On Motion for Reconsideration, Southern District of New York Holds that Late-Notice Defense as to Claims-Made-And-Reported Policies Cannot Be Waived

The Southern District of New York, applying New York law, has held that an insurer’s late-reporting defense is not subject to waiver under claims-made-and-reported policies.  Hunt Constr. Grp. Inc. v. Berkley Assurance Co., No. 19-cv-8775, 2021 WL 4392520 (S.D.N.Y. Sept. 24, 2021).

The insured was a general contractor that purchased claims-made-and-reported error and omissions policies from the carrier.  When the contractor was sued for alleged mismanagement of a construction project, it provided notice to the insurer of the claim, although the notice was late according to the policy’s reporting requirements.  The insurer initially agreed to defend the contractor, subject to a reservation of rights, but seven months later, it denied coverage entirely on the ground that the insured had not provided timely notice of the claim. 

In subsequent coverage litigation, the contractor argued that the insured had waived the late-notice defense because New York law requires insurers who “gain actual or constructive knowledge of a late-notice defense to immediately raise the defense or risk waiving it.”  The court initially sided with the contractor when considering the parties’ motions for summary judgment and the carrier’s motion to dismiss.  In reaching this decision, however, the court did not consider that the policy at issue was a claims-made-and-reported policy.

However, the court ruled in the carrier’s favor on a motion for reconsideration, ultimately holding that, with respect to claims-made-and-reported policies specifically, the late-notice defense is not subject to waiver where the timing of claim reporting “establishes the contours of policy coverage.”  The court noted that New York case law acknowledges the unique function of notice requirements in claims-made-and-reported policies, and that in that context, “the governing rule is that ‘where the issue is the existence or nonexistence of coverage,’” as is the case when late notice is at issue with respect to a claims-made-and-reported policy, “’the doctrine of waiver is simply inapplicable.’”

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