There is no dispute that Mobile Gas knew of its exposure to substantial liability by January 10, 1986 at the latest. The company conducted a preliminary investigation and in a December 26, 1985 report concluded that it bore significant responsibility for the events. On January 10, 1986, the law firm of Inge, Twitty, Duffy & Prince provided a report to Mobile Gas's primary insurer, Liberty Mutual, which concluded, "Mobile Gas has exposure in this case." These initial reports did not discuss the likely extent of eventual liability, although according to American Home's legal brief, its statement of uncontested facts pursuant to Local Rule 3(g) and its counsel's affidavit in opposition to this motion,
the complaints filed by the victims' estates demanded a total of $ 5 million. According to American Home, it was advised of the claims in February 1986.
The record leaves ensuing events unclear. Inge, Twitty prepared a report addressed to American Home dated August 29, 1986, which referred to earlier discussions between the firm and American Home. That report described the claims as "very serious and [carrying] the probability of a huge recovery by plaintiffs." The report stated, "we don't feel there is any effective defense to these claims on behalf of your insured, Mobile Gas Service Corporation," and that "the probability of an adverse verdict against Mobile Gas Service Corporation in this case is 100%." In a report dated September 22, 1986, Inge, Twitty advised American Home that there was a "probability that these cases can be settled in the $ 10,000,000 to $ 15,000,000 range."
On October 23, 1986, an American Home claims adjustor conducted a settlement meeting at which the victims demanded $ 12,500,000 in satisfaction of the pending claims. American Home's adjustor apparently mistakenly believed that secondary direct insurers like Republic and United National were in fact reinsurers who were not essential parties to the litigation or settlement talks. See April 17, 1990 letter of Ralph Carlsen of American Home to Raymond Freidberg of United National, Ex. F to Affidavit of Andrew Entwistle, June 17, 1991 (explaining how American Home "goofed" in handling case). On December 30, 1986, plaintiffs and American Home agreed in principle to a final settlement of $ 11,500,000, with a January 22, 1987 deadline for final acceptance by plaintiffs. Republic and United National played no role in those negotiations.
The record establishes that despite the extensive activity in the underlying case, neither Republic nor United National received any notice of the underlying claim until after American Home's October 1986 settlement negotiations, and neither ever received notice directly from Mobile Gas. The first notice of any kind United National has record of receiving concerning the claim was a "Reinsurance Advice" from American Home, dated October 28, 1986 (five days after American Home's negotiations discussing a possible settlement of $ 12.5 million) and received November 10, 1986. Similarly, Republic's files contain a "Reinsurance Advice" from American Home dated October 28, 1986, but not received until January 30, 1987 as an attachment to a letter, apparently because American Home initially sent the notice to a company unrelated to Republic's designated agent. According to Republic, its first knowledge of the underlying case came on January 21, 1987, when a representative of United National telephoned to inquire how Republic intended to respond to American Home's settlement of the underlying case.
The affidavits and documents submitted by defendants, in conjunction with plaintiff's failure to provide evidence of earlier notice, establish that neither defendant received notice at least until after extensive settlement discussions had been held, and at least ten months after Mobile Gas knew of the claims against it. Despite a few indications to the contrary -- including American Home's inadequately supported contention that the victims' initial suits demanded a total of only $ 5 million, the fact that the first documentary evidence attaching a firm dollar figure to Mobile Gas's liability was dated September 22, 1986, and American Home's argument that its first indication that the claimants' recovery would reach the second excess layer came in October negotiations -- it is inconceivable that a reasonable insured or insurance company, much less sophisticated and experienced litigants like Mobile Gas or American Home, could not have realized within days of the deaths of five people, for which Mobile Gas was clearly responsible, that there existed a serious likelihood of a recovery over $ 5,300,000, which would implicate the Republic and United National policies. No reasonable jury could conclude otherwise.
Accordingly, even if we were to consider the October 28, 1986 "reinsurance advice" from American Home (rather than from Mobile Gas as the policy required) as substantively adequate notice under the policies, the ten-month delay from the insured's knowledge of its exposure to the notification of its insurers violated the timely notice of occurrence requirement of those policies.
Moreover, even the one-month delay between September 22, 1986, when American Home was specifically advised by its counsel of a likely recovery of $ 10 million to $ 15 million, and October 28, 1986, when it sent notice to Republic and United National of the claim, failed to meet the policies' requirement that notice be afforded "as soon as practicable," particularly because during that time settlement negotiations obviously bearing on defendants' interests were being conducted without their knowledge, and in Republic's case were completed before it had any knowledge of the victims' claim.
American Home contends that even if its notice to defendants was untimely, defendants' failure to disclaim coverage promptly waives their defense as a matter of New York law. See New York State Ins. Law § 3420(d) (McKinney's 1985). However, that statute applies by its own terms only to injuries "occurring within this state." This provision specifically has been held not to apply to accidents that occurred outside New York, see, e.g., Ogden Corp. v. Travelers Indem. Co., 739 F. Supp. 796, 803-04 (S.D.N.Y. 1989), aff'd, 924 F.2d 39 (2d Cir. 1991), and accordingly provides no defense in this case, in which the underlying claim arose in Alabama.
In sum, there is no material factual question as to the length of delay prior to the notification of Republic and United National. No reasonable jury could find that the delay did not render the notice untimely within the meaning of the policies. Accordingly, the motion for summary judgment is granted and the complaint is dismissed.
It is so ordered.
Dated: New York, New York
April 3, 1992
Morris E. Lasker