If an insured fails to cooperate with the insurer's attempt to defend, what must the insurer do to disclaim coverage? In Continental Casualty Co. v. Stradford, 2008 N.Y. LEXIS 3387 (N.Y. Ct. App. Nov. 25, 2008), the court considered whether the insurer's disclaimer to an uncooperative insured was timely.
The insured was a dentist facing two malpractice suits. Although the policy required the dentist to notify his insurer of pending suits and then to fully cooperate in the litigation and settlement efforts, the dentist did not notify the insured until a month after the underlying malpractice suits were initiated. Thereafter, the dentist failed to provide records requested by the insurer, failed to give advise on potential expert witnesses, missed visits with defense counsel, etc. Nevertheless, at various times the dentist indicated an awareness of his duty to cooperate and expressed his willingness to do so. Although he missed his scheduled deposition multiple times, he eventually appeared and was deposed.
Determining the dentist had failed to cooperate, the insurer mailed letters, one for each suit, setting forth the dentist's history of non-compliance. The insurer demanded that the dentist meet with his attorney and recommended that he consent to settlement of both actions. Shortly thereafter, the letters were returned "unclaimed." The insurer then waited two months before sending the disclaimer letter. Subsequently, it filed for a declaratory judgment that it had no duty to defend or indemnify in the two malpractice cases. The dentist and plaintiffs in the underlying suits were defendants in the declaratory judgment action, but the dentist never appeared in the action.
Cross motions for summary judgment were filed. Defendants' motion argued the disclaimer was untimely. The trial court granted the insurer's motion and denied the defendants' cross-motion. The Appellate Division reversed, determining the two-month delay in disclaiming was unreasonable as a matter of law.
On appeal, the court noted even if a insurer possesses a valid basis to disclaim for non-cooperation, it must still issue its disclaimer within a reasonable time. But timeliness of the disclaimer almost always presented a factual question. Here, the reasonableness of a two-month delay after the insured's pattern of non-cooperation presented a question of fact that precluded entry of summary judgment for either the insurer or the defendants. Therefore, the Appellate Division's decision was modified by denying the cross-motion of defendants, but otherwise was affirmed.
