29, 1998). Furthermore, the insurer bears the burden of establishing that
its delay in disclaiming coverage was reasonable. See Travelers Ins. Co.
v. Charter Oak Fire Ins. Co., No. 93 Civ. 0127E, 1997 WL 9792, at *6
(W.D.N Y Jan. 2, 1997). We find that in this case, First Financial has
met its burden of showing the delay to be reasonable.
First Financial learned of the Jetco claim in February when it heard
about the Hanna lawsuit from NYU. See Tr. at 53-55. At this point, First
Financial hired RMG to conduct a review of Jetco's claim. See id. Because
Franco was out of the country for most of March, his interview was
conducted on March 30, 1999, see Ex. 9, at which time investigator
Galizia learned that Jetco had known of the Hanna accident almost
immediately but had failed to file a claim. Galizia's report was issued
on April 8, reviewed shortly thereafter by his supervisor Gay Wiener at
RMG, and then forwarded to First Financial claim manager Robert LaFrance
on April 12. See Tr. at 46, 57. The question presented at trial was
whether the delay between March 30 and First Financial's May 17
disclaimer was reasonable.
We find that this 48 day delay was reasonable under the circumstances.
On behalf of RMG, Galizia testified that RMG had been instructed by First
Financial to seek out additional sources of insurance coverage, possibly
to benefit First Financial, but largely to benefit the insured by finding
an additional source of coverage. See id. at 39. RMG employee Gay Wiener
testified that subsequent to RMG's investigation showing that Jetco's
claim was not timely, RMG sent out letters to Jetco's other insurance
carriers requesting that they take over the handling of the claim. See
id. at 47-49. It was only after discovering no additional source of
coverage that RMG and First Financial conferred and First Financial
directed that a declination letter be sent to Jetco. See id.
Both First Financial and Jetco called experts in insurance practices to
testify at the trial. First Financial's expert John Saulino testified
that it is entirely appropriate for an insurer to seek outside sources of
coverage for an insured in order to "protect the insured to the greatest
extent possible." Id. at 75-76. He also testified that it is "more
appropriate" for the insurance company to seek additional coverage before
issuing the declination, and that the amount of time taken by First
Financial under the circumstances was proper in his experience in the
insurance industry. Id. at 76-86. In opposition, Jetco's expert Robert
F. Hall testified that he believed a two-week period to be the upper
limit on disclaiming coverage once an insurer becomes aware of the facts
giving rise to the declination. See id. at 116. He also testified that
once the decision has been made to disclaim coverage, it is
"inappropriate as part of [the] investigation to determine whether there
is other insurance available for that policyholder." Id. at 113.
First Financial's expert's opinion is more consistent with the case
law, which does not include a two-week upper limit. Moreover, as a policy
matter, First Financial's expert makes the better argument. The effort by
First Financial to find additional sources of coverage was clearly for
Jetco's benefit. See id. at 64, 79-80. A contrary approach such as that
suggested by Jetco's expert would force insurance companies to disclaim
coverage before seeking additional sources of coverage, thus creating
unnecessary tension between insureds and insurers and decreasing the
incentives of insurance companies to seek additional sources of coverage
for claimants once they have realized that to do so would be of no
immediate financial benefit
to the insurer. Moreover, while prejudice is
of no legal relevance here, it bears noting that Jetco suffered no
prejudice from the time it took First Financial to investigate additional
sources of coverage. For these reasons, we find that First Financial's
disclaimer was made within a reasonable time.
For the foregoing reasons, we find that Jetco's failure to timely
notify First Financial of a possible claim was unreasonable and that
First Financial's disclaimer was timely. As there is no longer a basis
for this Court's jurisdiction under 28 U.S.C. § 1332, retention of
state law claims under supplemental jurisdiction is left to the Court's
discretion. 28 U.S.C. § 1367 (c)(3); see Purgess v. Sharrock,
33 F.3d 134, 138 (2d Cir. 1994). We decline to exercise supplemental
jurisdiction over the remaining state law claims. Accordingly, we dismiss
The Clerk of the Court is respectfully instructed to enter judgment for
First Financial declaring that First Financial does not owe Jetco a
defense and indemnification in the Hanna action. Furthermore, the Clerk
is directed to close the above-captioned case.
IT IS SO ORDERED.
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