“Belt and Suspenders” Don’t Need Zip: Federal New York Court Rejects Timeliness Obligation for Optional Disclaimer

In Adirondack Insurance Exchange v. Banagos, the Eastern District of New York held that an insurer is not required to send a disclaimer letter where a loss does not fall within the scope of the insuring agreement and voluntarily sending a disclaimer letter, including one that discusses exclusions, does not create the obligation to send it in a timely manner.

At issue in the case was a homeowners insurance policy that Adirondack Insurance Exchange issued in favor of two homeowners that extended to their son, who lived with them. The underlying lawsuit arose when an unrelated third party brought an action against the son for personal injuries he allegedly sustained after the son and another individual beat him up in a park.

Adirondack sent a disclaimer letter to the homeowners, which specifically noted that the definition of an occurrence is not met and there were applicable exclusions. Although the carrier noted that the lawsuit did not fall within the scope of the insuring agreement, the carrier agreed to provide a defense until coverage was determined.

The court was presented with the issue whether a carrier is required to give timely notice if the loss did not fall within the scope of the insurance agreement, and if timely notice was not required, whether a carrier assumes an obligation to provide timely notice by sending a disclaimer letter to the insured at all.

The court noted that the issues involved two rules of established New York law. First, if an insurance company seeks to avoid coverage based on the event falling outside the scope of the policy’s insuring agreement, then the insurance company is not required to give timely notice in a disclaimer letter. Without an obligation under the policy, the carrier may wait until the insured makes a demand. Second, timely notice of a disclaimer must be sent to the insured if the carrier seeks to avoid coverage based on an exclusion in the insuring agreement.

The court held that a timely disclaimer was not required, as the loss did not fall within the scope of the insuring agreement. There is no requirement for a disclaimer where an “underlying lawsuit … does not trigger coverage.” The court also rejected the argument that because the carrier chose to send a disclaimer, the carrier “assumed” the obligation to send a timely disclaimer. The court reasoned that a “contract cannot be created or amended by one side’s denial that there is an applicable contract at all.”

Thus, Adirondack was not required to send a disclaimer to the homeowners nor did its obligations alter because it proffered an alternative argument to disclaim coverage under the policy’s exclusions in a letter.