Second Circuit Rejects Expansion of N.Y. Ins. Law 3420(a)(5)

The Second Circuit Court of Appeals Rejects Insured’s Attempt to Expand Reach of N.Y. Ins. Law §3420(a)(5). See Indian Harbor Insurance Company v. The City of San Diego.

Arguing late notice of their claims, Indian Harbor disclaimed coverage under a pollution liability policy it had issued to the City of San Diego. The policy, which contained a New York choice of law provision, was issued after the effective date of the amendment to New York Insurance Law § 3420 which, on policies “issued or delivered” in New York, added a prejudice requirement to late notice disclaimers.

The City argued, among other things, that i) the policy was “issued or delivered” in New York and, therefore, Indian Harbor was required to show prejudice under the amended statute or, in the alternative, ii) that the amendment created new public policy warranting a change in New York’s common-law no-prejudice rule (even those issued outside of the State of New York).

To support its argument that the amended statute applied, the City maintained that the Policy should be deemed “issued or delivered” in New York. Specifically, the City argued that the signature on the policy of Indian Harbor’s president – who maintained an office in New York – was sufficient to deem the policy “issued” in New York. The Second Circuit disagreed holding that no reasonable factfinder could conclude that the policy was issued in New York under either of two accepted definitions of the term “issued” – “prepared and signed” or “sent out or distributed officially.” Indian Harbor established that the pre-existing, electronic signature was actually affixed to the policy in Pennsylvania from where the policy was created and mailed to the City.

The Second Circuit also rejected the City’s argument that the amendment to § 3420 created new public policy warranting a broad change in the common-law no-prejudice rule. The Court specifically noted that it has “… previously declined to apply § 3420 outside the geographic scope dictated by the statutory language.” See Marino v. N.Y. Tel. Co., 944 F.2d 109 (2d Cir. 1991)(§ 3420(d) does not apply to a policy issued outside New York despite the parties’ agreement that New York law would govern any dispute). The Second Circuit also denied the City’s motion to certify this question to the New York Court of Appeals, noting that there is no split of authority on this issue and no court has suggested that public policy or common law principles have changed.

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