Under New York law (and the law of other jurisdictions), an unsatisfied judgment against an insured may be the subject of an action to recover the judgment against the insurance company.   Sounds simple, but the claimant, standing in the shoes of the policyholder, will be subject to all the defenses the insurance company can bring against the policyholder to avoid coverage.  In a recent case, a New York intermediate appellate court had to address this issue and found for the insurance company.

In Plotkin v. Republic-Franklin Insurance Co., No. 2016-04231 (N.Y. App. Div. 2d Dep’t Nov. 13, 2019), the underlying claimant obtained a substantial settlement from her employer and its principal stemming from allegations of assault, battery, false imprisonment, sexual misconduct and other claims.  The settlement was reduced to a judgment and the claimant commenced an action under New York Insurance Law § 3420(a)(2) to recover the amount of the unsatisfied judgment against the policyholder’s primary and umbrella coverages.

According to the court, the claimant’s counsel sent a letter to the policyholder with a draft complaint in an effort to resolve the matter without litigation.  Approximately three months later, the summons and complaint were filed.  The next month, the insurance company received first notice of the claim.  After an investigation, the insurers issued disclaimer letters 29 days later.

The motion court granted the claimant’s summary judgment motion to dismiss certain affirmative defenses and the insurers appealed.  On appeal, the court reversed and on its own motion granted summary judgment to the insurers dismissing the complaint.

The court determined that the policyholder’s notice of claim was late.  The policy required notice “as soon as practicable” and the failure to provide notice within a reasonable amount of time was a failure to comply with a condition precedent that “vitiates the contract.” (citations omitted).  The court imputed the pre-action claim letter to the company based on the principal’s knowledge and rejected any argument of an adverse interest exception to the rule of imputed knowledge.  Here, the principal’s receipt of the claim letter was within the scope of his employment as an officer of the employer and, as an insured under the policies, had a duty to notify insurers of the claim.  The court found that the insurers timely disclaimed coverage following a thorough and diligent investigation and that the disclaimers were reasonable as a matter of law under the circumstances.

The court granted summary judgment to the insurers on its own motion given the unique and compelling circumstances of this case and given the wealth of evidence supporting judgment in favor of the insurers and dismissed the complaint.