When an insurance company decides to disclaim coverage it has to be very careful about timing the notice and the substance of the disclaimer. Courts have been generally strict in finding that a carrier’s failure to specify a ground for disclaimer precludes the carrier from raising that ground subsequently as an affirmative defense in a coverage action. Disclaimers based on late notice add additional complexity given the carrier’s need to demonstrate prejudice in many states.

In a recent coverage case in New York, a carrier sought to amend its answer to assert the affirmative defense of late notice. The motion court granted the carrier’s motion, but on appeal, the appellate court reversed, holding that the carrier waived its right to assert the late notice defense. The carrier appealed, and the New York Court of Appeals reversed and reinstated the motion court’s order allowing the answer to be amended to assert the affirmative defense of late notice.

In Estee Lauder, Inc. v. OneBeacon Ins. Group, LLC, No. 214 (N.Y. Ct. of App. Sept. 15, 2016),  the Court of Appeals, in a unanimous memorandum decision, determined that a triable issue of fact existed as to whether the carrier clearly manifested an intent to abandon its late notice defense. According to the Court of Appeals, the carrier identified the late notice defense in early communications with the policyholder before issuing the disclaimer letters. The disclaimer letters, according to the Appellate Division opinion, did not raise late notice as a ground.

In finding in favor of the carrier, the Court of Appeals analyzed the circumstances under the common-law waiver standard, “which requires an examination of all factors.” The court concluded that the carrier cannot be said to have waived its right to assert the late-notice defense as a matter of law by failing to specifically identify late notice in the disclaimer letters. Essentially, the court held that there was a triable issue of fact as to whether in the course of the claim the carrier clearly manifested an intent to abandon the late notice defense.

Part of the complication of this case is the claim by the carrier that it could not assert the late notice defense after the Appellate Division ruled against it until after the Court of Appeals rendered its KeySpan Gas E. Corp. v. Munich Reins. Am., Inc. decision in June 2014, 23 N.Y.3d 583 (2014). In that case, the Court of Appeals stated that an earlier decision of the Appellate Division in this case was wrongly decided and should not be followed (referring to N.Y. Ins. Law § 3420(d)(2)‘s lack of application to claims not based on death and bodily injury). The carrier’s motion to amend its answer to assert the late notice defense occurred after the KeySpandecision.

Although the Appellate Division’s decision was based on the proposition that a ground not raised in a disclaimer letter may not be asserted later as an affirmative defense–a proposition that has support in numerous cases–the Court of Appeals nevertheless determined that the facts precluded that determination as a matter of law under the circumstances of this case. Reasserting the affirmative defense of late notice, however, does not mean that at the end of the day the carrier will prevail. It will come down to whether the jury finds that the carrier clearly manifested an intent to abandon late notice as a defense.