The Emergence of Prejudice As a Necessary Element of an Insurer's Late Notice Defense: An Analysis of NY Law

For years, insurers have invoked the so-called 'late notice' defense under New York law, with relatively frequent success, to deny insurance coverage to insureds in circumstances in which the insured provides notice that is not timely under New York's traditional 'no prejudice' rule. Under this 'no prejudice' rule, an insurer generally need not show any prejudice suffered by the insurer as a result of an insured's untimely notice of an occurrence or claim giving rise to liability. Insurers have been able to cite certain New York case law stating that, with a few exceptions, an insurer may avoid coverage if the insured's notice was untimely on the theory that notice is a condition precedent to coverage under the policy. <i>See, e.g., Security Mut. Ins. Co. v. Acker-Fitzgerald Corp.</i>, 293 N.E.2d 76, 78 (N.Y. 1972); <i>American Home Assurance Co. v. International Ins. Co.</i>, 684 N.E.2d 14, 16 (N.Y. 1997). This insured-unfavorable rule of law, however, appears to be in the process of changing. Recent New York case law indicates a shift away from a 'no prejudice' rule, and an even more recent proposed state statute would permit an insurer to deny insurance coverage only in circumstances in which the insurer could 'demonstrate that it has suffered material prejudice as a result of the delayed notice.' For these reasons, New York clearly appears to be moving toward the large majority of other states, which require an insurer to demonstrate material prejudice as a predicate to avoiding coverage in the context of the late notice defense.

46 minute read July 30, 2007 at 12:18 PM

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Roberta D. Anderson and Peter N. Flocos