The opinion of the court was delivered by: MORRIS E. LASKER
In this coverage dispute among insurers,
defendants Republic Insurance Company and United National Insurance Company move for summary judgment against plaintiff American Home Assurance Company for failure of either the insured or American Home to provide defendants timely notice following the incident giving rise to the underlying claim.
The events underlying this dispute are tragic. On or about the morning of December 23, 1985, five people -- a young couple, their infant child and the wife's parents -- died in their home as a result of carbon monoxide poisoning caused by an improperly installed gas furnace. The insured company, Mobile Gas Service Corp., earlier had received a number of service complaints and had detected the furnace's improper installation, but had failed to correct the problem.
Mobile Gas was insured against liability from such incidents as follows:
1) Liberty Mutual Insurance Company was the primary insurer, with full responsibility for the initial $ 300,000 in liability for any claim.
2) American Home insured Mobile Gas for the first layer of excess liability up to $ 5 million above the $ 300,000 covered by Liberty Mutual.
3) Mobile Gas was covered by a further layer of $ 10 million for liability in excess of the $ 300,000 and $ 5 million policies. Liability for this second excess layer was divided among several insurers. Republic was responsible for ten per cent of the layer (i.e. up to $ 1 million on a full $ 10 million obligation), United National for an additional ten per cent, and American Home and other insurers not party to this action for the remaining eighty per cent.
On December 30, 1986, American Home agreed in principle to settle the underlying claims for $ 11,500,000. In this suit, acting as subrogee of Mobile Gas, it is suing Republic and United National for their respective shares of the second layer of excess insurance. Republic and United National on this motion assert the defense of untimely notice of the claim.
The record establishes that: the claims arose in December 1985; by January 10, 1986 at the latest Mobile Gas knew off its substantial culpability in the deaths; by February 12, 1986 American Home received notice of the claims; nevertheless Mobile Gas never notified Republic and United National; the defendants first learned of the claims on, respectively, January 21, 1987 (after a settlement had been negotiated) and November 10, 1986 (after extensive settlement negotiations had occurred).
In the insurance industry, a distinction is made between direct insurers, which issue policies directly to insured persons or entities, and reinsurers, which contract with direct insurers to reimburse them for successful claims brought on direct policies. Direct insurance policies can either cover entire claims or restricted portions of claims, as in the present case where Liberty Mutual covered the initial $ ...