Typically, courts are strict when it comes to insurance companies disclaiming coverage.  Generally, a disclaimer must be specific and timely for it to have any chance of being effective.  In many cases, an insurance policy has an exclusion that the insurance company contends precludes coverage.  In other cases, the coverage alleged is just not provided for in the insurance policy.  In a recent case, the United States Court of Appeals for the Second Circuit addressed the difference between a lack of coverage because of an exclusion and because of lack of inclusion and how that difference bears on whether a notice of disclaimer is required.

The case involved a claim for damages arising out of a motor vehicle accident.  The insured had a businessowners insurance policy and an umbrella policy issued by the same carrier.  The vehicle owned by the policyholder involved in the accident was insured under a commercial auto policy (which provided a defense and indemnity), but the policyholder gave notice to the businessowners and umbrella carrier as well. The carrier denied coverage (twice – once when notice was given and again after the complaint was forwarded).  The carrier brought suit to declare it had no duty to defend or indemnify the policyholder.  The district court found for the policyholder, but the Second Circuit reversed.  Citizens Ins. Co. of Am. v. Risen Foods, LLC, No. 16-4166 (2d Cir. Jan. 22, 2018).

Both the businessowners and umbrella policy had the same policy number.  The schedule of underlying policies of the umbrella policy did not include the commercial auto policy.  The businessowners policy excluded coverage for bodily injury arising out of the ownership of any auto, but included an endorsement for hired auto and non-owned auto coverage.  The umbrella policy’s insuring agreement stated that it did not apply to bodily injury to which the insurance does not apply.  The umbrella policy also had an exclusion for auto coverage arising out of ownership of an auto, which is not a covered auto.  Covered auto was defined as only those autos to which the underlying insurance applied.

In reversing and finding for the carrier, the Second Circuit relied on its decision in NGM Insurance Co. v. Blakely Pumping, Inc., 593 F.3d 150 (2d Cir. 2010), which the court said squarely governed this case.  The court found that the operative language of the endorsement in NGM was identical to the operative language of the endorsement to the businessowners policy with only trivial differences.  In NGM, there was also a claim involving a businessowners policy to which had been added a hired auto and non-owned auto endorsement. The Second Circuit, in NGM, held that notice is not required where there is no coverage by reason of lack of inclusion.  The endorsement in NGM did not generally cover auto accidents, said the court.  It only covered accidents arising from a hired auto or non-owned auto.  Because of this, reasoned the court, the owned vehicle could never be covered and there was no coverage by reason of lack of inclusion.  Therefore, held the court, no notice of disclaimer was required.

The court rejected the policyholder’s attempt to distinguish NGM and held that the same ruling was required.  The bottom line; timely disclaimer of coverage was not required because the policy provided no coverage for an owned vehicle.  The disclaimer was not based on an exclusion; it was based on lack of inclusion of an owned vehicle as part of the policy’s coverage grant.

The court also held that the umbrella policy did not have to drop down and cover this accident.  Because the underlying businessowners policy did not apply to an owned auto, the umbrella policy did not apply either because it only covered autos to which the underlying insurance applied.  Because neither policy provided coverage, the judgment in favor of the policyholder was reversed.