Liability insurers issuing or delivering policies in New York are well apprised of the statutory requirement that the insured is to be provided written notice of a disclaimer or denial of a bodily injury or death claim “as soon as is reasonably possible.” N.Y. Ins. Law § 3420(d)(2). Also well-known is that an insurer may face severe consequences from delaying issuance of a disclaimer on a ground that is known to be valid, while still investigating other possible grounds for denying coverage. George Campbell Painting v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 92 A.D.3d 104, 111 (N.Y. App. Div. 1st Dep’t 2012).

With its recent decision in Endurance Am. Specialty Ins. Co. v. Utica First Ins. Co., — N.Y.S.3d — (N.Y. App. Div. 1st Dep’t., Oct. 8, 2015), the First Department has effectively magnified the scope of George Campbell Painting.

Plaintiff Endurance American Specialty Insurance Company insured contractor Adelphia Restoration Corporation. Defendant Utica First Insurance Company insured subcontractor CFC Contractor Group, Inc. The Utica policy contained an additional insured endorsement, which provided coverage for entities for which CFC was required to procure insurance pursuant to written agreement, including Adelphia. Notably, the Utica policy also contained an exclusion for bodily injuries sustained by employees of any insured, or by contractors or employees of contractors “hired or retained by or for any insured.”

On October 16, 2011, an employee of CFC allegedly was injured on the Adelphia job. On November 16, 2011, Endurance’s TPA, Rockville Risk Management, provided Utica notice of the accident on behalf of its insured, Adelphia. On November 21, 2011, Utica denied coverage to CFC “or any other party seeking coverage under this policy of insurance for damages arising out of this incident.” Utica sent a copy of the letter to Rockville, but not Adelphia. On May 10, 2012, Rockville tendered Adelphia’s defense and indemnity to Utica, noting that CFC had entered into a contract with Adelphia, by which it was to be covered as an additional insured under Utica’s policy. Rockville did not include a copy of said contract. On November 20, 2012, a follow up tender letter was sent to Utica. Finally, on January 28, 2013, Utica received a copy of the contract between Adelphia and CFC, reflecting Adelphia’s status as an additional insured. The following day Utica denied coverage based on the employee exclusion.

Adelphia conceded that, on its face, the employee exclusion precluded coverage for the subject claim, but contended that Utica’s disclaimer was untimely. The First Department agreed, finding that Utica’s November 21, 2011 letter to its named insured did not constitute notice of said disclaimer to Adelphia as an additional insured, under Insurance Law § 3420(d)(2). Relying on its holding in George Campbell Painting, the Court further rejected Utica’s argument that it was permitted to delay disclaiming coverage until after it received the operative contract, stating:

If Adelphia was not entitled to coverage because of the employee exclusion, it did not matter one way or the other whether it was an additional insured under the CFC/Utica policy, and Utica therefore did not need to investigate Adelphi’s status in order to disclaim coverage under the exclusion. . . . Utica should have immediately disclaimed to Adelphi on that basis. Thus, Utica’s investigation as to whether Adelphi was an additional insured was insufficient as a matter of law as the basis for a disclaimer.

Liability insurers should heed the warning from this cautionary tale: although a policy exclusion may appear to broadly preclude coverage to the named insured and all other entities, its denial of coverage should be issued not to the named insured alone, but also to any entity which seeks coverage under the policy, including entities that may qualify as additional insureds.