Late Notice Bars Recovery of Claimant’s Unsatisfied Default Judgment under New York Statute

The Northern District of Alabama, applying New York law, has held that an injured party who fails to act “reasonably diligently” in identifying a defendant’s insurer and then “expeditiously” notify the insurer of the claim, as provided in N.Y. Insurance Law § 3420(a), is not entitled to recover under an insured defendant’s E&O policy for an unsatisfied judgment. Nelson v. Northland Ins. Co., 2016 WL 3683196 (N.D. Ala. July 12, 2016).

The claimant, in a garnishment action against an insurer, sought recovery for a default judgment entered against an insured defendant under the insured’s claims-made-and-reported policy pursuant to N.Y. Ins. Law § 3420(a)(2), which allows an injured party with an unsatisfied judgment to pursue an action against the defendant’s insurer for satisfaction of the judgment. The insurer did not learn of the garnishment until it received a copy of the order and writ of garnishment more than 10 years after the entry of the default judgment. The insurer responded that it was not required to pay the claimant under the policy.

The court granted the insurer’s motion for summary judgment, holding that in the instant case the claimant failed to act “reasonably diligently,” as required under the applicable provision in N.Y. Insurance Law § 3420, in identifying and notifying the defendant’s insurer of a default judgment entered in 2002, and therefore no coverage was available because of the lack of timely notice. In so holding, the court recognized that applicable New York law required that the injured party must show that it acted “reasonably diligently” in identifying the defendant’s insurer and then “expeditiously” notified the insurer of the claim in order for the claimant to assert an action against the insurer. The court also noted that the claimant failed to present evidence of any correspondence to the insured defendant explicitly seeking the identity of the defendant’s insurer and that publically available records in a related case against the insured for which the claimant was disclosed as a witness would have also provided information regarding the defendant’s insurer. Furthermore, the court stated that purported evidence of a telephone call from the claimant’s attorney to the insurer regarding the underlying case in 2004 was insufficient to serve as notice because the claimant failed to present evidence of written notice to the insurer.