citizens. The fourth interest, that of a state in regulating insurers doing business within its borders, weighs equally in favor of New York as the state where the insured and some of the risks were located, and California, where the policy was written.
This balance of interests in favor of New York may explain why, in analogous cases, courts in New York have held that policies covering risks throughout the country or the world, delivered to insureds in particular states, should be covered by the laws of those states. Thus, Regional Import & Export Trucking Co. v. North River Ins. Co., 149 A.D.2d 361, 362, 539 N.Y.S.2d 940, 941 (1st Dep't 1989), held that "a policy delivered to a New Jersey corporation to insure against a loss occurring 'anywhere' should be subject to the law of that state, irrespective of the presence of the insured's agent in the State of New York."
Olin illustrates that the applicable law must become fixed at the time the contract is formed. In that case, the policy was delivered to a New York insured to cover risks not confined to any particular location, and was held governed by New York law even though the insured later moved to Connecticut and the principal economic effect of granting or denying coverage would be felt there. Chaos would result if the law governing insurance policies changed based on such fortuitous circumstances as a change in residence of the insured.
In Fleet Messenger Serv., 315 F.2d at 596-97, the Second Circuit applied New York law to determine the effect of misrepresentations by an insured in an application for an insurance policy, notwithstanding that the application was made in New Jersey, the insurer was located in Pennsylvania, and the policy required notice in Pennsylvania. The Court found that the filing of the application in New Jersey was based on the fortuity that the insurer was not licensed to do business in New York. It found also that the issue to be resolved -- the effect of an insured's misrepresentations on the beneficiary's right to recover -- particularly engaged New York's interest in applying its law, which was "harder on beneficiaries" than the law of Pennsylvania, where the insurer was based. Id. at 597.
New York's superior interest is confirmed when, as explained below, one examines the particular issues in dispute here: how promptly an insured must give notice of loss and whether an insurance company must show prejudice before denying coverage because of late notice.
California cases long have held that before an insurer may rely on failure to give timely notice as the basis for denying coverage, it has the burden of asserting and proving prejudice from such failure. See Clemmer v. Hartford Ins. Co., 22 Cal. 3d 865, 151 Cal. Rptr. 285, 587 P.2d 1098 (1978); Campbell v. Allstate Ins. Co., 60 Cal. 2d 303, 32 Cal. Rptr. 827, 384 P.2d 155 (1963) (citing cases). California's interest in such a rule is obvious -- namely, to protect California insureds who wish to assert claims against insurance companies. See Ins. Co. of Pennsylvania v. Associated Int'l Ins. Co., 922 F.2d 516, 523 (9th Cir. 1990) (citing cases and explaining rationale of requiring a showing of prejudice). That interest is not engaged in this case. Defendant is a New York entity.
By contrast, even "where an insurance contract is silent, New York law will imply an obligation to notify the insurer within a reasonable period of time." Olin, supra, 743 F. Supp. at 1051 (citations omitted). Thus, the answer to the question of whether notice under this policy can ever be untimely, even absent a specific notice provision, is yes.
Moreover, "under New York law, an insured's failure to comply with a notice-of-occurrence provision is generally a complete defense even if the insurer was not prejudiced by the untimely notification." Olin Corp. v. Ins. Co. of North America, 966 F.2d 718, 723 (2d Cir. 1992) (citations omitted) "Absent a valid excuse, a failure to satisfy the notice requirement vitiates the policy . ., and the insurer need not show prejudice before it can assert the defense of noncompliance." Security Mut. Ins. Co. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 440, 340 N.Y.S.2d 902, 905, 293 N.E.2d 76, 78 (1972) (citations omitted). The Second Circuit explained the rationale for that New York rule as follows:
Notice-of-occurrence provisions allow insurance companies to make an early investigation into the particular circumstances of an occurrence, both as an aid to future litigation and as a means of ending or correcting dangerous conditions. Additionally, timely notice of occurrence assists insurers in estimating the amount of capital they need in reserve for future claims, and the amounts they must charge as premiums. Finally, these provisions aid insurers in the detection of fraudulent claims.
Olin, 966 F.2d at 723.
New York's interest in enforcing that rule promotes diligence by its insureds and thereby encourages insurance companies both within and without the state to provide insurance to New York residents. Nor is there any discernible California policy that would be offended by enforcing the New York rule here; California has no interest in making its insurance companies conform elsewhere to a standard they must meet when dealing with California insureds.
Here, the delay of 16 months after defendant learned of the loss is facially unreasonable. The passage of some two or three years from the actual loss to defendant's discovery of the loss certainly did not lessen the exigency of notifying plaintiff. Under New York law, plaintiff was entitled to know as early as reasonably possible of the potential loss so that it could investigate before time obliterated evidence that had already been substantially dimmed, and so that it could at least adjust its reserves. One need not define precisely what a reasonable time would have been in these circumstances to conclude that 16 months cannot be considered reasonable.
The reported cases abound with instances in which comparable or lesser periods have been considered unreasonable. See, e.g., Utica Mut. Ins. Co. v. Fireman's Fund Ins. Cos., 748 F.2d 118, 121 (2d Cir. 1984) (six months); Acker-Fitzsimons Corp., supra (19 months); Power Authority of New York v. Westinghouse Elec. Corp., 117 A.D.2d 336, 339-40, 502 N.Y.S.2d 420, 421-22 (1st Dep't 1986) (53 days) (citing cases). Although the question of reasonableness of notice was anticipated to be a jury issue, "where there is no excuse for the delay and mitigating considerations are absent, the issue may be disposed of as a matter of law in advance of trial." Westinghouse Elec. Corp., 117 A.D.2d at 339-40, 502 N.Y.S.2d at 422.
In this case, defendant has offered no excuse for the delay beyond the possible dereliction of counsel who had not been paid and "just did not really get into it." (Def. Ex. 76, supra p. 4) The failure of counsel to "get into it" is not an adequate excuse for a delay in notifying an insurance company. Cf. C.F.C. Realty Corp. v. Empire Fire and Marine Ins. Co., 110 A.D.2d 508, 487 N.Y.S.2d 47 (1st Dep't 1985) (failure of counsel to submit timely proof of loss bars recovery).
For the above reasons, judgment will be entered for plaintiff and defendant's counterclaims will be dismissed. Settle judgment on ten days' notice.
Dated: New York, New York
January 29, 1993
Michael B. Mukasey,
U.S. District Judge
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