Key Takeaway
Court ruled that defendants cannot claim reasonable excuse for default when they received notice of motion for default judgment, despite insurance carrier's failure to respond.
When Insurance Carriers Fail: The Limits of “Reasonable Excuse”
When a defendant relies on their insurance company to handle a lawsuit, what happens if the insurer drops the ball? A recent New York appellate decision explores the boundaries of what constitutes a “reasonable excuse” for defaulting in court when an insurance carrier fails to respond to litigation.
Generally, New York courts have been sympathetic to defendants who properly notify their insurance brokers about lawsuits, only to have their insurers fail to appoint counsel or respond. This situation has traditionally been viewed as grounds for a reasonable excuse to vacate a default judgment. However, the Gecaj v Gjonaj Realty & Mgt. Corp. decision demonstrates that this protection has important limits.
The case highlights a critical distinction: once a defendant receives notice that the plaintiff is seeking a default judgment, they can no longer claim ignorance about their insurer’s inaction. This ruling adds nuance to existing precedent on default judgments and provides important guidance for defendants facing similar circumstances.
Jason Tenenbaum’s Analysis:
Gecaj v Gjonaj Realty & Mgt. Corp., 2017 NY Slip Op 03109
“While we concede that, generally, when a defendant provides the summons and complaint to its insurance broker, and the insurer, thereafter, fails to appoint counsel to appear in the action on behalf of defendant, this is considered to be a reasonable excuse (see generally Rodgers, 69 AD3d at 510-511) However, on the facts presented here, defendants did not establish a reasonable excuse for their default. An assertion by a defendant that it believed its insurer “was providing a defense is unsubstantiated and unreasonable in light of conceded receipt of the plaintiff’s motion for leave to enter a default judgment,” as receipt of such a motion puts the defendant on notice that the insurer has, in fact, not answered the complaint since the commencement of the action (Trepel v Greenman-Pedersen, Inc., 99 AD3d 789, 791 ; see also Spitzer v Landau, 104 AD3d 936, 937 ).”
**It is a very interesting discussion.
Key Takeaway
This decision establishes that defendants cannot indefinitely rely on the “insurance carrier failure” excuse once they receive notice of a motion for default judgment. At that point, they are on constructive notice that their insurer has not responded, making continued reliance on the insurer’s defense unreasonable. Defendants must take affirmative action to protect their interests when such notice is received.
