverage. In response to the breach of insurance contract and declaratory judgment action brought by Lauder, OneBeacon asserted that Lauder’s claims should be denied on the grounds that they failed to timely notify OneBeacon of the claims.

The insurance company was clearly aware of the well-established rule that an insurer waives any defenses to coverage that are not specifically detailed and promptly made in its notice of disclaimer, provided that the insurer either knows, or should know, of the facts underlying those unasserted defenses. Recognizing that neither of these letters mentioned late notice as a basis for disclaimer, OneBeacon argued, among other things, that:  1) since they had formally reserved their rights to assert further defenses at a later time, they should be permitted to assert Lauder’s untimely notice of claim as a defense to the action; and, 2) since neither letter used the word “disclaim,” they could not be considered a formal notice of disclaimer, and therefore, this defense was never waived.

Fortunately, the Appellate court the insurer’s frivolous defenses – and did so forcefully, stating that to accept OneBeacon’s claims would not only elevate form over substance, but would encourage insurers to engage in further word games to deny rightful claims. Moreover, the Appellate Division implicitly held that a different conclusion would all but eviscerate the insurer’s obligation to set forth promptly and with specificity its bases for disclaimer.

The moral of the story is clear: don’t take an insurer’s disclaimer of your small business’s insurance or environmental claim at face value; contact a lawyer.