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Ace American Ins. Co. v. Unite Here

Other Lower Courts

December 10, 2007

ACE American Insurance Company, Plaintiff,
v.
Unite Here, Defendant/Third-Party Plaintiff, XL Insurance American, Inc., Third-Party Defendant.

Editorial Note:

This case is not published in a printed volume and its disposition appears in a table in the reporter.

COUNSEL

For Defendant/Third-Party Plaintiff: Dickstein Shapiro LLP

For Third-Party Defendant: Mound Cotton Wollan Greengrass, One Battery Park Plaza (Constantino P. Suriano)

OPINION

Bernard J. Fried, J.

Third-party defendant XL Insurance American, Inc. (XL) moves for an order pursuant to CPLR 3211 dismissing the third-party complaint for failure to state a cause of action. XL also seeks an award of its motion costs and disbursements.

The claims in this third-party action arise out of a coverage dispute between Ace American Insurance Company (ACE) and third-party plaintiff Unite Here (Unite), an unincorporated labor organization with its principal place of business and headquarters in New York County. Unite obtained primary liability coverage from ACE under Media Advantage Policy No. OGL N01874512 for the period beginning March 1, 2005 through March 1, 2006 (ACE Primary Policy). The ACE Primary Policy was subject to a $5,000,000 limit of liability. Unite obtained excess liability coverage from XL under commercial umbrella insurance Policy No. U.S. 00008710L105A (XL Policy), for the period beginning March 1, 2005, and ending March 1, 2006.

On April 28, 2005, Sutter Health (and affiliated health care entities) initiated suit against Unite in the Superior Court of California, Placer County, alleging damages based upon libel, trade libel, wrongful interference with prospective economic relations and unfair competition in an action entitled Sutter Health v Unite Here, Superior Court, California, Placer County, Docket No. S CV 17938 (Underlying Action). On May 4, 2005, Unite provided initial notice of the Underlying Action to its insurance carrier, ACE through its insurance broker, Frank Crystal Company. By letter dated July 6, 2005, ACE disclaimed coverage on the ground that the Underlying Action did not involve "scheduled media," as required by the ACE Primary Policy. On June 26, 2006, trial commenced in the Underlying Action. On July 21, 2006, a jury awarded plaintiffs in that action damages in the amount of $17,143,000. The judgment was filed on September 13, 2006 and Unite was served with Notice of Entry on September 19, 2006. By letter dated November 9, 2006, Frank Crystal Company provided XL with a copy of the judgment, summons and complaint in the Underlying Action. XL received a copy of the judgment, summons, and complaint on November 15, 2006.

On August 4, 2006, Unite commenced a declaratory judgment action against ACE in the Superior Court of California, County of Placer, in an action entitled,Unite Here v ACE American Insurance Company, Case No. S CV 19735 (Underlying Declaratory Action). That action was dismissed on the ground of forum non conviens. Following that dismissal, ACE commenced this action seeking a declaration that it was not obligated to defend or indemnify Unite in the Underlying Action.

XL argues that it is entitled to dismissal because Unite's third-party claim is barred due to its failure to provide XL with timely notice of the occurrence as required under the policy.

Unite argues that XL is not entitled to dismissal because California law applies to the present dispute, and, under California law, an insurer bears the burden of demonstrating that it was substantially prejudiced by an alleged delay in notification in order to escape its contractual obligations on this ground, and XL has failed to demonstrate that it has been prejudiced. Unite further argues that if this court finds that New York law applies to this dispute, XL is still not entitled to dismissal because XL waived any claim of late notice by failing to disclaim coverage in a timely manner, and XL's delay in making its coverage position known, should have waived the carrier's right to assert a late notice defense.

New York is one of the few states that does not require a showing of prejudice in order for an insurer to disclaim for late notice (see Argo v Greater New York Mut. Ins. Co., 4 N.Y.3d 332, 339 [2005]). The State of California adheres to the "Notice-Prejudice Rule" under which a defense based on an insured's failure to give timely notice requires the insurer to prove that it suffered substantial prejudice (Steadfast Ins. Co. v Casden Props., Inc., 41 A.D.3d 120 [1st Dept 2007]). Prejudice is not presumed from delayed notice alone. The insurer must show actual prejudice, not the mere possibility of prejudice (id.).

Historically, courts faced with a choice of law question in contract cases applied the law of the State where the contract was made or was to be performed ( Zurich Ins. Co. v Shearson Lehman Hutton, Inc., 84 N.Y.2d 309, 317 [1994]). However, as the flaws in the mechanical application of these rigid rules became apparent, the New York Court of Appeals developed more flexible approaches to choice of law questions (id.; see Restatement of Conflict of Laws 370). The Court of Appeals inaugurated the use of center of gravity or grouping of contacts as the appropriate analytical approach to choice of law questions in contract cases (Zurich Ins. Co. v Shearson Lehman Hutton, Inc., 84 N.Y.2d 309, supra). In adopting the grouping of contacts theory to resolve choice-of-law issues, the Court of Appeals has noted that the merit of this approach enables the state having the most interest in the problem paramount control over the legal issues arising out of a particular factual context, thus ...


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