PENN MILLERS INSURANCE COMPANY v. C.W. COLD STORAGE, INC.

SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
1335
CA 12-01013
PRESENT: SCUDDER, P.J., FAHEY, CARNI, LINDLEY, AND SCONIERS, JJ.

PENN MILLERS INSURANCE COMPANY,
PLAINTIFF-APPELLANT-RESPONDENT,

V MEMORANDUM AND ORDER

C.W. COLD STORAGE, INC.,
DEFENDANT-RESPONDENT-APPELLANT,
AND THRUWAY PRODUCE, INC., DEFENDANT-RESPONDENT.

MARSHALL, DENNEHEY, WARNER, COLEMAN & GOGGIN, NEW YORK CITY (ERIC A.
FITZGERALD OF COUNSEL), FOR PLAINTIFF-APPELLANT-RESPONDENT.

CHAMBERLAIN D’AMANDA OPPENHEIMER & GREENFIELD LLP, ROCHESTER (HENRY R.
IPPOLITO OF COUNSEL), FOR DEFENDANT-RESPONDENT-APPELLANT.

Appeal and cross appeal from an order of the Supreme Court,
Orleans County (John A. Michalek, J.), entered January 10, 2012. The
order denied the motion of plaintiff for summary judgment and denied
the cross motion of defendant C.W. Cold Storage, Inc. for summary
judgment.

It is hereby ORDERED that the order so appealed from is
unanimously modified on the law by vacating the second “declaring”
paragraph and as modified the order is affirmed without costs.

Memorandum: Pursuant to agreements with defendant Thruway
Produce, Inc. (Thruway), C.W. Cold Storage, Inc. (defendant) stored
apples that Thruway had sold to a subsidiary of nonparty Milnot
Holding Corporation for later processing into baby food. Following
the discovery of rodenticide in apples that Thruway had allegedly
supplied to the subsidiary between January and March 2006, Milnot
commenced an action against Thruway in federal court seeking damages
for the economic losses that it sustained from the recall of products
potentially containing rodenticide that had already been processed and
shipped. Thruway, seeking contribution or indemnification, thereafter
impleaded defendant and others in September 2008. At the time of the
incidents underlying the federal action, defendant was covered by an
agribusiness property and commercial general liability insurance
policy issued by plaintiff. Upon receiving notice of the claim
against defendant, plaintiff reserved its right to disclaim coverage
but nevertheless undertook defendant’s defense in the third-party
action.

In February 2011, plaintiff commenced the instant action seeking
a judgment declaring that it has no duty to defend or indemnify
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CA 12-01013

defendant on various grounds, including, as alleged in the first cause
of action, defendant’s failure to give plaintiff timely notice of a
covered occurrence. Plaintiff thereafter moved for summary judgment
on its first cause of action; defendant opposed the motion and cross-
moved for summary judgment in its favor, i.e., a declaration that,
inter alia, it gave timely notice of the occurrence to plaintiff and
that plaintiff is estopped from effectively disclaiming coverage by
its delay in so notifying defendant. Supreme Court denied both the
motion and the cross motion, concluding that plaintiff failed to meet
its initial burden of demonstrating the untimeliness of defendant’s
occurrence notice and that defendant failed to establish, as a matter
of law, that it suffered prejudice from plaintiff’s four-year delay in
formally disclaiming coverage. This appeal and cross appeal ensued.
We conclude that while Supreme Court properly denied both the motion
and the cross motion, the second “declaring” paragraph in its order
was improper and should be vacated.

Initially, and contrary to the court’s determination (which
itself was erroneously characterized in the order as a “declaration”),
we conclude that plaintiff met its initial burden on the motion by
establishing that defendant did not provide it with notice of a
potential claim until more than four months after the latest
rodenticide incident, and that defendant thus failed to comply with
the policy condition requiring timely notice of a covered occurrence
(see Lobosco v Best Buy, Inc., 80 AD3d 728, 731-732; 233 E. 17th St.,
LLC v L.G.B. Dev., Inc., 78 AD3d 930, 931-932; see generally Argo
Corp. v Greater N.Y. Mut. Ins. Co., 4 NY3d 332, 339). Moreover,
defendant neither raised a triable issue of fact with respect to the
timeliness of its occurrence notice nor established a reasonable
excuse for its failure to provide such timely notice (see 2130
Williamsbridge Corp. v Interstate Indem. Co., 55 AD3d 371, 372; Heydt
Contr. Corp. v American Home Assur. Co., 146 AD2d 497, 498-499, lv
dismissed 74 NY2d 651).

Specifically, the mistaken belief of defendant’s President that
notice to its broker constituted notice to plaintiff does not excuse
defendant’s failure to comply with the policy’s notice condition, nor
does it constitute a material issue of fact in relation thereto (see
2130 Williamsbridge Corp., 55 AD3d at 372). We therefore modify the
order by vacating the second “declaring” paragraph thereof, which
provides “that there is an issue of fact whether notice to [plaintiff]
. . . of the occurrence was late, and therefore [plaintiff] has not
established its entitlement to judgment on that issue.”

Nevertheless, we conclude that the motion was properly denied
because triable issues of fact remain with respect to the
effectiveness of plaintiff’s disclaimer of coverage such that it
cannot be determined, as a matter of law, whether plaintiff is
obligated to defend and indemnify defendant under the policy (see
O’Dowd v American Sur. Co. of N.Y., 3 NY2d 347, 355). Where, as here,
the underlying claim involves only economic injury, the timeliness,
and thus effectiveness, of an insurer’s disclaimer is not governed by
Insurance Law § 3420 (d) (2) but rather is governed by the common law,
“under [which] prejudice must generally be established as the result
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CA 12-01013

of an unreasonable delay in disclaiming before an insurer will be
estopped from asserting noncoverage” (Globe Indem. Co. v Franklin
Paving Co., 77 AD2d 581, 582; see William M. Moore Constr. Co. v
United States Fid. & Guar. Co., 293 NY 119, 123-124).

Here, defendant plausibly contends that it was prejudiced by
plaintiff’s delay in disclaiming coverage, notice of which was made on
the eve of trial in the third-party action and after its defense had
been given over to plaintiff (see generally American Tr. Ins. Co. v
Wilfred, 296 AD2d 360, 361), and plaintiff made no evidentiary showing
to rebut that contention or to demonstrate the absence of any material
issues of fact with respect thereto (see Vecchiarelli v Continental
Ins. Co., 277 AD2d 992, 993; see generally Vega v Restani Constr.
Corp., 18 NY3d 499, 503). Although plaintiff’s reservation of rights
letters allowed it to “preserve[ ] its defense under the policy[ ]
until the facts warranting disclaimer became clear” (Tower Ins. Co. of
N.Y. v Khan, 93 AD3d 618, 619), “[i]t did not permit [plaintiff] to
unreasonably delay the exercise of those rights[ ] to the detriment of
[defendant]” (Greater N.Y. Sav. Bank v Travelers Ins. Co., 173 AD2d
521, 521).

With respect to the cross motion, although defendant’s showing of
prejudice from plaintiff’s delayed coverage disclaimer was sufficient
to require the denial of plaintiff’s motion, it was not sufficiently
developed to justify summary judgment in defendant’s favor declaring
that plaintiff’s disclaimer of coverage was ineffective as a matter of
law (see Legum v Allstate Ins. Co., 33 AD3d 670, 670-671;
Vecchiarelli, 277 AD2d at 993). We note that the presumption of
prejudice that may attach to a late coverage disclaimer is
inapplicable here because plaintiff has not “retained control of
[defendant]’s defense to final judgment or to a settlement” (William
M. Moore Constr. Co., 293 NY at 124 [emphasis added; internal
quotation marks omitted]). Defendant’s cross motion was therefore
properly denied as well.

Entered: February 1, 2013 Frances E. Cafarell
Clerk of the Court