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What Happens When an Insured Defendant Avoids His Insurance Company?

What Happens When an Insured Defendant Avoids His Insurance Company?

New York law encourages insurance companies to promptly settle claims brought by accident victims. But, there are cases where an insurer may disclaim coverage based on some failure by the insured. Last year, the New York Court of Appeals addressed such a case, where an insurer was allowed to disclaim its obligations because the insured parties—who were responsible for an accident that caused serious injuries to an innocent third party—went out of their way to avoid even speaking with the insurer about the case.

Country-Wide v. Preferred Trucking Services Corp.

In this case, the victim was injured while unloading a truck at a construction site. The victim sued the company that owned the truck as well as the driver. The company had an insurance policy on the vehicle with maximum coverage of $500,000 per accident.

The insurer spent several months attempting to contact the driver and the president of the company to discuss the litigation. Neither man replied, nor did they contest the victim's lawsuit. In September 2007, the victim filed a motion for default judgment against all defendants. The victim's attorney subsequently sent a copy of the default judgment motion to the insurer in early October 2007.

At this point, the insurer disclaimed coverage, citing the company’s and the driver's failures to cooperate with its efforts to investigate the accident. Although the company president then expressed his intentions to cooperate, several more months passed without any formal contact with the insurer. Eventually, in November 2008, the insurer issued a second disclaimer of coverage.

Manhattan Supreme Court finally awarded default judgment to the plaintiffs in June 2009 and later awarded the victim and his wife over $2.5 million in damages. The insurer then brought its own lawsuit against the trucking company, the driver, and the victim, seeking a declaration it was not liable for any portion of the damage award.

That case ultimately made it to the Court of Appeals. The lower courts had ruled the insurer was liable for coverage since it waited too long to make its disclaimer. The Court of Appeals disagreed and reversed in favor of the insurer.

Judge Eugene F. Pigott, Jr., writing for a unanimous Court of Appeals, said New York law requires an insurer to make a disclaimer “as soon as is reasonably possible” once it is notified of a personal injury lawsuit affecting an insured party. Judge Pigott reiterated the Court of Appeals' longstanding view the law requires disclaimer “once the insurer has sufficient facts entitling it to disclaim.” In many cases, the insurer is readily aware of the facts and must “rapidly” make a disclaimer. But here, Judge Pigott said, things were complicated by the driver and insured company's failure to cooperate with the insurer over a period of several months. Accordingly, Judge Pigott said it was “reasonable” for the insurer to wait until November 2008—more than a year and a half after the accident took place and the victim had moved for summary judgment—to issue its second and final disclaimer.

Keeping Insurance Companies Honest

While the Court of Appeals said the insurance company's delay was reasonable in this case, this is not necessarily the norm. Insurers often try to get out of their legitimate legal and contractual obligations to compensate victims. That is why if you find yourself in a situation similar to the victim in this case, it is important you work with an experienced New York accident attorney who will take care that insurance companies follow the law. Contact our office today if you would like to speak with an attorney right away.

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