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Halloway v. State Farm Insurance Companies11/28/2005
to deny coverage or disclaim liability for bodily injuries on the basis of a policy exclusion, an insurance carrier must "give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant" (Insurance Law ยง 3420 ). A failure to give timely notice will estop the insurer from disclaiming liability or denying coverage on the basis of the exclusion (see Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185). The timeliness of a disclaimer is measured from the point at which the carrier first learns of facts that give it a reasonable basis upon which to disclaim liability or deny coverage (see Matter of Allcity Ins. Co. [Jimenez], 78 NY2d 1054, 1056; Matter of American Express Prop. Cas. Co. v Vinci, 18 AD3d 655; Danna Constr. Corp. v Utica First Ins. Co., 17 AD3d 622, lv denied NY3d [Oct. 27, 2005]). "An insurer who delays in giving written notice of disclaimer bears the burden of justifying the delay" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 69). "Moreover, an insurer's explanation is insufficient as a matter of law where the basis for denying coverage was or should have been readily apparent before the onset of the delay" (id.; cf. Matter of Firemen's Fund Ins. Co. of Newark v Hopkins, 88 NY2d 836). The insurer's obligation to issue a timely disclaimer "cannot be delayed indefinitely until all issues of fact regarding the insurer's coverage obligations have been resolved. When in doubt, an insurer should issue a prompt disclaimer and then seek a declaratory judgment concerning its duty to defend or indemnify" (Republic Franklin Ins. Co. v Pistilli, 16 AD3d 477, 479; see Matter of American Express Prop. Cas. Co. v Vinci, supra).
The policy provision at issue here excludes liability "arising out of the ownership or operation of vehicle while it is being used to carry persons or property for a fee." Such an exclusion is valid provided that it is read to be no broader than the regulatory provision that permits a policy in New York to exclude coverage for a motor vehicle while it is being used "as a public or livery conveyance" (11 NYCRR 60-1.2 ; see United Servs. Auto. Assn. v Reid, 255 AD2d 990, 991).
On this record, I conclude that the plaintiffs established their prima facie entitlement to judgment as a matter of law. They offered evidence that State Farm was notified in early December 2001 of a claim that the subject vehicle was being driven by the insured carrying two passengers when it was involved in an accident, and that, after the accident, the insured "told both passengers to pick up another 'van' and that there would be 'no charge' for this fare." That notice clearly gave State Farm a reasonable basis upon which to conclude that, at the time of the accident, the van was being operated as a livery vehicle, and that therefore the policy exclusion applied. The plaintiffs further established that State Farm delayed for some five months before ultimately denying liability on the sole ground that Osborne "was in direct violation of his policy agreement as he was using his vehicle as a livery vehicle." The burden therefore shifted to State Farm to justify the delay (see First Fin. Ins. Co. v Jetco Contr. Corp., supra).
In opposition to the plaintiffs' motion for summary judgment, State Farm failed to raise a triable issue of fact as to whether the five-month delay was justified. Indeed, the only evidence offered by State Farm is the affidavit of Nicole Fox, a claim representative familiar with the matter. Fox explained that State Farm had difficulty in contacting Osborne, who initially claimed, on January 11, 2002, and again on February 7, 2002, that there were no passeng
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