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Delays Amounting To Breach Insurance Contracts

Delays Amounting To Breach Insurance Contracts

The Supreme Court of New York County recently issued a decision in the case of Upgrade Construction Co. v. Aspen Specialty Insurance Company. Although complex, the relevant portions of the case boiled down to the idea that sometimes an unreasonable delay can amount to a breach of contract. There are a wide variety of contracts, involving different industries and practice areas, and as we will see, insurance contracts can have special issues.

Background of the Case

Plaintiff (Upgrade)is a construction company who was doing work at 120 Central Park South. At the job site, one of plaintiff’s employees, Angel Gutierrez (Gutierrez) was allegedly injured. This alleged injury occurred on July 14, 2009. On-the-job injuries fall under the purview of what is known as Workman’s Compensation, which is a rule that states that employers are responsible for legitimate injuries suffered by their employees while at work. As construction work does entail a degree of risk, construction companies and contractors typically take out insurance policies, as was the case here. Plaintiff retained the defendant Aspen Insurance UK Ltd (AIUK). [AIUK was another named defendant, along with Aspen Specialty Insurance Company (ASIC)]

At any rate, after Gutierrez’s injury, plaintiff paid for his medical bills and compensated him while he could not work due to injury. On January 10, 2010 the plaintiff sent a notice to AIUK, informing them of the Gutierrez injury.

In February, 2010, the plaintiff received a notice from ASIC (not AIUK) declining coverage, citing the fact that notice of the injury was provided six months after its occurrence. The parties argued back and forth for a bit, and then the plaintiff filed a lawsuit seeking the enforcement of the insurance contract.

Analysis

Upgrade claimed that the notice it received of the declined coverage was legally insufficient because the denial was made by ASIC, not AIUK. The insurance contract that plaintiff had was with AIUK. Upgrade makes the not-unreasonable argument that ASIC and AIUK are different companies that at most share a common affiliation, and the denial notices do not make this clear. However, the court did not need to address this point because there was a more serious issue.

The court cited established precedent in New York. The requirement that the insured informs the insurance company of a claim ‘as soon as practicable’ operates as a condition precedent to insurance coverage. In the event of a delay, the burden or onus is on the insured party to show that a valid excuse existed for the delay. If this showing cannot be made, even a relatively short unexcused delay may be found to be a breach of contract. Citations were given of cases in which time periods as short as 51 days of delay were found to be breaches of insurance contracts. Thus, the 6-month delay in this case was found to be an undue delay, without excuse, and operated to bar the insurance claim as it was a breach of the insurance agreement. Insurance companies, by implication, have a very strong public policy reason for receiving timely notice of potential claims – availability of evidence, ability to examine injured parties or assess property damage, etc.

If you have an insurance claim or questions about coverage it is imperative to retain experienced counsel -- please don’t hesitate to contact our office for a consultation.

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