Hammersmith v. TIG Ins Co ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
3-15-2007
Hammersmith v. TIG Ins Co
Precedential or Non-Precedential: Precedential
Docket No. 05-3730
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-3730
SCOTT HAMMERSMITH,
Appellant
v.
TIG INSURANCE COMPANY
(W.D. of PA. Civil Nos. 02-cv-01829 & 03-cv-01333)
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Nos. 02-cv-01829 & 03-cv-01333)
District Judge: Honorable Gary L. Lancaster
Argued December 4, 2006
Before: RENDELL and AMBRO, Circuit Judges,
and BAYLSON,* District Judge.
__________________
* Honorable Michael M. Baylson, Judge of the United
States District Court for the Eastern District of
Pennsylvania, sitting by designation.
(Filed: March 15, 2007)
Thomas E. Birsic
Paul K. Stockman [ARGUED]
Kirpatrick and Lockhart
Nicholson Graham
535 Smithfield Street
Henry W. Oliver Building
Pittsburgh, PA 15222
James D. Belliveau
Michael H. Rosenzweig
Edgar Snyder & Associates
600 Grant Street
10th Floor, U.S. Steel Tower
Pittsburgh, PA 15219
Counsel for Appellant
Scott Hammersmith
Dennis J. Roman
Marshall, Dennehey, Warner,
Coleman & Goggin
600 Grant Street
2900 U.S. Steel Tower
Pittsburgh, PA 15219
2
Peter G. Thompson [ARGUED]
Thompson, Loss & Judge
1133 21st Street, N.W.
Two Lafayette Centre, Suite 450
Washington, DC 20036
Counsel for Appellee
TIG Insurance Co.
Robert E. Dapper, Jr.
Dapper, Baldasare, Benson, Behling & Kane
444 Liberty Avenue
10th Floor, Four Gateway Center
Pittsburgh, PA 15222
Counsel for Appellees
AON Risk Services
and AON Risk Services NY
OPINION OF THE COURT
BAYLSON, District Judge.
In this dispute over insurance coverage arising out of a
tragic accident at the Pittsburgh International Airport, three
issues are presented for decision following the District Court’s
grant of summary judgment to the excess insurer, Defendant-
Appellee TIG Insurance Company (“TIG”):
1. Did the District Court err in holding that New
York law governs this dispute as the state in which the insurance
3
contract was issued and delivered, applying the lex loci principle
on choice of law?
2. Did the District Court err in concluding as a matter
of law that late notice to TIG prevented coverage?
3. Did the District Court err in concluding as a matter
of law that TIG disclaimed coverage within a reasonable period
of time?
We write at some length on the choice of law issue
because of confusing dictum in prior decisions of this Court.
We conclude that although Pennsylvania’s choice of law rules
have abandoned the lex loci doctrine, the modern flexible
“interest/contacts” choice of law doctrine requires application of
New York law. On the issues of late notice and disclaimer, we
conclude the District Court erred because a number of material
facts prevent summary judgment from being granted in favor of
the insurer.
I. Introduction
Understanding the issues in this case requires a brief
excursion into the facts of the underlying accident and ensuing
litigation. On February 21, 1998, Plaintiff-Appellant Scott
Hammersmith (“Hammersmith”), an employee of Delta
Airlines, was unloading bags at the Pittsburgh International
Airport. As a result of the malfunctioning of the baggage
handling equipment, he was severely injured and is now a
quadriplegic requiring constant round-the-clock care. He
instituted suit in the Court of Common Pleas of Allegheny
4
County by suing Delta Airlines and Allegheny County in August
1998. Allegheny County then brought into the suit the
manufacturer of the equipment, CCC Conveyers, Inc. (“CCC”),
which was a wholly owned subsidiary of the Dyson-Kissner-
Moran Corporation (“DKM”). CCC and its parent, DKM, first
became aware of Hammersmith’s accident and lawsuit on
October 16, 1998, when they received a copy of Allegheny
County’s writ of summons. However, neither the Complaint nor
the Amended Complaint contained any specific damage
allegations.
The record shows that DKM immediately forwarded
these pleadings to its insurance broker, Aon, requesting that Aon
notify DKM’s insurer. DKM and its subsidiaries, including
CCC, were covered by a multi-layer liability insurance program.
The first $250,000 was self-insured, and the next $1,750,000
was covered under a primary policy issued by National Union
Fire Insurance Company (“National Union”). Defendant-
Appellee TIG then provided excess coverage for liability over
$2,000,000, up to a $25,000,000 limit. After receiving DKM’s
request, Aon promptly notified National Union of the claim, but
did not notify TIG.
Under DKM’s excess insurance policy with TIG, the
insured must notify TIG “as soon as practicable” of an
occurrence which may result in a claim, or when a claim is made
or a suit is brought. TIG. Ins. Co. No. XLB 271 23 83 § IV(F),
App. 1211a. Furthermore, in the event of claim or suit, the
policy requires the insured to “[i]mmediately send US copies of
any demands, notices, summons or legal papers received in
connection with the claim or SUIT.” Id. Nonetheless, TIG was
5
not notified of the Hammersmith claim until October 30, 2000,
almost two years after DKM originally learned of the suit, when
a senior claims representative from AIG Vendor Services
(“AIG”), the National Union affiliate handling DKM claims,
sent TIG a letter.
There are a number of factual issues in the record,
discussed below, as to how AIG’s claims personnel and the
attorneys handling the underlying case in the Allegheny Court
of Common Pleas evaluated CCC’s potential liability and the
settlement value of the case during pretrial proceedings.
However, it appears that just prior to a mediation scheduled for
November 9, 2000, Hammersmith’s demand for $23,000,000
came as a surprise to CCC’s defense counsel. TIG was offered,
but declined, the opportunity to participate in the mediation,
which was unsuccessful.
Despite a great deal of back and forth between TIG and
DKM on coverage issues in the ensuing months, TIG did not
formally disclaim coverage until October 5, 2001, eleven
months after it was originally notified of the Hammersmith
claim.
At that point, National Union agreed to settle with
Hammersmith for its unexpended policy limits, paid
Hammersmith approximately $1,750,000, and assigned CCC’s
claim against TIG to Hammersmith with an agreement for a
non-jury trial to determine his damages.
At the non-jury trial on November 28, 2001,
Hammersmith’s total damages were set at $25,700,000, of
6
which $19,300,000 was awarded against CCC, and subsequently
increased for delay damages to $23,600,000, in which amount
judgment was entered against CCC.
II. Proceedings in the District Court
Acting on his assignment of CCC’s claims against TIG,
Hammersmith filed suit against TIG in the District Court under
diversity jurisdiction. 28 U.S.C. § 1332. TIG brought in Aon
as a third-party defendant. Subsequently, Hammersmith also
filed a separate suit in the District Court against Aon, alleging
that Aon breached its duty to CCC by failing to give prompt
notice to TIG. The two separate cases were consolidated, and
an Amended Complaint was then filed. After discovery, TIG
moved for summary judgment, based on allegedly late notice,
and Hammersmith moved for partial summary judgment,
asserting that TIG’s delay in disclaiming coverage estopped TIG
from avoiding liability.
The District Court granted summary judgment to TIG and
denied Hammersmith’s motion for partial summary judgment.
The District Court’s grant of summary judgment in favor of TIG
did not resolve any of the issues concerning Aon,1 and the Court
1
The District Court specifically noted that plaintiff’s claim
against Aon “is not at issue here . . . and survives the Court’s
instant rulings.” App.10a. Aon’s appeal from the judgment of
the District Court was quashed. Although the parties’ briefs in
this Court discuss Aon’s alleged acts and/or omissions in some
detail, we will not consider these contentions since Aon is not a
party to this appeal.
7
entered an Order under Rule 54, Fed. R. Civ. P., granting final
judgment as to the issues between Hammersmith and TIG. This
appeal follows.
On the choice of law issue, the District Court concluded
that Pennsylvania’s choice-of-law rules require that an insurance
contract be governed by the laws of the state in which the
contract was issued and delivered, which was New York.
As to the issue of late notice, the District Court held that,
under New York law, an excess insurer is entitled to receive
prompt notice and need not show prejudice from delay in
receiving notice. The District Court concluded that, viewing the
facts in the light most favorable to Hammersmith, TIG was not
timely notified of the underlying accident and/or lawsuit, and
thus DKM, the insured parent of CCC, was not entitled to
coverage, absent some showing that TIG was estopped from
disclaiming coverage based on its delay in doing so.
In denying Hammersmith’s Motion for Partial Summary
Judgment on the ground that TIG failed to disclaim coverage as
soon as reasonably possible, the District Court held that TIG’s
investigation of the facts and disclaimer were reasonable as a
matter of law.
III. Choice of Law
The parties disagree as to which state law applies in this
case. Hammersmith urges Pennsylvania law, which requires an
insurer to prove that the notice provision contained in the
insurance contract was breached, and it suffered prejudice as a
8
result. Brakeman v. Potomac Ins. Co., 371 A.2d 193 (Pa. 1977).
TIG maintains that the District Court correctly applied New
York law, which does not require an insurer to establish
prejudice in order to disclaim coverage based on late notice.
Security Mut. Ins. Co. of N.Y. v. Acker-Fitzsimons Corp., 293
N.E.2d 76, 78 (N.Y. 1972). We exercise plenary review over
the District Court’s choice of law determination. Berg Chilling
Sys., Inc. v. Hull Corp., 435 F.3d 455, 462 (3d Cir. 2006).
Because this is a diversity case, we apply the choice-of
law-rules of the forum state, Pennsylvania. Klaxon v. Stentor
Electric Mfg. Co., 313 U.S. 487 (1941). In this case, the District
Judge erred in concluding it was “well-settled” that “[u]nder
Pennsylvania choice of law rules, an insurance contract is
governed by the law of the state in which the contract was
made.” App. 13a. Although both Pennsylvania and federal
courts have dealt with this issue in a rather inconsistent fashion,
we think it is now clear that Pennsylvania applies the more
flexible, “interest/contacts” methodology to contract choice-of-
law questions.2
2
Interestingly, neither party asked the District Court to
consider or apply Texas law. TIG’s principal place of business
is in Irving, Texas. CCC is headquartered in Dallas. The record
is silent as to where the conveyor belt was manufactured.
Texas, like Pennsylvania, requires insurers to prove prejudice
before they can disclaim coverage on late notice grounds.
See Hanson Prod. Co. v. Americas Ins. Co., 108 F.3d 627 (5th
Cir. 1997). Because the parties only argued the choice-of-law
issue with respect to New York and Pennsylvania, we will not
consider Texas in our choice-of-law analysis.
9
A. Abandonment of Lex Locus Contractus in
Pennsylvania
Choice-of-Law Jurisprudence
Prior to 1964, Pennsylvania courts uniformly applied the
law of the place of contract (“lex loci contractus”) or injury
(“lex loci delicti”) in contract and tort actions, respectively. In
Griffith v. United Air Lines Inc., 203 A.2d 796 (Pa. 1964), the
Pennsylvania Supreme Court expressly abandoned the “lexi loci
delicti” rule “in favor of a more flexible rule which permits
analysis of the policies and interests underlying the particular
issue before the court.” Id. at 805. Under this new approach,
Pennsylvania courts are to apply the law of the forum with the
“most interest in the problem,” rather than the law of the place
of injury. Id. at 806.
In the wake of Griffith, it was unclear whether this new
approach to tort choice-of-law questions would displace
Pennsylvania’s traditional “lex loci contractus” rule.3 Several
3
Compare Neville Chemical Co. v. Union Carbide Corp., 422
F.2d 1205, 1210-11 (3d Cir. 1970) (citing Griffith in a breach of
contract action for the proposition that the “Pennsylvania
Supreme Court follows the modern approach and looks to the
law of the place with the most significant relationship to the
parties and transaction, on each issue, or the ‘center of gravity’
of the contract”), with Boase v. Lee Rubber & Tire Corp., 437
F.2d 527, 529-30 (3d Cir. 1970) (“In the six years since Griffith
was decided, the Pennsylvania Supreme Court has not applied
its rule in a contract case.”).
10
years later, in Melville v. American Home Assurance Co., 584
F.2d 1306 (3d Cir. 1978), we predicted that, when the occasion
arises, “Pennsylvania [will] extend its Griffith conflicts
methodology to contract actions.” Id. at 1313. In reaching this
conclusion, we examined several Pennsylvania conflicts
decisions, including In re Hunter, 218 A.2d 764, 767 (Pa. 1966)
(choosing Pennsylvania law to govern the validity of child-
relinquishment forms because Pennsylvania had an “overriding
and continuing interest” in the issue); Crawford v. Manhattan
Life Ins. Co. of N.Y., 221 A.2d 877, 881 (Pa. Super. Ct. 1966)
(choosing West Virginia law to govern a life insurance policy
because the contract was delivered there, but also observing the
“result would be the same even if the standards enunciated in
Griffith applied” because West Virginia had the “most
significant relationship with and interest in the occurrence and
the parties”); and Gillan v. Gillan, 345 A.2d 742, 744 (Pa.
Super. Ct. 1975) (“[I]t would be error for us to apply the old,
single reference rule that . . . the place where the contract
became binding, or the place where it was to be performed,
controls the choice of law.”).
In the years following Melville, the Pennsylvania
Superior Court, federal district courts, and this Court have
continued to apply Griffith’s “interests/contacts” approach to
contract choice-of-law questions. See, e.g., Am. Contract
Bridge League v. Nationwide Mut. Fire Ins. Co., 752 F.2d 71
(3d Cir. 1985) (finding under Griffith that Pennsylvania law
should govern an insurance policy even though the policy was
negotiated, issued and delivered in Tennessee); McCabe v.
Prudential Prop. & Cas. Ins. Co., 514 A.2d 582 (Pa. Super. Ct.
1986) (applying Griffith in a case involving the interpretation of
11
an insurance contract); Compagnie des Bauxites de Guinee v.
Argonaut-Midwest Ins. Co., 880 F.2d 685 (3d Cir. 1989)
(applying Griffith to determine if insured’s notice to excess
carrier was timely); Gen. Star Nat’l Ins. Co. v. Liberty Mut. Ins.
Co., 960 F.2d 377 (3d Cir. 1992) (performing a “significant
contacts” analysis to determine which state’s law should govern
an insurance contract dispute); Wilson v. Transport Ins. Co., 889
A.2d 563, 571 (Pa. Super. Ct. 2005) (“Under the flexible
conflicts methodology approach to insurance contract cases,
which was set forth by our Supreme Court in Griffith, the court
must apply the law of the state having the most significant
contacts or relationships with the contract and not the underlying
tort.”) (internal citations omitted) (quoting Nationwide Mut. Ins.
Co. v. West, 807 A.2d 916, 921 (Pa. Super. Ct. 2002)).
The Pennsylvania Superior Court recently revisited the
issue in Budtel Associates v. Continental Casualty Co., 915
A.2d 640 (Pa. Super. Ct. 2006), and concluded “[a]fter careful
reflection” that the “spirit and weight of this Commonwealth’s
precedents mandate we follow the Griffith rule in the contract
law context.” Id. at *3. Although the Pennsylvania Supreme
Court has yet to apply Griffith to a contract dispute, “[t]o apply
the Crawford rule would be to blindly adhere to [the] ...
principle ... [that] the laws of the place where a contract is
delivered control simply because the contract was delivered
there.” Id. Furthermore, the court noted, “the Crawford rule can
be fairly subsumed by the more comprehensive Griffith rule
because the Crawford rule examines a single contact (where the
contract was delivered) while the Griffith rule ... examines all of
the contacts that occurred within a contractual relationship.” Id.
12
We agree with the Superior Court and expressly reaffirm
our prediction in Melville that the Pennsylvania Supreme Court
would apply Griffith to contract disputes. Although on several
occasions panels of this Court have observed that Pennsylvania
continues to follow the lex locus contractus rule,4 we recognize
4
See Harry L. Sheinman & Sons v. Scranton Life Ins. Co.,
125 F.3d 442, 444 (3d Cir. 1941); New York Life Ins. Co. v.
Levine, 138 F.2d 286, 288 (3d Cir. 1943); Faron v. Penn Mutual
Life Ins. Co., 176 F.2d 290, 292 (3d Cir. 1949); Roth v.
Maryland Cas. Co., 209 F.2d 371, 373 (3d Cir. 1954); Woods v.
Nat’l Life & Accident Ins. Co., 347 F.2d 760, 763 n.2 (3d Cir.
1965); Pittsburgh Bridge & Iron Works v. Liberty Mut. Ins. Co.,
444 F.2d 1286, 1290 n.2 (3d Cir. 1971); Jamison v. Miracle
Mile Rambler, Inc., 536 F.2d 560, 563 n.1 (3d Cir. 1976);
McMillan v. State Mut. Life Assurance Co. of America, 922
F.2d 1073, 1074-75 (3d Cir. 1990); Frog, Switch & Mfg. Co.,
Inc. v. Travelers Ins. Co., 193 F.3d 742, 745-46 (3d Cir. 1999);
CAT Internet Serv. Inc. v. Providence Washington Ins. Co., 333
F.3d 138, 141 (3d Cir. 2003); J.C. Penney Life Ins. Co. v. Pilosi,
393 F.3d 356, 360-61 (3d Cir. 2004); Canal Ins. Co. v.
Underwriters at Lloyd’s London, 435 F.3d 431, 434 (3d Cir.
2006) (no dispute as to choice of law); Regents of Mercersburg
Coll. v. Republic Franklin Ins. Co., 458 F.3d 159, 163 n.4 (3d
Cir. 2006) (noting another line of Pennsylvania cases looking to
law of the state with most significant relationship).
In some of these cases, the parties did not challenge the
applicable law, and thus the Court’s choice of law discussion
was dictum. See, e.g., Frog, Switch, 193 F.3d at 745-46 (“The
parties agree that the insurance contracts are governed by
Pennsylvania law.”). More significantly, all of the decisions
13
that the overwhelming weight of authority is to the contrary.
B. Contours of the Griffith Analysis
1. Classifying the Conflict
Hammersmith contends that under Griffith, the Court
must first determine whether there is a “false conflict” between
the laws of Pennsylvania and New York. Our review of the case
law indicates there is some inconsistency in the way
Pennsylvania and federal courts have defined a false conflict.5
rely either on cases that pre-date Griffith, or on Crawford, 221
A.2d 877 (Pa. Super. Ct. 1966). In Melville, however, we
observed that Crawford “acknowledge[d] the winds of change
portended by Griffith” by applying both the traditional lex locus
contractus and Griffith approaches in selecting the law to govern
a life insurance policy. Melville, 584 F.2d at 1312.
5
At least three district court opinions have recognized this
inconsistency in the case law. See Naviant Marketing Solutions,
Inc. v. Larry Tucker, Inc., No.Civ.A.00-6036, 2002 WL 15918,
at *3 n.14 (E.D. Pa. Jan. 4, 2002) (noting the distinction and
concluding that “a ‘false conflict’ arises not where there are no
relevant differences in the laws of the two jurisdictions but
rather, when there are relevant differences but the court may
apply the law of one jurisdiction without affecting the
governmental interests of the other jurisdiction”); Air Prod. &
Chem., Inc., v. Eaton Metal Prod. Co., 272 F. Supp. 2d 482, 490
n.9 (E.D. Pa. 2003) (“Though the concepts are distinct, courts
in Pennsylvania appear to use the term ‘false conflict’ to mean
14
One line of cases provides that a false conflict exists if there are
no relevant differences between the laws of the two states, or the
laws would produce the same result.6 If there is a false conflict
under this definition, the court does not have to engage in a
choice of law analysis, and may refer to the states’ laws
interchangeably. Huber v. Taylor, 469 F.3d 67, 74 (3d Cir.
2006). If the states’ laws do in fact conflict, the court must
both a situation in which no conflict at all exists ... and a
situation in which only one state’s interests would be
harmed....”); Liebman v. Prudential Fin., Inc., No.Civ.A. 02-
2566, 2003 WL 22741415, at *2 n.3 (E.D. Pa. Nov. 14, 2003)
(“Third Circuit precedent varies slightly on the meaning of
‘false conflict.’”).
6
See Huber v. Taylor, 469 F.3d 67, 74 (3d Cir. 2006) (noting
if there is no “true conflict,” the district court “may refer
interchangeably to the laws of the states whose laws potentially
apply”); Berg Chilling, 435 F.3d at 462 (“[W]here the laws of
the two jurisdictions would produce the same result on the
particular issue presented, there is a ‘false conflict,’ and the
Court should avoid the choice-of-law question.”); Williams v.
Stone, 109 F.3d 890, 893 (3d Cir. 1997) (same); Lucker Mfg. v.
Home Ins. Co., 23 F.3d 808, 813 (3d Cir. 1994) (same); Coons
v. Lawlor, 804 F.2d 28, 30 (3d Cir. 1986) (“If the various laws
that might be applied to the case do not differ on the relevant
issue, there is a false conflict.”); Complaint of Bankers Trust
Co., 752 F.2d 874, 882 (3d Cir. 1984) (“If the foreign law to
which the forum’s choice-of-law rule refers does not differ from
that of the forum on the issue, the issue presents a ‘false
conflict.’”).
15
determine which state has the “greater interest in the application
of its law.” Ratti v. Wheeling Pittsburgh Steel Corp., 758 A.2d
695, 702 (Pa. Super. Ct. 2000).7
A different line of cases holds that a “false conflict”
exists “if only one jurisdiction’s governmental interests would
be impaired by the application of the other jurisdiction’s laws.”
Lacey v. Cessna Aircraft Co., 932 F.2d 170, 187 (3d Cir. 1991).8
7
See also Budtel Assoc., LP v. Continental Cas. Co., No. 728
MDA 2005, 2006 WL 3718238, at *2 (Pa. Super. Ct. Dec. 19,
2006) (“[T]he first step in a choice of law analysis under
Pennsylvania law is to determine whether a conflict exists
between the laws of the competing states. If no conflict exists,
further analysis is unnecessary. If a conflict is found, it must be
determined which state has the greater interest in the application
of its law.”) (internal citations omitted); Thibodeau v. Comcast
Corp., 2006 WL 3457582, at *11 (Pa. Super. Ct. Dec. 1, 2006)
(same); Wilson v. Transp. Ins. Co., 889 A.2d 563, 571 (Pa.
Super. Ct. 2005) (same); Keystone Aerial Surveys, Inc. v.
Pennsylvania Prop. & Cas. Ins. Guar. Assoc., 777 A.2d 84, 94
(Pa. Super. Ct. 2001) (same).
8
See also Garcia v. Plaza Oldsmobile Ltd., 421 F.3d 216, 220
(3d Cir. 2005) (“A true conflict exists ‘when the governmental
interests of [multiple] jurisdictions would be impaired if their
law were not applied.’”) (quoting Lacey, 932 F.2d at 187 n.15);
Budget Rent-a-Car Sys., Inc. v. Chappell, 407 F.3d 166, 170 (3d
Cir. 2005) (same); LeJeune v. Bliss-Salem, Inc., 85 F.3d 1069,
1071 (3d Cir. 1996) (same); Shuder v. McDonald’s Corp., 859
F.2d 266 (3d Cir. 1988) (finding the existence of a “true
16
In that case, the court should “apply the law of the state whose
interests would be harmed if its laws were not applied.” Id. On
the other hand, if the “governmental interests of both
jurisdictions would be impaired if their law were not applied,”
there is a true conflict. Id. at 187 n.15 (emphasis in original).
The court must then proceed with the choice-of-law analysis and
apply the law of the state with the “most significant contacts or
relationships with the particular issue.” Budget Rent-a-Car Sys.,
Inc. v. Chappell, 407 F.3d 166, 170 (3d Cir. 2005) (quoting In
re Estate of Agostini, 457 A.2d 861, 871 (Pa. Super. Ct. 1983)).
We think it is incorrect to use the term “false conflict” to
describe the situation where the laws of two states do not differ.
If two jurisdictions’ laws are the same, then there is no
conflict at all, and a choice of law analysis is unnecessary.
Thus, the first part of the choice of law inquiry is best
understood as determining if there is an actual or real conflict
between the potentially applicable laws. See, e.g., Air Prod. &
Chem., 272 F. Supp. 2d at 490 n.9 (“Before we even reach the
‘false conflict’ question, we must determine whether, for lack of
better terminology, a ‘real conflict’ as opposed to ‘no conflict’
exists; that is, we must determine whether these states would
actually treat this issue any differently.”).
conflict” because the application of “the law of either Virginia
or Pennsylvania [would] further the policies of that state”);
Rosen v. Tesoro Petroleum Corp., 582 A.2d 27, 31 (Pa. Super.
Ct. 1990) (“[T]his is not a case of ‘false conflict,’ because either
state’s interests would be disserved by the application of the
other state’s law....”).
17
If there are relevant differences between the laws, then
the court should examine the governmental policies underlying
each law, and classify the conflict as a “true,” “false,” or an
“unprovided-for” situation.9 A “deeper [choice of law]
analysis” is necessary only if both jurisdictions’ interests would
be impaired by the application of the other’s laws (i.e., there is
a true conflict). See Cipolla v. Shaposka, 267 A.2d 854, 856
(Pa. 1970) (deciding to “undertake a deeper analysis” because
the plaintiff “is a resident of Pennsylvania which has adopted a
plaintiff-protecting rule” and the defendant “is a resident of
Delaware which has adopted a defendant-protecting rule”);
Rosen v. Tesoro Petroleum Corp., 582 A.2d 27, 30-31 (Pa.
Super. Ct. 1990) (finding a “true conflict” between the malicious
prosecution laws of Texas and Pennsylvania, where the
underlying suit was brought in Texas against Pennsylvania
residents, and the Texas law intended to provide litigants with
“open access to the judicial system,” while Pennsylvania’s law
intended to give greater protection to individuals “who may be
forced to defend a baseless suit”).10
9
An “unprovided-for” case is one in which neither state’s
interests would be impaired if its laws were not applied. Garcia,
421 F.3d at 220. In that situation, courts should apply the
traditional, lex locus contractus rule. Id.
10
The Court notes that in Lebegern v. Forman, 471 F.3d 424
(3d Cir. 2006), we reached a different conclusion in analyzing
New Jersey’s choice-of-law principles. In Lebegern, we held
that a true conflict exists if the laws of the jurisdictions differ.
Id. at 431. If there is a true conflict, then the court should
conduct a choice-of-law analysis, and consider the interests of
18
2. Contacts and Interests Analysis
If a true conflict exists, the Court must then determine
which state has the “greater interest in the application of its
law.” Cipolla, 267 A.2d at 856. In Melville, we described the
Griffith methodology as a combination of the “approaches of
both [the] Restatement II (contacts establishing significant
relationships) and ‘interests analysis’ (qualitative appraisal of
the relevant States’ policies with respect to the controversy).”
584 F.2d at 1311.11 This analysis requires more than a “mere
the states in having their laws applied. Id. Although this was an
appropriate assessment of New Jersey choice-of-law rules, we
think Pennsylvania precedent dictates a different conclusion. In
Lebegern, we emphasized that the New Jersey Supreme Court
initiated its conflict analysis by “review[ing] the substance of
the laws” and determining whether they differed. Id. at 430. “It
was not until the second prong of the governmental interest test -
assessing the interests of each jurisdiction - that the New Jersey
Supreme Court entered into an in-depth discussion of the impact
of the respective states’ underlying policy goals and intent.” Id.
By contrast, in Cipolla, the Pennsylvania Supreme Court asked
whether the interests of both states were implicated at the outset
of the choice-of-law inquiry. After deciding that they were, the
court proceeded to conduct a “deeper analysis.” 267 A.2d at
856. Thus, under Pennsylvania precedent, we think the issue of
a “false conflict” (defined in terms of states’ interests in seeing
their laws enforced) should be treated as a threshold matter.
11
We later reaffirmed this formulation of Griffith in Carrick
v. Zurich-American Ins. Group, 14 F.3d 907 (3d Cir. 1994),
19
counting of contacts.” Cipolla, 267 A.2d at 856. “Rather, we
must weigh the contacts on a qualitative scale according to their
relation to the policies and interests underlying the [particular]
issue.” Shields v. Consol. Rail Corp., 810 F.2d 397, 400 (3d Cir.
1987).
C. Applying the Griffith Choice-of-Law Analysis
As a threshold matter, we note that the TIG-DKM policy
did not contain an express choice-of-law provision. However,
the policy was entitled “New York Coverage Plus Umbrella
Liability Policy,” and it contained a New York cancellation
endorsement and a New York state law conformance clause
governing “operations in the State of New York.” Contrary to
TIG’s assertions, we do not think these references to New York
amount to an implicit agreement between TIG and DKM that
New York law should govern the late notice issue. In
Assicurazioni Generali S.P.A. v. Clover, 195 F.3d 161 (3d Cir.
1999), we concluded that “the parties at least implicitly and
perhaps even explicitly” selected Indiana law to govern the
policy because there were “repeated references” to Indiana law
in the UIM endorsement. Id. at 165. In Clover, however, the
arbitration clause at issue was contained in the state-specific
endorsement. See id. at 164 (“[I]t is the Indiana UIM
endorsement itself[,] not merely the policy, which contains the
arbitration clause whose scope is at issue.”). By contrast, the
where we observed that the Pennsylvania Supreme Court had
not “rendered any opinion ... impugning the validity of [this]
exposition of Pennsylvania’s flexible choice of law rule.” Id. at
909.
20
notice requirement at issue in this case is not contained in any of
the provisions that reference New York law.
1. Identifying and Classifying the Conflict
Applying the above framework, we must first determine
whether there is an “actual” conflict between the New York and
Pennsylvania late notice laws. Pennsylvania requires an insurer
to establish it was prejudiced by an insured’s late notice before
it can disclaim coverage on those grounds (the “prejudice rule”).
Brakeman, 371 A.2d at 198. Under New York law, “absent a
valid excuse” for late notice, an insured’s “failure to satisfy the
notice requirement vitiates the policy” regardless of whether the
insurer can show prejudice (the “no prejudice rule”). Security
Mutual, 293 N.E.2d at 440. Because there are relevant
differences between the New York and Pennsylvania late notice
laws, we must proceed to the second prong of the inquiry and
determine if this is a true or false conflict.
Hammersmith contends there is a false conflict because
only Pennsylvania’s interests will be harmed if the Court does
not apply its law. Hammersmith reasons that the application of
Pennsylvania law will not impair the interests underlying New
York law because, if an insurer actually suffered “the harm New
York’s rule is intended to avert . . . [,] then [it could establish
prejudice and] avoid its coverage obligation even under
Pennsylvania law.” Appellant’s Br. 32. Conversely, applying
New York’s no-prejudice rule would impair Pennsylvania’s
interest in protecting an insured or accident victim from the
“unnecessary forfeiture of insurance benefits.” Id. at 31.
21
We disagree with Hammersmith and find there is a true
conflict between Pennsylvania and New York law. As
Hammersmith points out, Pennsylvania’s prejudice rule is
designed to safeguard the interests of the insured and accident
victim by protecting them against forfeitures on technical
grounds. Brakeman, 371 A.2d at 196-98 & n.8. On the other
hand, New York’s law, by requiring strict compliance with
notice provisions, is meant to protect insurers from fraud or
collusion, and enable them to “take an active, early role in the
litigation process, and in any settlement discussions and to set
adequate reserves.” Argo Corp. v. Greater N.Y. Mut. Ins. Co.,
827 N.E.2d 762, 765 (N.Y. 2005). We believe both
states’ interests are implicated on the facts of this case.
Although the named insured, DKM, had its headquarters in New
York (App. 875a) and thus is not a Pennsylvania resident, the
accident victim is a Pennsylvania domiciliary and was injured
while working in Pittsburgh. In Brakeman, the Pennsylvania
Supreme Court made clear that the prejudice rule serves the
public interest by ensuring that accident victims are not denied
“recovery against the insurance company because it received
late notice of the accident, even though it suffered no prejudice
as a consequence thereof.” 371 A.2d at 198 n.8. New York’s
interests are also implicated even though the insurer, TIG, is not
a New York resident. There is no evidence that New York
intended its “no-prejudice” rule to protect only resident insurers,
rather than all insurers doing business in the state of New York.
Because TIG issued an insurance policy in New York to a New
York resident, New York clearly has a regulatory interest in this
22
matter.12 Thus, there is a true conflict between Pennsylvania
and New York law, and we must determine which state has the
most significant relationship to this dispute.
2. Contacts under the Restatement
We begin the analysis by assessing each state’s contacts
under the Second Restatement of Conflicts of Laws, bearing in
mind that “[w]e are concerned with the contract of insurance”
and not the underlying tort. McCabe v. Prudential Prop. & Cas.
Ins. Co. 514 A.2d 582, 586 (Pa. Super. Ct. 1986). Section 193
of the Second Restatement specifically governs casualty
insurance contracts, and provides that the “validity [of the
contract] . . . and the rights created thereby are determined by
the local law of the state which the parties understood was to be
the principal location of the insured risk during the term of the
policy, unless . . . some other state has a more significant
relationship . . . to the transaction and the parties. . . .”
Restatement (Second) of Conflict of Laws § 193. Comment b
12
We decline to accept Hammersmith’s broader argument that
New York’s interest in applying its no prejudice rule can
never be harmed by enforcing a prejudice requirement because
the laws serve identical goals. New York has decided that
requiring strict compliance with notice provisions is the most
effective means of protecting certain interests of insurance
carriers. See Argo Corp., 827 N.E.2d at 764. We will not
substitute our judgment for that of the New York courts by
concluding that a prejudice rule would just as effectively serve
these interests.
23
explains that courts should generally give the location of the
insured risk “greater weight than any other single contact.” Id.
§ 193 cmt. b. However, if the “policy covers a group of risks
that are scattered throughout two or more states,” the location of
the risk has “less significance” to the choice-of-law
determination. Id. Section 193 clearly reflects a “preference
that only one set of laws govern a given insurance contract, and
a disapproval of the possibility that the laws of different
jurisdictions might apply to different risks under the policy.”
United Brass Works, Inc. v Am. Guar. & Liab. Ins. Co., 819
F. Supp. 465, 469 (W.D. Pa. 1992).
The insurance contract between TIG and DKM provided
coverage for DKM’s subsidiaries in more than twenty states and
throughout the world. App. 1252a-1256a. In this case, then,
there is no “principal location of the insured risk,” and the
significance of this factor is “greatly diminish[ed].” Compagnie,
880 F.2d at 690 (noting the “difficulty in defining, or even
locating, the insured risk” because the equipment manufactured
by the insured is “distributed throughout the world”); see also
Gould Inc. v. Cont’l Cas. Co., 822 F. Supp. 1172, 1175-76 (E.D.
Pa. 1993) (finding § 193 inapplicable because the
“comprehensive general liability policy . . . was intended to
insure the risks of business operations scattered throughout a
number of states”); Manor Care v. Cont’l Ins. Co., No.Civ.A.
01-CV-2524, 2003 WL 22436225, at *6 (E.D. Pa. Oct. 27,
2003) (holding that § 193 did not apply where the insured
facilities were located in thirty states).
Because § 193 is largely inapplicable, we turn to § 188(2)
(the general provision governing contracts), which directs us to
24
take the following contacts into account: (1) the place of
contracting; (2) the place of negotiation of the contract; (3) the
place of performance; (4) the location of the subject matter of
the contract; and (5) the domicile, residence, nationality, place
of incorporation and place of business of the parties. In
Compagnie, we observed that when notice is at issue, the
“location of the insured risk is further diminished in importance
while factors like the location of the injury, the domicile of the
parties, and the location of contracting and negotiation become
relatively more important.” 880 F.2d at 690. In particular, we
explained, “[t]he place of contracting, negotiation, and
performance are the most relevant contacts with respect to the
notice procedures.” Id. (quoting Sandefer Oil & Gas, Inc. v.
AIG Oil Rig of Texas Inc., 846 F.2d 319, 324 (5th Cir. 1988)).
An insurance contract is made in the state where it is
delivered. Harry L. Sheinman & Sons v. Scranton Life Ins. Co.,
125 F.2d 442, 444 (3d Cir. 1941). The evidence in this case
establishes that after TIG issued the policy, it was sent to New
York for review by the underwriter. From there, it was
forwarded to the broker, Brooks Wright, who was in either
Connecticut or New York, and finally to Cynthia Leopold,
DKM’s director of risk management, in New York. Leopold
Dep., App. 877a-878a. The record does not contain any more
specific evidence regarding the state of delivery. See id.
(indicating she did not know where the policy was delivered).
Nonetheless, TIG contends we should presume New York was
the state of delivery because New York is the residence of the
insured, DKM. In light of the fact that DKM’s headquarters are
in New York, the insurance policy lists a New York address for
25
DKM, and the policy was sent to Leopold in New York for final
review, we think it is fair to presume the policy was delivered in
New York. See Jamison v. Miracle Mile Rambler, Inc., 536
F.2d 560, 563 n.1 (3d Cir. 1976) (presuming Pennsylvania was
the state of delivery where the insured was incorporated and
located in Pennsylvania, and the insurer engaged in business in
Pennsylvania).
The second factor, place of negotiation, also points to
New York. DKM’s insurance broker, Aon Risk Services, Inc.
of New York, is a New York corporation with its principal place
of business in New York. Bryson, the wholesale broker which
actually placed the TIG policy for DKM, is also located in New
York. The application materials, as well as some of the
revisions to the policy, were prepared in New York. See Wright
Dep., App. 1150a (testifying that the application was prepared
by Patrice Paz, the broker on the DKM account); Letter from
Patrice Paz (Aon) to Kevin McLaughlin (Bryson), Jan. 9, 1997,
App. 1298a-1300a (listing changes and corrections to be made
to the policy). By contrast, there is no evidence that any part of
the negotiations took place in Pennsylvania.
The next contact, place of performance, is the state in
which notice should have been provided.13 See Compagnie, 880
F.2d at 685 (assessing place of performance with respect to late
notice, and discussing where notice had to be given and by
13
Generally, an insurance contract is performed where the
premiums are received. Gould, 822 F. Supp. at 1176. In this
case, there is no record evidence of where DKM paid its
premiums.
26
whom). Under the insurance contract, DKM, a New York
resident, was responsible for providing notice of claims to TIG,
a California corporation with its principal place of business in
Texas. App. 1211a; 875a; 274a. DKM, in turn, relied on its
New York broker, Aon, to provide notice to its carriers upon
request. See Leopold Dep., App. 839a, 841a, 879a-880a;
McConaghy Dep., 1087a. Presumably, notice of the claim was
to be given to TIG in Texas. See Letter from Hayes Battle
(AIG) to TIG, Oct. 19, 2000, App. 1707a-1708a (providing
notice of claim to TIG in Irving, Texas). It is very likely, then,
that Texas was the state of performance. However, between
New York and Pennsylvania, the third factor favors New York
because the entities responsible for providing notice under the
insurance contract were located in New York.
The fourth factor, location of the subject matter of the
contract, refers to the location of the insured risk. Manor Care,
2003 WL 22436225, at *7. Comment (e) provides that when the
“contract deals with a specific physical thing such as land or
chattel, or affords protection against a localized risk . . . the
location of the thing or risk is significant.” § 188 cmt. e. As we
previously explained in our discussion of § 193, the insured risk
in this case is spread throughout numerous states and countries.
Therefore, this factor is neutral.
Regarding the parties’ domiciles, we note that the only
resident of Pennsylvania is Hammersmith, the accident victim.
DKM (the named insured), Aon (the broker), and Bryson (the
wholesale broker that procured the policy) are all located in
New York. TIG is a resident of both California and Texas, and
CCC (DKM’s subsidiary that manufactured the conveyor) is
27
located in Texas. Comment (e) explains that the significance of
the parties’ domiciles “depends largely upon the issue involved
and upon the extent to which they are grouped with other
contacts.” § 188 cmt. e. For example, “[t]he fact that one of the
parties is domiciled or does business in a particular state
assumes greater importance when combined with other contacts,
such as that this state is the place of contracting or of
performance. . . .” Id. In this case, where the issue is late
notice, we think it is significant that New York domiciliaries
were responsible for providing notice under the terms of an
insurance policy which was issued, delivered and negotiated, at
least in part, in New York.
Weighing the above contacts on a “qualitative scale,” it
is clear that New York has a more significant relationship to the
insurance contract than Pennsylvania. The only connection
Pennsylvania has to this dispute is that the plaintiff resides, and
alleged tort occurred, in Pennsylvania. However, “we are
[primarily] concerned with [the] contract of insurance, and, as
to the insurance policy, [New York] has the most significant
contacts.” McCabe, 514 A.2d at 586.14
14
The fact that TIG had a license to market insurance policies
in Pennsylvania, and knew that DKM had subsidiaries in
Pennsylvania, does not mean (as Hammersmith argues) that
Pennsylvania has a greater interest in this dispute. TIG’s license
to do business in Pennsylvania does not alter the fact that the
insurance policy at issue is between a New York insured and a
California/Texas insurer. Likewise, the fact that DKM had
worldwide subsidiaries, including ones in Pennsylvania, does
not mean that Pennsylvania law should govern because the
28
3. Governmental Interests
Finally, the Court must consider the “interests and
policies that may be validly asserted by each jurisdiction.”
Melville, 584 F.2d at 1311. We conclude that New York has the
greater policy interest. Certainly, Pennsylvania has an interest
in ensuring recovery for its accident victims. However, we
believe New York’s interest in regulating an insurance contract
issued to a New York insured, negotiated by New York brokers,
delivered in New York, and entitled “New York Coverage Plus
Umbrella Liability Policy,” is paramount.
Because, between Pennsylvania and New York, New
York has the most significant relationship to the insurance
contract, and the greatest governmental interest in seeing its
laws enforced, we will apply New York law on the remaining
accident happened to have occurred in Pittsburgh. Under this
logic, TIG could be subject to the laws of more than twenty-five
states or countries under the DKM policy. Clearly, this runs
contrary to the Restatement’s “preference that only one set of
laws govern a given insurance contract.” United Brass Works,
819 F. Supp. at 469.
Additionally, we reject Hammersmith’s claim that New
York’s contacts with the insurance policy are “fortuitous.”
Airplane crashes and car accidents are fortuitous. The location
of a company’s headquarters, and a parent’s procurement of
insurance coverage for its subsidiaries, are deliberate decisions.
29
issues to this dispute.15
IV. Timeliness of Notice to Excess Insurer
Hammersmith argues that the District Court erred when
it decided as a matter of law that notice to TIG was untimely.
According to Hammersmith, a reasonable jury could conclude,
based on the evidence in the record, that DKM was not required
to notify TIG of the Hammersmith claim until October 2000,
15
Hammersmith urges the Court to follow Harrow Stores, Inc.
v. Hanover Insurance Co., 719 A.2d 196 (N.J. Super. Ct. 1998),
where the court chose New Jersey law to govern an insurance
dispute, even though the primary insured (Trojan) was a New
York corporation and only manufactured its products in New
York; the distributor of the allegedly defective product (Harrow
Stores) was also a New York corporation; and the insurance
contract was negotiated and consummated in New York. Id. at
199. The court was persuaded by the fact that the defective
product was sold in New Jersey to a New Jersey resident. Id.
It is unclear how many vendors (other than Harrow
Stores) were included in Trojan’s vendor endorsement. If the
endorsement covered a large number of distributors with
geographically diverse locations, we question whether the court
would have reached the same conclusion. In any event, we are
not bound by the New Jersey Superior Court’s choice of law
determination. The contacts discounted by the court in Harrow
Stores (e.g., the domicile of the insured, and place of negotiation
and consummation of the contract) are of great significance
under Pennsylvania precedent, and we must afford them
appropriate deference.
30
when another product liability claim against DKM settled,
reducing the total amount of coverage available under the
National Union primary policy. Appellant’s Br. 8-9. The
District Court’s legal conclusion on the voluminous evidence in
the record on this allegedly late notice issue was as follows:
We find that, viewing the facts in
the light most favorable to plaintiff,
TIG was not timely notified of the
underlying accident and/or lawsuit.
It is undisputed that DKM notified
Aon the very day it learned plaintiff
had filed a lawsuit. However, for
reasons that are unclear, Aon never
notified TIG, as it was required to
do. Therefore, DKM is not entitled
to coverage under its policy with
TIG.
App. 15a.
A. New York Law on Late Notice
Notice provisions in insurance contracts serve important
policy purposes. They “enable insurers to make a timely
investigation of relevant events and exercise early control over
a claim,” which may assist the parties in reaching settlement
before litigation. Furthermore, timely notice allows insurers “to
establish more accurate renewal premiums and maintain
adequate reserves.” Commercial Union Ins. v. Int’l Flavors &
Fragrances, Inc., 822 F.2d 267, 271 (2d Cir. 1987).
31
A leading New York Court of Appeals decision
addressing late notice provisions in insurance contracts holds
that the failure to give timely notice alleviates an insurer of its
obligation to provide coverage under an insurance policy
because an insured’s compliance with the notice provision of an
insurance policy operates as a condition precedent for coverage.
Late notice serves as a complete defense to liability, regardless
of whether the insurer was prejudiced by the delay. Security
Mut. Ins. v. Acker-Fitzsimons Corp., 293 N.E.2d 76, 78 (N.Y.
1972).
The principles established by Security Mutual and similar
cases have been extended to claims involving excess insurance
policies. The purposes of notice provisions are equally
applicable to both primary and excess insurers. Prompt notice
serves an “important function . . . in furnishing even an excess
carrier with an opportunity to participate in settlement
discussions at a time when its input is most likely to be
meaningful.” Am. Home Assurance Co. v. Int’l Ins. Co., 684
N.E.2d 14, 17 (N.Y. 1997).
However, while excess insurers have most of the rights and
obligations of primary insurers, there is one essential distinction
between them. Unlike primary insurers, excess insurers’
“coverage does not immediately attach after an occurrence, but
rather attaches only after the primary coverage for the
occurrence is exhausted.” Id.
As noted above, DKM’s excess insurance policy with
TIG dictates that, in the event of an occurrence which may result
in a claim, or when a claim is made or a suit is brought, the
32
insured must see to it that notice is provided to TIG “as soon as
practicable.” App. 1211a. Furthermore, in the event of claim
or suit, the policy requires the insured to “[i]mmediately send
US copies of any demands, notices, summons or legal papers
received in connection with the claim or SUIT.” Id.
In a case of excess insurance, the Second Circuit,
applying New York law, has observed that a notice provision
similar to the one found in TIG’s policy, which required
notification to the excess insurer in the event of an occurrence,
claim or suit, “obviously” does not require the “insured to give
notice of suits that do not implicate the [excess] insurer’s
policy.” Maryland Cas. Co. v. W.R. Grace & Co., 128 F.3d
794, 800 (2d Cir. 1997). The court continued, “[n]otice of ‘suit’
must mean notice of suit for recovery of damages for which the
insurer might have to respond, and the same construction applies
to notice of ‘occurrence.’” Id.
Although the New York Court of Appeals has not
considered an appeal from a grant of summary judgment with
facts similar to the present case, its decision in Mighty Midgets,
Inc. v. Centennial Insurance Co., 389 N.E.2d 1080 (N.Y. 1979),
affirming the trial court’s declaratory judgment rejecting a
disclaimer of coverage by the primary insurer, in an opinion by
Judge Fuchsberg, is relevant to the present case because of the
extended definition of the phrase “as soon as practicable”:
It is well settled that the
phrase “as soon as practicable” is
an elastic one, not to be defined in
a vacuum. By no means does it
33
connote an ironbound requirement
that notice be “immediate” or even
“prompt”, relative as even those
concepts often are; “soon”, a term
close to each of these in common
parlance, is expressly qualified in
the policy here by the word
“practicable”. Nor was compliance
with the insurance policy’s
temporal requirement to be
measured simply by how long it
was before written notification
came forth. More crucial was the
reason it took the time it did. So,
the provision that notice be given
“as soon as practicable” called for a
determination of what was within a
reasonable time in the light of the
facts and circumstances of the case
at hand.
Of course, there is no
inflexible test of reasonableness.
As with most questions whose
answers are heavily dependent on
the factual contexts in which they
arise, rules of general application
are hard to come by.
389 N.E.2d at 1083 (citations omitted).
34
Therefore, where an insured offers a reason for its delay
in providing notice, a fact finder must make a determination
whether that delay was reasonable in light of the facts and
circumstances of the case at hand. New York courts have
recognized a number of valid excuses for a delay in notifying an
insurer. For example, in New York, an insured’s lack of
knowledge of an accident or claim, or a good faith belief in non-
liability or noncoverage, when reasonable, may excuse a delay
in notifying its insurer. See Security Mut. Ins., 293 N.E.2d at
78-79. In the case of an excess insurance policy, a delay in
providing notice may serve as a valid excuse where the insured
can demonstrate that the delay was “based on its initial
reasonable, good-faith belief that the excess insurance would not
be triggered.” Morris Park Contracting Corp. v. National Union
Fire Insurance Co. of Pittsburgh, 822 N.Y.S.2d 616, 620 (App.
Div. 2006).
The insured bears the burden of establishing that it held
a good faith belief that its insurance policy would not be
implicated and that the belief was reasonable under all the
circumstances. Security Mut. Ins., 293 N.E.2d at 78-79. “The
existence of such a ‘good-faith belief,’ as well as the question of
whether the belief was reasonable, are ordinarily questions of
fact for the fact finder.” Argentina v. Otsego Mut. Fire Ins. Co.,
655 N.E.2d 166 (N.Y. 1995); Deso v. London & Lancashire
Indem. Co. of America, 143 N.E. 889 (N.Y. 1957) (holding that,
generally, the reasonableness of a delay in notifying an insurer
is a question of fact for the jury). However, when no excuse is
offered or no credible evidence exists to support an insured’s
contention that it had a reasonable, good faith belief that its
excess insurance policy would not be triggered, courts will
35
decide this issue as a matter of law. See Hartford Fire Ins. Co.
v. Masternak, 390 N.Y.S.2d 949, 952 (App. Div. 1977); cf.
Matter of Travelers Ins. Co., 672 N.Y.S.2d 219, 220 (App. Div.
1998) (“Where there is a credible basis to support the reason for
the delay, the issue of reasonableness becomes one of fact.”)
Absent a excuse or mitigating circumstances, “even relatively
short periods of delay have been found to be unreasonable as a
matter of law.” Todd v. Bankers Life & Cas. Co., 523 N.Y.S.2d
206 (App. Div. 1987); see, e.g., Deso, 143 N.E. at 889 (fifty-one
day delay unreasonable as a matter of law); Rushing v.
Commercial Cas. Ins. Co., 167 N.E. 450 (N.Y. 1929) (finding a
twenty-two day delay unreasonable as a matter of law in the
absence of explanation or excuse); American Ins. Co. v.
Fairchild Indus. Inc., 56 F.3d 435, 440 (2d Cir. 1995) (“Under
New York law, delays for one or two months are routinely held
‘unreasonable.’”)
There are four recent decisions by intermediate appellate
courts in New York that address the question of whether an
insured’s delay in providing notice to an excess insurer was
unreasonable as a matter of law. One affirms a lower court’s
decision to deny summary judgment to an excess insurer on the
issue of whether notice was unreasonably late, one rejects a
lower court’s decision as a matter of law that notice was
unreasonably late, a third affirms a decision finding notice
unreasonably late as a matter of law, and the fourth finds as a
matter of law that notice was late. We shall examine the facts
of each case to determine whether the New York Court of
Appeals would find that a court could determine DKM’s delay
in notifying TIG of the Hammersmith claims under the terms of
36
the TIG policy was unreasonable as a matter of law.16
In Morris Park Contracting Corp. v. National Union Fire
Insurance Co. of Pittsburgh, the Second Department upheld the
trial court’s decision to deny summary judgment to the
defendant-excess insurer because the plaintiff-insured raised
triable issues of fact about whether its delay in notifying the
excess insurer was the result of its initial reasonable, good faith
belief that its excess insurance policy would not be triggered.
822 N.Y.S.2d at 620. The insured had been served with a
personal injury complaint that contained an ad damnum clause
for $10 million in damages but only made vague and generalized
allegations of injury. Even though the insured’s primary
insurance policy limit was $1 million, the court found there were
issues of material fact about whether the insured’s notice to the
insurer was untimely. The court observed, “it is the
combination of the ad damnum figure and evidence regarding
the seriousness of the injuries which triggers that obligation.”
Id.
The insured offered evidence that the nature and extent
of the injuries to the opposing party in the underlying litigation
did not become clear until it received a bill of particulars, seven
months after the initial filing of the complaint, and that it
16
See Michalski v. Home Depot, Inc., 225 F.3d 113, 116-17
(2d Cir. 2000) (holding that when there is an “apparent split in
authority among the Appellate Divisions,” a federal court
applying New York law must predict how the New York Court
of Appeals would resolve the issue, by examining “New York
and, if necessary, other jurisdictions’ case law”).
37
notified the excess insurer of the claim eight days later. The
insurer responded by arguing that the insured was aware of the
extent of the party’s injuries at least two months earlier, when
the insured’s counsel had sent a report to the primary insurer
outlining various injuries and damages suffered by the opposing
party. The court found, while this report constituted “some
evidence” that the insured might have had sufficient information
to notify the insurer of a possible excess coverage claim, “we
are unable to reach such a conclusion as a matter of law on this
record.” Id. at 620. In addition, the court noted that the insured
had presented evidence that it had been engaged in a good faith
investigation of the accident and the injuries resulting from it, as
well as its own potential liability, in the time period before it
notified the excess insurer. Accordingly, the court held that
“Morris Park succeeded in raising issues of fact and credibility
regarding whether any period of delay in notifying [the excess
insurer] of the claim was based on its initial reasonable, good
faith belief that the excess insurance would not be triggered in
this case.” Id.
Therefore, for purposes of evaluating the late notice
provision of an excess insurance policy, a court should consider
“when the insured reasonably should have known that the claim
against it would likely exhaust its primary insurance coverage
and trigger its excess coverage, and whether any delay between
acquiring that knowledge and giving notice to the excess carrier
was reasonable under the circumstances.” Id.
The second decision of relevance is Reynolds Metal Co.
v. Aetna Casualty & Survey Co., 696 N.Y.S.2d 563 (App. Div.
1999). In Reynolds Metal, the operator of an aluminum
38
reduction plant sought indemnification for the clean-up costs of
contamination caused by the plant. The Third Department held
that the trial court erred when it granted summary judgment to
the defendant excess insurers because the insured’s notice to the
defendants was untimely as a matter of law. See id. at 569-70.
Noting that there was no evidence in the record that the insured
had an estimate of the potential clean-up costs of contamination
prior to its service of notice on the excess insurers, the court
found that the "defendant excess insurers failed to tender
sufficient evidentiary facts demonstrating plaintiff's knowledge
prior to the summer of 1988, that its primary polices would be
exhausted, implicating excess insurance coverage.” Id. at 570.
In the third case, Long Island Lighting Co. v. Allianz
Underwriters Insurance, 805 N.Y.S.2d 74 (App. Div. 2005), a
three-judge majority of the First Department held that excess
insurers were not required to defend and indemnify plaintiff in
an underlying action seeking environmental clean-up costs since
the plaintiff had failed to give notice upon the happening of an
occurrence “reasonably likely” to involve the policy. According
to the majority, the “occurrence” took place almost six months
before the insured was sued, when the insured received a letter
from the plaintiff’s lawyer threatening the lawsuit. The majority
said:
We reject plaintiff’s argument that
there was a reasonable possibility
that the subject policies, both
excess, would not be reached by the
[plaintiff’s] claim, where plaintiff
offers no evidence that the timing
39
of its notice was the result of a
deliberate determination to that
effect, and not, as the record
suggests, the belief that it was not
responsible for the . . . cleanup
costs.
805 N.Y.S.2d at 75.
Two judges dissented, believing that there were questions
of fact about whether it was reasonable for the insured to
believe, notwithstanding the receipt of the letter, that it would be
liable and whether the claim would implicate the excess policy.
The dissent emphasized that “the well settled law of this
jurisdiction is that an insurer’s delay or failure to give timely
notice may be excused when the insured has a reasonable belief
that it would not be liable.” Id. at 77. It also noted a distinction
between the reasonableness of notice given for primary
insurance as opposed to excess insurance. Id. at 78-79.
Finally, in Kamyr, Inc. v. St. Paul Surplus Lines
Insurance Co., 547 N.Y.S.2d 964 (App. Div. 1989), the Third
Department reversed the trial court’s decision to grant summary
judgment to the plaintiff-insureds and instead granted partial
summary judgment to the defendant excess insurer. It held that
the plaintiffs’ notice to the excess insurer of an incident over
two years after it occurred “was untimely as a matter of law
because plaintiffs had no good-faith belief in their nonliability
regarding the [] incident.” Id. at 967. The court reasoned that
the plaintiffs were aware within a day or two of the incident that
the damages from the incident would exceed the limits of their
40
primary insurance coverage, and the record was devoid of
evidence showing any developments in the ensuing two years
that would have changed the plaintiffs’ concern that they would
be found responsible for those losses. Furthermore, the court
noted, approximately a year after the incident, but eight months
before plaintiffs notified their excess insurers, plaintiffs’ general
counsel issued a report to the plaintiffs’ auditor estimating that
damages arising from the incident could run between $4 to $4.5
million, which far exceeded the limits of their primary policy.
Id. at 967.
When considering whether a court may decide notice to
an excess insurer was reasonable as a matter of law, the various
intermediate appellate courts of New York apply the
reasonableness and good faith standards enunciated by the Court
of Appeals, but differ on the application of those standards to
specific facts and circumstances. We conclude that as a federal
court applying these legal standards, we must determine, in the
context of Fed. R. Civ. P. 56, whether the issue of fact is
“genuine,” so as to require a jury trial.17
Federal courts, applying New York law, have held that
notice was untimely as a matter of law where there was
substantial evidence that the insured knew or should have
known that the extent of the damages would exceed its primary
policy but failed to give timely notice to its excess insurer. See
17
A very recent case, Blue Ridge Ins. Co. v. Biegelman, 2007
WL 182056 (N.Y. App. Div. Jan. 23, 2007), found late notice as
a matter of law because of an admitted broker mistake; the
decision is not authoritative for the current appeal.
41
Green Door Realty Corp. v. TIG Ins. Co., 329 F.3d 282, 288 (2d
Cir. 2003) (finding that rumors that someone had died in fire in
plaintiff’s building “put Plaintiffs on inquiry notice that they
might be subjected to liability in excess of their primary
insurance coverage, and any failure to investigate further and
notify [excess insurer] was unreasonable as a matter of law”).18
On balance, after reviewing New York law, we predict
that the New York Court of Appeals, if reviewing a factual
record similar to that discussed below, would adopt the decision
in Morris Park. Where the insured has been able to show facts
that it had a reasonable, good faith belief that a claim was not
likely to exceed its primary policy coverage, the New York
courts have refused to decide whether notice to the excess
insurer was late as a matter of law.
Here, the District Court granted summary judgment to
TIG concluding “DKM is not entitled to coverage under its
policy with TIG” because Aon had failed to notify TIG as it was
required to do. App. 15a. Hammersmith argues that the District
18
See also Olin Corp. v. Ins. of N. Am., 743 F. Supp. 1044,
1052, 1054 (S.D.N.Y. 1990), aff’d, 929 F.2d 62 (2d Cir. 1991)
(holding that the “duty to notify each excess insurer accrued
when the circumstances known to Olin would have suggested a
reasonable possibility of a claim that would trigger that excess
insurer’s coverage,” even though it could “discern no material
difference” between the language of the notice provisions in the
excess insurance and those in the primary insurance); Olin Corp.
v. Ins. of N. Am., 771 F. Supp. 76, 78 (S.D.N.Y. 1990), aff’d,
972 F.2d 1328 (2d Cir. 1992).
42
Court erred in reaching this conclusion. He contends there are
genuine issues of material fact about when DKM should have
known that its primary insurance policy was likely to be
insufficient to cover the damages resulting from his claim.
Although the District Court recognized that, on a motion for
summary judgment the Court must view the evidence in the light
most favorable to the non-moving party, very little of the
detailed evidence in the record is reflected in the District Court’s
Memorandum. We agree with Hammersmith’s contention,
“there is much evidence suggesting that TIG received notice as
soon as it became apparent that the National Union policy was
likely to prove insufficient.” Appellant’s Br. 46.
While New York courts recognize the need to give an
excess insurer notice of a possible claim implicating its policy
in a timely manner in order to ensure its participation in
settlement discussions, among other things, that obligation does
not attach until a fact finder could conclude that an insured
should have had a reasonable, good faith belief that the policy
would be triggered. This is a factual inquiry that a court must
refer to a jury unless there are no material facts in dispute about
when an insured acquired sufficient knowledge to make its
continued belief in noncoverage unreasonable. Therefore, the
inquiry for this Court is to examine whether the district court
erred in determining that DKM should have notified TIG upon
first learning of the Hammersmith claim.19
19
New York courts have not articulated a precise test for how
to evaluate the evidence on the reasonableness of an insured’s
belief that its insurance policy would not be triggered. In
reviewing the District Court’s decision on this issue as a matter
43
B. Facts of this Case Show a Genuine Issue of
Fact As to Reasonableness of Late Notice
“We call that action reasonable which an informed,
intelligent, justminded, civilized man could rationally favor.”
Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389, 406 (1928)
(Brandeis, J., dissenting). Hammersmith argues that there are
genuine issues of material fact about when DKM should have
known that its primary insurance policy was likely to be
insufficient to cover the damages resulting from his claim.
Although the District Court recognized that, on a motion for
summary judgment the Court must view the evidence in the light
most favorable to the non-moving party, very little of the
detailed evidence in the record is reflected in the District Court’s
Memorandum. We agree with Hammersmith’s contention,
“there is much evidence suggesting that TIG received notice as
soon as it became apparent that the National Union policy was
likely to prove insufficient.” Appellant’s Br. 46.
Hammersmith cites evidence that both Hayes Battle, an
experienced claims handler from AIG, the National Union
affiliate handling DKM claims, and CCC’s defense attorney,
Brennan Hart, a trial attorney with twenty-five years experience
particularly in the area of products liability, believed that the
of law, the most useful inquiry for this Court is to determine the
latest time at which there were material facts in dispute about
the reasonableness of DKM’s belief that its excess policy with
TIG would not be implicated. This does not mean, however,
that a fact finder weighing the evidence could not find that the
obligation arose at a much earlier time.
44
Hammersmith claim would not exceed the primary policy limits
well into the year 2000. Appellant’s Br. 46-47; see e.g. App.
695-96a, 706-07a, 1662-67a, 1696-97a.
The number of companies and individuals who
participated in the administration and oversight of DKM’s
insurance policies with respect to the Hammersmith claim make
the factual background of this case unavoidably complicated.
DKM first became aware of Hammersmith’s accident and
lawsuit on October 16, 1998, when it received a copy of a writ
of summons from Allegheny County joining CCC to the action.
The complaint alleged that the accident had damaged
Hammersmith’s spinal cord and rendered him quadriplegic, but
did not allege a specific amount of damages. App. 50-51a ¶¶
10-19, 115a ¶¶ 38-39, 1496-1508a. John Fitzsimmons, DKM’s
general counsel and corporate secretary for CCC, then
forwarded the writ of summons and other correspondence
relating to the lawsuit to Cindi Leopold, DKM’s Director of
Risk Management, (App. 837a), and noted in his forwarding
memorandum “[p]resumably we should notify our carrier of this
matter.” App. 54a ¶¶ 34-35. Ms. Leopold, in turn, sent the writ
of summons, followed by a copy of the complaint a few days
later, to James Coen at Aon, DKM’s insurance broker for its
casualty program, with a note requesting Aon to “Pls. notify
insurer.” App. 1489-1495a. Aon then forwarded the documents
from DKM to Gallagher Bassett Services (“GBS”), the third-
party administrator or claims adjustor to both DKM and AIG
Vendor Services (“AIG”), the representative of National Union
on the Hammersmith case. At GBS, Judith Diehl served as the
claims representative who had primary responsibility over the
Hammersmith claim. App. 58a ¶ 57. At AIG, Richard Crooks
45
and Hayes Battle, both experienced claims handlers, oversaw
the Hammersmith claim. App. 58a ¶¶ 59-61.
On October 30, 1998, GBS retained attorney P. Brennan
Hart to represent CCC in the Hammersmith case. App. 56a ¶
45. In his role as defense counsel for CCC, Mr. Hart
periodically reported to GBS on the status of the case, and GBS,
in turn, provided reports to DKM, AIG, and, subsequently, to
TIG. App. 57-58a ¶¶ 55-56. At the time that he was retained by
GBS to represent CCC, Mr. Hart had been practicing law as a
trial attorney for twenty-five years and had worked on numerous
product liability cases, including several multiple-fatality loss
claims. App. 56a ¶¶ 47-48. After August 1999, Joseph Cullens,
also a trial attorney with extensive experience in product
liability claims involving heavy machinery, joined Mr. Hart as
national supervisory co-counsel. App. 55-57a ¶¶ 52-54.
For the first few months after DKM received notice of
the Hammersmith claim, none of the people involved expressed
a belief that the damages resulting from the claim would exceed
the limits of DKM’s primary insurance policy. In fact, Hart
testified in his deposition that CCC and its attorneys initially
believed that CCC faced little or no liability for Hammersmith’s
accident. Hart. Dep., App. 685-86a; see also Cullens Dep., App.
528a (stating he thought CCC was a “minor player” from a
liability standpoint). He pointed out that the original design of
the conveyors manufactured and installed by CCC had
maintenance catwalks and, in his assessment, the responsible
parties were the parties who had removed the catwalks from the
original design, including the architect and the baggage
consulting firm. Hart Dep., App. 685-87a. The same attitude
46
was reflected in GBS’s and AIG’s early treatment of the claim.
On March 4, 1999, AIG “decontrolled” the claim and sent it
back to GBS for handling, noting that it would not actively
monitor the case unless the assessed exposure exceeded
$150,000 or the case took an unusual or significant turn that
would warrant its involvement. Letter from Richard Crooks to
John T. Ward, Mar. 4, 1999, App. 1620-21a. From December
21, 1998 until April 7, 1999, GBS assigned 0% of the liability
to CCC and set a maximum reserve of $20,000 for the claim.
App. 1537-40a.
As more facts emerged about the role of CCC and its co-
defendants in Hammersmith’s accident and the nature of his
injuries, the estimates about the settlement value of the case
increased. On July 23, 1999, Hart sent a letter to GBS, which
was carbon copied to representatives of Aon and DKM,
estimating that the settlement range for the Hammersmith claim
was in excess of $3 million, based on a potential jury verdict of
$3 to $7 million. Letter from P. Brennan Hart to Judith Diehl,
July 23, 1999, App. 1625a. However, Hart specified in his
deposition that those estimated verdict and settlement ranges
represented the liability for all defendants and not just CCC, an
interpretation also shared by DKM’s general counsel. Hart
Dep., App. 692-93a; Fitzsimons Dep., App. 639a, App. 424-25a.
Furthermore, while Hart conceded that there was a possibility
that a single defendant could be held jointly and severally liable
for the entire verdict, he stated that he had never seen such an
event occur, and that he “could not see a verdict coming in
against CCC alone under any circumstances.” Hart Dep., App.
692-93a, 744a.
47
In response to Hart’s July 1999 letter, GBS set a $2
million reserve for the Hammersmith case, which included both
DKM’s self-insured retention of $250,000 and the $1,750,000
AIG policy. Controlled Loss Report (Update) from Judith Diehl
to Cindi Leopold, July 28, 1999, App. 1629-30a. Copies of the
“Controlled Loss Report” from GBS reflecting that reserve were
sent to both DKM’s Leopold and Aon’s Coen, and similar
reports were sent to the same individuals on October 26, 1999
and January 13, 2000. App. 1627a, 1635a, 1648a. Hart thought
GBS’s $2 million reserve was appropriate. Hart Dep., App.
690a; Letter from P. Brennan Hart to Judith Diehl, Oct. 21,
1999, App. 1639-40a.
During her deposition, DKM’s Leopold testified from a
chronology she had prepared, (App. 1943a), that she believed
that Aon “should have notified TIG” of the Hammersmith claim
as soon as the severity of the claim warranted it, and that GBS’s
July 1999 decision to set “substantial reserves” constituted such
a trigger. Leopold Dep., App. 865a. According to TIG, this
statement was a concession on DKM’s part that it was obligated
to notify TIG by mid-1999 at the latest of the Hammersmith
claim, a full fifteen months before TIG actually received that
notice. Appellee’s Br. 45. However, Leopold specifically said
she did not know if TIG’s late notice defense was “well
founded.” Leopold Dep., App. 888a.
The Controlled Loss Report sent by GBS’s Diehl to
Leopold on July 28, 1999, reported that, “[i]f either the architect
or the baggage consultant company are responsible for the
design system, defense counsel is of the opinion that CCC, [t]he
[a]rchitect, and baggage consultant firm have a shared exposure
48
of 1/3 each.” Controlled Lost Report from Diehl to Leopold,
App. 1630a. The Report goes on to note that, based on
information currently available, the general consensus among
defense counsel was that the architect and or/baggage consultant
were in fact responsible for the design. Consequently, the
Report concludes that “we are basing our reserves on the
assumption that the records will eventually prove that the
architect and/or the baggage consultant are responsible for the
design.” GBS set the settlement value of the claim at $3-5
million with a potential verdict of $6-7 million. Provided that
the parties were able to settle the claim, GBS believed as of July
1999 that CCC would ultimately only be required to pay $1 to
$1.7 million on the claim. While a jury verdict could have
presumably exceeded the estimated settlement value of the
claim, the defendants repeatedly emphasized their desire and
belief that the case would settle. See, e.g., Hart Dep., App. 708a
(testifying that, as of late August 2006, he believed the case was
going to settle); Letter from Richard Crooks to Nanette
Goodman, Dec. 29, 1999, App. 1644-45a, (“[I] fail to see how
extensive litigation will serve to mitigate the loss.”); Battle
Dep., App. 313a. Despite Leopold’s opinion that the excess
insurer “should have been notified,” taking these facts in the
light most favorable to Hammersmith, the Court cannot
conclude that it was unreasonable as a matter of law for DKM
to believe that its excess policy would not be triggered as of July
1999.
Five months after GBS increased its reserve, on
December 29, 1999, Richard Crooks, claims handler for AIG,
the administrator for DKM’s primary insurance policy, sent a
letter to GBS, which was copied to DKM’s Leopold and Aon’s
49
Coen, among others, stating that the Hammersmith claim “is a
claim of adverse liability against the insured and one I should
begin posturing for resolution within our policy limits or for
tendering to the excess insurer.” Letter from Richard Crooks to
GBS, Dec. 29, 1999, App. 1644-45a. He advised GBS to begin
“thoroughly documenting the full scope of the damages and the
insured ultimate liability exposure so we can properly notify all
concerned parties regarding the potential [sic] represented by
this matter.” Id. On the same day, Crooks sent a letter directly
to Aon’s James Coen, which was copied to Leopold, among
others, concluding that “[t]he facts of this loss indicate that this
is a claim of adverse liability against the insured with serious
damages. It is our opinion that this matter has the potential to
exceed the insureds’ $1,750,000 policy limits. Accordingly, we
are writing to suggest that you place the appropriate excess
insurers on notice of this matter.” Letter from Richard Brooks
to James Coen, Dec. 29, 1999, App. 1646a.
Crooks did not recall ever receiving a response from
Coen to his letter. Crooks Dep., App. 478a. According to
Leopold, she assumed that Aon would have followed AIG’s
suggestion to provide notice to TIG of the Hammersmith claim.
Leopold Dep. 862a. Coen viewed the situation differently.
When asked about how he would have responded to the
suggestion from Crooks at AIG to notify DKM’s excess insurer,
“I wouldn’t have done that. The only person who could – who
would tell me I have the right, who could grant me that right is
the client themselves.” Coen Dep., App. 415a.
As of late December 1999, it is clear that Richard Crooks
believed that DKM should have notified its excess insurer of the
50
Hammersmith claim, and that he had informed representatives
from Aon and DKM of his opinion. The question is whether it
was reasonable, in light of this correspondence, for DKM to
continue to believe that its excess insurance policy would not be
triggered. On this record, it is difficult to discern whether
Leopold or Coen actually held a good faith belief at the end of
1999 that notice to the excess insurer was unnecessary. One of
the difficulties presented by this case is that it appears that
neither Leopold nor Coen recalled their contemporaneous
reactions to this correspondence and, instead, testified at their
depositions on what they believed they would have done or
expected at that time. Coen Dep., App. 415-17a; Leopold Dep.
865-67a. Because of this uncertainty, taking the facts in the
light most favorable to Hammersmith, the Court concludes that
the evidence in the record could lead a jury to decide that DKM
held a good faith belief its excess policy would not be triggered.
Furthermore, when Crooks sent his letters in late
December 1999, he had not yet completed a full evaluation of
the case and had not yet recommended a reserve level for
National Union. Crooks Dep., App. 499-500a, 505a. It was not
until March 1, 2000 that Crooks prepared an internal
memorandum, called a High Cost Narrative, estimating that,
“[b]ased on the limited information presently available and the
allegations being made by co-defendants,” 70 to 90 percent of
the liability for the Hammersmith claim could be assessed
against CCC. He recommended that AIG increase its own
reserve to $2 million, in line with GBS’s reserve, a
recommendation AIG adopted. High Cost Narrative Liability
Memorandum from Richard Crooks, Mar. 1, 2000, App. 1658-
1661a; Crooks Dep. 488-492a. However, the same
51
memorandum also reveals that, as of March 1, 2000, AIG did
not have a definitive assessment of Hammersmith’s damages.
Crooks notes under the heading “Plaintiff Damages/Injury” that,
“[t]o date, the plaintiff has not presented us with an economic
expert’s report,” although he estimated that Hammersmith’s
future medical care and lost wages would exceed $1 million
each. High Cost Narrative, Mar. 1, 2000, App. 1659a. In fact,
it appears from the record that defense counsel did not receive
a specific damages statement from Hammersmith until October
26, 2000, when Hammersmith’s attorney forwarded a copy of a
life care plan for Hammersmith, which estimated the costs of
Hammersmith’s future medical care at $9,844,000. Letter from
Michael H. Rosenzeig to Robert E. Dapper, Jr., Oct. 26, 2000,
attaching Projected Life Care Plan, July 3, 2000, App. 1710a,
1731a. TIG received notice of Hammersmith’s claim at the end
of October 2000.
Contrary to Crooks’ position, the evidence in the record
shows that other individuals, including Attorney Hart and
Richard Crooks’ successor at AIG, Hayes Battle, assessed the
value of the Hammersmith claim well into late 2000 as unlikely
to exhaust the limits of DKM’s primary insurance policy. When
asked about his reaction to Crooks’ December 29, 1999
prediction that the Hammersmith matter had the potential to
exceed the insurer’s $1,750,000 policy limits, Hart testified that
“[i]t had the potential, depending on the what the verdict
ultimately came to be, but I still believed that all parties would
be paying, all defendants would be contributing to the
settlement, or the verdict, whichever way it turned out.” Hart
Dep., App. 695-96a. Indeed, there is some evidence in the
record suggesting that Hart believed that CCC’s overall
52
exposure was actually decreasing. On January 24, 2000, Hart
sent a letter to GBS, which was copied to Aon’s Coen and
DKM’s Leopold, stating “as the number of defendants increase
I believe that our overall exposure decreases” although he
qualified that assertion by noting that “Plaintiff still views CCC
as one of the primary target defendants in this case.” Letter
from P. Brennan Hart to Judith Diehl, Jan. 24, 2000, App.
1656a.
Moreover, Hart’s “Defense Attorney Suit Status Report”
to GBS dated March 2000 predicts a verdict of $3 million to $8
million in favor of Hammersmith, but expressly notes that “there
is a significant likelihood that most, if [sic] all of the co-
defendants will be held into the case in relatively equal
percentages.” Defense Attorney’s Suit Status Report, Mar. 20,
2000, App. 1662-67a. While a verdict for Hammersmith had the
potential to exceed the limits of DKM’s primary insurance
policy, Hart’s report emphasized that the co-defendants wanted
to settle the case, opining that “[o]ur chances of a defense
verdict are zero.” App. 1667a. During a conference call in
April 2000 with AIG personnel, Hart made an estimate of what
those settlement percentages would be. He assessed the
settlement value of the case as between $5 million and $7
million, of which CCC would be responsible for 25 percent.
Hart Dep., App. 706-707a. Attorney Cullens characterized this
apportionment of liability as a “worst case scenario.” Cullens
Dep., 532-33a, 536a. Thus, the records shows that CCC’s main
defense attorney believed in April 2000 that the Hammersmith
claim was likely to settle for less than the value of DKM’s
primary insurance policy.
53
This belief was also held by Crooks’ successor at AIG.
In August 2000, Hayes Battle took over as AIG’s claims handler
on the Hammersmith case from Richard Crooks, who had left
the company. Battle Dep., App. 310a. On August 26, 2000,
Battle wrote an internal file memorandum indicating that
Hammersmith had made a settlement demand for $14 million,
but that defense counsel estimated the settlement range of the
case as in the area of $5 million to $5.5 million, with the
potential exposure to DKM in the range of $1.5 to $ 2 million.
Memorandum from Hayes Battle to File, Aug. 26, 2000, App.
1696a. Battle concluded that “[o]ur ground-up reserve is
currently set at $2 million dollars and it appears adequate at this
time.” Id.; Battle Dep., App. 313a.
On September 20, 2000, Hayes Battle wrote another file
memorandum noting that, while TIG was listed as the excess
insurer on CCC’s policy, “[w]e have not hear[d] and/or received
anything from TIG, to date.” He went on to conclude that the
Hammersmith case “might resolve without any participation
from TIG as a result of contribution from the co-defendants and
the use of a structured settlement.” Memorandum from Hayes
Battle to File, Sept. 20, 2000, App. 1697a; Battle Dep., 314a.
Hart agreed with this September 2000 assessment of the case.
Hart Dep., App. 748a.
However, in October 2000, another claim against DKM
(the “Melba” claim) was settled, and the combined reserves
from the Melba claim and the Hammersmith claim exceeded the
aggregate limit of DKM’s insurance policy with National Union
for product liability claims. Battle Dep., App. 316-320a. As a
result, on October 19, 2000, Battle, who assumed from the
54
notice sent to the broker that TIG had been notified, (App.
315a), sent a letter to TIG informing them that the incurred
reserves on the Hammersmith and Melba claims “are equal to
and/or exceed[] National Union’s $1,750,000 ‘Products Liability
Aggregate’ limit.” Letter from Hayes Battle to TIG, Oct. 19,
2000, App. 1707-08a. Battle testified that, because payment of
the Melba claim reduced the amount available under the
National Union policy, “as a courtesy, I sent this letter to make
them aware of that.” Battle Dep., App. 316a. TIG received
Battle’s letter on October 30, 2000, opened a claim file, and
assigned the matter to claims specialist Terri Long. App. 60a ¶¶
68-69. TIG contends that this is the first notice it received of the
Hammersmith claim, and there is nothing in the record to
dispute this. Battle also testified that the first time he believed
that the suit could not be settled within the limits of the National
Union policy was when he attended the mediation on November
9, 2000. App. 326a.
We cannot conclude as a matter of law on a summary
judgment record, without cross examination of witnesses, that
this notice was untimely. The serious nature of Hammersmith’s
injuries is insufficient, standing alone, for a court to find as a
matter of law that TIG was entitled to receive notice of
Hammersmith’s suit shortly after DKM first received a writ of
summons in October 1998. It is telling that, despite the
allegations in the complaint that the plaintiff had suffered a
spinal cord injury and was rendered quadriplegic, neither GBS
or AIG chose to set the reserve level on their policies at $2
million until July 1999 and March 2000, several months after
first receiving notice of the case. The arguably limited role
CCC played in the design of the conveyor, particularly in
55
relation to the involvement of its co-defendants, in the facts
causing Hammersmith’s injuries, was material to both the
defense attorneys’ and the insurance administrators’ assessment
of the claim. Further, it appears from the record that new facts
about the possible settlement value of the case, based on the
solvency of CCC’s co-defendants and their role in contributing
to Hammersmith’s accident, as well as the plaintiff’s future
medical expenses and future lost wages, were in constant flux
during the two year period leading up to the notification of TIG
about the claim. See, e.g,. High Cost Narrative Liability, Mar.
1, 2000, App. 1659a (listing the numerous gaps in information
“clouding” AIG’s assessment of CCC’s liability); Controlled
Loss Report (Update), Jan. 10, 2000, App. 1650a (describing the
numerous factual issues still outstanding in the Hammersmith
case).
These facts led the various insureds’ representatives
overseeing the Hammersmith insurance claim to draw very
different conclusions about CCC’s potential exposure. The
reasonableness of their decision not to notify TIG should not be
taken from a jury. In particular, as Hammersmith points out in
his brief, both Hart and Battle testified that they believed into
late 2000, that the limits of DKM’s primary policy would be
adequate to address the claim. Appellant’s Reply Br. 17.
The standard applied by the District Court did not fully
reflect New York jurisprudence interpreting a requirement in an
excess insurance policy that notice of an occurrence or claim be
given “as soon as practicable.” It merely requires “that notice
be given within a reasonable time under all the circumstances.”
Security Mut. Ins., 293 N.E.2d at 79. Furthermore, under New
56
York law, an insured’s good faith belief that its excess insurance
policy would not be triggered, where reasonable, may excuse a
“seeming failure to give timely notice.” Id.; Morris Park, 822
N.Y.S.2d at 620. In Morris Park, the court noted that “[t]he
resolution of such questions of reasonableness is ‘heavily
dependant on the factual contexts in which they arise.’” 822
N.Y.S.2d at 619 (quoting Mighty Midgets, 389 N.E.2d at 1084).
Where the insured has been able to show that there are triable
issues of fact about when it reasonably should have known that
a claim was likely to exceed its primary policy coverage, New
York courts have refused to decide this issue as a matter of law.
Given the conflicting information, reasonable people can
disagree as to when DKM reasonably should have known that
the claim would likely exceed primary coverage. Construing the
facts in favor Hammersmith, in light of the numerous material
issues of fact he has raised, the Court holds that the District
Court erred when it decided that DKM’s notice to TIG was
untimely as a matter of law.
V. Timeliness of Disclaimer
Hammersmith claims the District Court erred in
concluding as a matter of law that TIG “disclaim[ed] coverage
within a reasonable period of time.”20 App. 12a. Under New
20
Hammersmith moved for partial summary judgment on the
ground that TIG unreasonably delayed disclaiming coverage.
The District Court denied Hammersmith’s motion, and
concluded that TIG’s disclaimer was reasonable as a matter of
law - effectively granting summary judgment on this issue in
57
York law, insurers are required by statute to disclaim coverage
for “death or bodily injury arising out of . . . [an] accident
occurring within [New York] . . . as soon as is reasonably
possible. . . .” McKinney’s Ins. Law § 3420(d). Because
Hammersmith was injured in Pennsylvania, § 3420(d) is
inapplicable. However, the New York common law rule of
estoppel applies. See Am. Home Assurance Co. v. Republic Ins.
Co., 984 F.2d 76, 79 (2d Cir. 1993) (concluding that § 3420(d)
did not apply to an out-of-state accident, but considering issue
of late disclaimer under common law principles); Royal Ins. Co.
v. Commercial Underwriters Ins. Co., No.03 Civ. 8325 (NRB),
2004 WL 2609522, at *3 (S.D.N.Y. Nov. 17, 2004) (“Without
statutory regulation, the timeliness of disclaimer is governed by
equitable principles. . . .”).
A court may estop an insurer from disclaiming coverage
if the insurer “acts in a manner inconsistent with a lack of
coverage, and the insured reasonably relies on those actions to
its detriment.” Burt Rigid Box, Inc. v. Travelers Prop. Cas.
favor of the non-movant, TIG. See National Expositions, Inc. v.
Crowley Maritime Corp., 824 F.2d 131, 133 (1st Cir. 1987)
(collecting cases recognizing that a “district court has the legal
power to render summary judgment . . . in favor of the party
opposing a summary judgment motion even though he has made
no formal cross-motion under rule 56”) (internal quotations
omitted); Banks v. Lackawanna County Comm’rs., 931 F. Supp.
359, 363 n.7 (M.D. Pa. 1996) (“A district court may grant
summary judgment in favor of a non-movant where it believes
that the movant has had adequate notice of the grounds for that
judgment, and where there is clear support for such judgment.”).
58
Corp., 302 F.3d 83, 95 (2d Cir. 2002). An unreasonable delay
in disclaiming coverage qualifies as an “act inconsistent with a
lack of coverage.” Id. Thus, in order to take advantage of the
equitable principle of estoppel, Hammersmith must establish
that TIG unreasonably delayed disclaiming coverage, and he
suffered prejudice as a result. Fairmont Funding, Ltd. v. Utica
Mut. Ins. Co., 694 N.Y.S.2d 389 (App. Div. 1999).21 Although
§ 3420(d) does not apply to TIG, cases interpreting the
reasonableness of an insurer’s delay under § 3420(d) are
informative in assessing the timeliness of TIG’s disclaimer.
We measure the timeliness of an insurer’s disclaimer
“from the point in time when the insurer first learns of the
grounds for disclaimer of liability or denial of coverage.” First
Fin. Ins. Co. v. Jetco Contracting Corp., 801 N.E.2d 835, 838-39
(N.Y. 2003). The reasonableness of delay will “depend[] upon
the circumstances of the case which make it reasonable for the
insurer to take more or less time to make, complete, and act
diligently on its investigation of its coverage or breach of
conditions in its policy.” Allstate Ins. Co. v. Gross, 265 N.E.2d
736, 739 (N.Y. 1970). If the basis for disclaimer is “readily
21
Because the District Judge concluded that TIG’s disclaimer
was reasonable as a matter of law, he did not consider whether
the insured was prejudiced by the eleven month delay. As we
discuss below, Hammersmith has raised numerous issues of
material fact with respect to the reasonableness of TIG’s delay
in disclaiming coverage. Accordingly, upon remand, the
District Judge must proceed to the second part of the inquiry,
and consider whether there are genuine factual disputes on the
issue of prejudice.
59
apparent from the face of the claim,” New York courts have
held that relatively short periods of delay are unreasonable as a
matter of law. See Milbank Hous. Dev. Fund v. Royal Indem.
Co., 794 N.Y.S.2d 23 (App. Div. 2005) (finding delay of more
than 60 days unreasonable as a matter of law when grounds for
disclaimer were readily apparent from documents submitted to
insurer); Squires v. Robert Marini Builders, Inc., 739 N.Y.S.2d
777, 780 (App. Div. 2002) (42 days); W. 16th Street Tenants
Corp. v. Public Serv. Mut. Ins. Co. 736 N.Y.S.2d 34, 35 (App.
Div. 2002) (30 days).
On the other hand, “if an insured’s claim requires
investigation into its validity, an insurer must be given
reasonable time to investigate adequately whether it should
disclaim.” Mount Vernon Fire Ins. Co. v. Kent Dev. of N.Y.,
No. 93 Civ.3919, 1996 WL 521426, at *3 (S.D.N.Y. Sept. 12,
1996). When an insured has delayed notifying the insurer of the
claim, the “length of the delay may be relevant” to the
reasonableness of the insurer’s delay in disclaiming coverage.
Safeguard Ins. Co. v. Angel Guardian Home, 946 F. Supp. 221,
229 (E.D.N.Y. 1996).
TIG first received notice of the Hammersmith claim on
October 30, 2000, and formally disclaimed coverage on late
notice grounds on October 5, 2001. TIG contends the eleventh
month delay was reasonable because during this time it was
conducting an investigation of the late notice issue, and DKM
and Aon persistently refused to provide it with information
necessary to make an informed coverage decision. Although the
record certainly contains evidence that Aon and DKM were less
60
than forthcoming with TIG,22 the record is equally replete with
evidence that TIG failed to conduct its investigation in a
reasonable, diligent and prompt manner.
Upon receiving notice of the Hammersmith claim, TIG
“almost immediately” identified late notice as a potential ground
for disclaimer. See Long Dep., App. 927a; E-mail from Valerie
Lameka to Terri Long, Oct. 30, 2000, App. 1790a. On
22
In the November 7, 2000 reservation of rights letter, TIG
asked DKM to provide it with certain information relating to the
late notice issue, including “an explanation as to why TIG was
not provided notice at an earlier date.” Letter from Terri Long
to Cynthia Leopold, Nov. 7, 2000, App. 1830a-1831a. In Aon’s
response, James Coen indicated that answers to the late notice
questions would be “forwarded under separate cover.” Letter
from James Coen to Terri Long, Dec. 15, 2000, App. 1865a.
Despite this promise, Aon did not provide TIG with the
requested information. See Claim Note by Hayes Battle, June
12, 2001 (“[Aon has] decided not to respond to [the] request [for
a response to the notice issue] for now.”). On September 18,
2001, Cynthia Leopold, DKM’s corporate risk manager, directly
answered some of TIG’s questions. See Letter from Cynthia
Leopold to Terri Long, Sept. 18, 2001, App. 1953a (informing
TIG that DKM was first notified of the Hammersmith accident
and claim on October 16, 1998). However, Leopold also
assured Long that a “response will be forthcoming from Aon”
with respect to why TIG was not provided notice at an earlier
date. Id. Aon never provided TIG with a response, despite
promising to do so again in an October 1, 2001 letter. Letter
from James Coen to Terri Long, Oct. 1, 2001, App. 1974a.
61
November 7, 2000, claims specialist Terri Long sent DKM a
reservation of rights letter, specifically identifying late notice as
an issue, and requesting that DKM provide it with certain
information relating to the underlying suit, including the date on
which the insured first received notice, and an explanation as to
why TIG was not notified earlier. App. 1830a-1831a. Aon
responded on behalf of DKM on December 15, 2000 by sending
TIG a copy of DKM’s primary insurance policy, and noting that
answers to the late notice questions would be forthcoming. App.
1865a. Although Long never received this additional
information from Aon or DKM, she did not even begin to draft
a follow-up letter until February 16, 2001. App. 1873a. Despite
the instructions of her technical supervisor, Kathleen Fikes, to
“really push for this info and stay on top of it until you get what
is needed,” Long did not actually send the February 16 draft to
Aon until March 6, 2001. App. 1875a
On June 19, 2001, Stephen Jacobs, TIG’s coverage
attorney, forwarded a draft of a second reservation of rights
letter to Long. The letter reiterated TIG’s request for certain
information, and highlighted an additional coverage issue
relating to the plan’s “wrap-up” policy. App. 1900a-1903a.
Although both Jacobs and Fikes believed the letter was mailed
in June, Long did not actually send it to DKM until September
6, 2001. See E-mail from Kathleen Fikes to Terri Long, July 18,
2001, App. 1926a (“May I have a copy of the ROR that went out
last month?”); E-mail from Stephen Jacobs to Terri Long, Aug.
7, 2001, App. 1927a (“[I]t occurred to me to see whether you
had gotten any response to the letter I believe you sent out the
second half of June. If not, I suggest either a final follow-up
letter or disclaimer.”).
62
These unexplained gaps in the investigation raise material
issues of fact as to whether it was reasonable for TIG to take
eleven months to disclaim coverage. Although the District
Judge concluded this time was necessary for TIG to thoroughly
investigate “if it had in fact been previously notified” and if not,
“why it hadn’t previously been notified,” app. 18a, there is
ample evidence that Long and her colleagues failed to actively
pursue answers to these questions for months at a time. Cf.
Structure Tone, Inc. v. Burgess Steel Prod. Corp., 672 N.Y.S.2d
33, 34 (App. Div. 1998) (“[D]isclaimer . . . [,] issued 38 days
after plaintiff’s own untimely notice, was not unreasonable in
light of the unrefuted showing of a prompt, diligent, and good
faith investigation of the claim....”); Mount Vernon Fire Ins. Co.
v. Harris, 193 F. Supp. 2d 674, 678 (E.D.N.Y. 2002) (finding a
fifty-day delay reasonable in order for insurer to conduct a
“prompt investigation” into the claim).
Moreover, Hammersmith has pointed to evidence that by
July 2001, TIG was aware of sufficient facts to disclaim
coverage, but failed to do so until October 2001. On November
1, 2000, Hayes Battle faxed Terri Long a copy of the first
amended complaint in the underlying action between
Hammersmith and CCC. App. 1795a. The next day, Long
forwarded the complaint, along with the declaration pages of the
renewal policy and a DKM company profile and loss history, to
Jacobs. App. 1824a. Although Aon did not send a copy of the
excess policy to Long until March 23, 2001, TIG certainly could
have obtained a copy of its own policy from another source in
the meantime. App. 1876a. On May 1, 2001, defense attorney
P. Brennan Hart provided Long with all of the pleadings in the
underlying action and the deposition of John FitzSimons. App.
63
1889a.
Two months later, on July 5, 2001, TIG received a
controlled loss report from Gallagher Basset which indicated
that the “D/R to Insd” for the Hammersmith claim was October
16, 1998. App. 1905a. Terri Long was a carbon copy recipient
of this report. App. 1906a. Although TIG contends that it did
not know when DKM was first notified of the Hammersmith
claim until it received Leopold’s September 18, 2001 letter, app.
1953a, the Gallagher Basset report suggests otherwise. Thus,
Hammersmith has raised a genuine issue of fact as to whether
TIG had adequate information to disclaim coverage several
months before October 2001.23
23
TIG relies heavily on the fact that DKM and Aon never
provided TIG with an excuse for the allegedly late notice during
the course of TIG’s investigation. Hammersmith has raised an
issue of fact as to whether TIG pursued this information with
diligence, and whether this information was even necessary for
TIG to disclaim coverage. In Jacobs’ memorandum to Long
discussing the late notice issue, he noted that “some New York
federal decisions raise the issue as to whether TIG’s notice
provision would be construed to require notice of all claim[s] (as
its language states) or only those reasonably likely to involve its
policy.” Memorandum from Stephen Jacobs to Terri Long, Oct.
2, 2001, App. 1987a. However, he concluded, “[g]iven the
severity of the injuries alleged in the Hammersmith complaint,
we do not consider the issue determinative.” Id. at 1987a-1988a.
Additionally, in TIG’s response to Hammersmith’s Statement of
Undisputed Facts submitted to the District Court, TIG admitted
that it “construes the notice conditions in its Policy to require
64
There is also evidence in the record that, between April
and July 2001, TIG focused much of its attention on whether
CCC qualified as an insured under the excess policy. Long first
identified CCC’s insured status as an issue on April 27, 2001.
See TIG’s Response to Hammersmith’s Statement of
Undisputed Facts, App. 101a, ¶ 180; Long Dep., App. 1069a-
1070a. Long’s notes indicate she was still researching the issue
in June. See TIG’s Response to Hammersmith’s Statement of
Undisputed Facts, App. 101a, ¶¶ 181-182; Long Dep., App.
976a. In mid-July, Fikes asked Long if she had “resolved
whether or not [TIG] insure[s] CCC, Conveyors, Inc.?” E-mail
from Kathleen Fikes to Terri Long, July 18, 2001, App. 1926a.
The following day, Fikes forwarded Long her own analysis of
the issue, and urged Long to consult Jacobs to the extent he had
already “not studied the issue.” E-mail from Kathleen Fikes to
Terri Long, July 19, 2001, App. 1908a-1911a. Hammersmith
argues, and we agree, that this evidence raises serious factual
issues regarding TIG’s diligence in conducting its investigation.
Although by March 2001 TIG possessed the excess policy and
related application materials reflecting the date DKM sold CCC,
TIG took nearly three months to reach a position on whether
CCC was insured under the policy. This unaccounted-for delay,
along with the other issues of fact cited above, preclude a
that it be notified of every lawsuit against the policyholder,
regardless of whether the claim appears insignificant or unlikely
to impact its coverage.” App. 92a, ¶ 26 (admitting
Hammersmith’s SOF ¶ 26, App. 53a). Thus, there is a genuine
issue of fact as to whether TIG would have accepted any excuse
for late notice from DKM or Aon, under its view of New York
law and the facts of the case.
65
finding that the eleven-month time period between TIG’s notice
and disclaimer was reasonable as a matter of law.24
24
In concluding that TIG’s delay was reasonable as a matter
of law, the District Court distinguished Hammersmith’s case
from several New York Court of Appeals decisions, including
Hartford Ins. Co. v. County of Nassau, 389 N.E.2d 1061 (N.Y.
1979), and Firemen’s Fund Ins. Co. of Newark v. Hopkins, 666
N.E.2d 1354 (N.Y. 1996). In Hartford, the court held that an
unexplained delay of two months was unreasonable as a matter
of law. The District Court thought this was quite different from
Hammersmith’s case, because TIG “offer[ed] a legitimate
explanation for its delay in denying coverage – it was searching
for information that would, as definitively as possible, establish
that it had received late notification of Mr. Hammersmith’s
accident.” App. 16a-17a. We agree with the District Court that,
unlike Hartford, TIG has offered an explanation for its delay.
However, as we discussed above, we think there are important
issues of fact regarding the reasonableness of TIG’s eleven-
month investigation.
In Firemen’s Fund, the court found the insurer’s delay
was unreasonable as a matter of law because it disclaimed
coverage eight months after receiving notice of the claim, and
four months after receiving the complete record of the
underlying accident. 666 N.E.2d at 1355. The District Court
found this case “readily distinguishable” because “notification
of the claims [in Firemen’s Fund] was very straightforward,”
whereas Hammersmith’s case involved a more complicated
investigation of the late notice issue. App. 17a-18a. We agree
that cases involving third party brokers and notice to excess
carriers are necessarily complicated, and may require longer
66
VI. Conclusion
Although we have concluded that the District Court used
the wrong standard to determine the applicable state law, its
decision to use New York law was correct on the facts of record.
However, we vacate the grant of summary judgment to TIG on
the issues of late notice and disclaimer, and remand for further
proceedings.
investigations before insurers can reach coverage decisions.
However, this does not alter our conclusion that Hammersmith
has raised a material issue of fact that TIG failed to conduct its
investigation in a reasonable, diligent and prompt manner. In
Hartford, the court emphasized that “[i]t is only in the
exceptional case that [the late disclaimer issue] may be decided
as a matter of law.” 389 N.E.2d 1061. This is not such a case.
67