The prejudice rule in actionSeptember 29, 2016

Castillo v Prince Plaza, LLC, 2016 NY Slip Op 06191 (2d Dept. 2016)

Nothing in the world of coverage is more exciting than the application of the prejudice rule regarding the failure to give timely notice of an event or occurrence.  So little has been written about it.

(1): The default judgment and irrebutable presumption of prejudice

In this case, a default judgment was obtained prior to notice being given.   As such: ” Insurance Law § 3420(c)(2)(B) provides, in pertinent part, that “an irrebuttable presumption of prejudice shall apply if, prior to notice, the insured’s liability has been determined by a court of competent jurisdiction or by binding arbitration; or if the insured has resolved the claim or suit by settlement or other compromise.”

Having found coverage after entry of the default,  Plaintiff vacated the default and allowed an answer to be interposed.  Defendant still argued that the irrebutable presumotion of prejudice should apply.  The Court said no (which is interesting) and held as follows:

“Here, contrary to Century’s contention, based on the plain language of Insurance Law § 3420(c)(2)(B), an irrebuttable presumption of prejudice did not apply in this case. Although a default judgment was previously entered in the main action against Prince Plaza, the default judgment was vacated more than a year before Century raised Insurance Law § 3420(c)(2)(B) as a ground upon which it was not obligated to defend and indemnify Prince Plaza. Thus, the Supreme Court correctly determined that Prince Plaza’s liability had not actually been “determined” by a “court of competent jurisdiction or by binding arbitration” (Insurance Law § 3420[c][2][B]; cf. Matter of Sportsfield Specialities, Inc. v Twin City Fire Ins. Co., 45 Misc 3d 1201[A], 2012 NY Slip Op 52509[U] [Sup Ct, Delaware County 2012]). The plain intent and purpose of Insurance Law § 3420(c)(2)(B), which is to prevent insurers which have continuously collected premiums to disclaim coverage based upon an inconsequential technicality, would be defeated if Century were allowed to disclaim coverage under the circumstances herein (see Insurance Law § 3420[c][2][B], New York Bill Jacket, 2008 SB 8610, ch 388).”

(2) Timely Notice

However, Prince Plaza was unaware of the accident because it was not present at the site and it was not informed of the accident by its general contractor or the injured plaintiff. The summons and complaint in the main action were served on Prince Plaza through the Secretary of State on or about August 26, 2011, but because Prince Plaza had failed to notify the Secretary of State of its new address, it did not receive a copy of the summons and complaint and did not initially appear in the main action. Thus, in the January order, the Supreme Court granted the plaintiffs’ motion for leave to enter a default judgment against Prince Plaza, which later received a copy of the January order on February 24, 2012. Upon receipt of the January order, Prince Plaza promptly notified Century of the accident and lawsuit, and this notice was received by Century on March 2, 2012.

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