In City of New York v. Continental Ins. Co., the Appellate Division, First Department declared that the insurer had an obligation to defend and indemnify the City of New York (an additional insured on Welsbach Elec. Co.’s insurance policy).  Welsbach was providing certain services for the City of New York and part of the agreement between them was that Welsbach named the City as an additional insured on certain insurance policies and hold the City harmless for any loss, damages, injuries or death.  One of Welsbach’s workers injured himself while working on the subject project and commenced a negligence action against Con Edison.  Con Edison ultimately commenced a third-party action against the City for indemnification and contribution.

The City forwarded the third-party summons and complaint to Welsbach 3 months after the third-party action was commenced and about two years after the worker’s accident.  Notably, the City did not directly provide the third-party summons and complaint to the insurer.  The insurer declined to provide coverage to the City based on late notice of the accident and did not promptly forward the suit papers to the insurer.

The insurer rested its argument solely on the City’s failure to forward the suit papers in a prompt fashion.  The Court observed that the applicable policy provisions addressed the duties of an insured under Section IV(A)(2)(a), which essentially required giving the insurer "prompt notice" of the accident or loss.  Section IV(A)(2)(b) went on to require the insured "and any other involved insured’" to cooperate with insurer in the investigation and disposition of the claim, including "immediately" sending copies of all legal papers to the insurer.

The Court reasoned that the first provision unambiguously required the insured to give "prompt notice" of the accident or loss, while the following provision sets out a series of duties which clearly refer to cooperation with the insurer’s representatives in the investigation and defense of the action.  Based on this ambiguity, the Court concluded that the City’s actions fell within a lack of cooperation analysis rather than late notice.  The Court held that the City’s action were reprehensible but did not rise to the high threshold of non-cooperation.

Perhaps the most interesting part of this decision is the Court’s comparison of these facts to those in Matter of Brandon (Nationwide Mut. Ins. Co.), implying that the underlying public policy of prompt notice was achieved by Welsbach timely notification of the accident and not frustrated by the City’s late notice of suit.

(In response to Richard’s apt comment below, I have included a link to Great Canal Realty Corp. v. Senaca Ins. Co.)