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New York Appellate Court Grants Summary Judgement, Holding that Insurer has a Duty to Defend the Insured

The Finch complaint alleged that the defendants improperly placed the infant in non-kinship foster care; failed to provide federally mandated preventive and reunification services; arbitrarily restricted visits between the infant and his grandmother; and failed to provide the infant with treatment for deafness. The policy in that case contained an endorsement with language identical to that contained in ISO Form CG 20-26 in that the City was qualified as an additional insured but only with respect to liability arising out of Talbot’s operations. The policy also contained a clause that excluded from coverage any bodily injury due to the rendering of or failing to render any professional services. The insurer disclaimed coverage for the City arguing that the Finch allegations concerned actions undertaken by social workers in their professional capacities and thus fit completely within the professional services exclusion clause. The insurer further argued that the infant’s injuries did not arise out of the foster care agency’s operations because the City, not the agency, initiated the course of action leading to the alleged injuries by placing the child with the agency instead of in kinship foster care with his grandmother. In granting the City’s motion for a declaration that the insurer was required to defend it, the court reasoned, As a frontline foster care provider, Talbot was in an excellent position perhaps the best position to avoid or reduce the risk that the infant would be harmed while out of his family’s custody. The court further stated, Clearly, to the extent there is liability in this case, the City’s liability stems from Talbot’s operations as well as its own.

Similarly here, irrespective of whether the City had an independent duty to the plaintiffs in the underlying action, the fact remains that Army, through its contract with the City, obligated itself to provide child welfare services, including placement of children in foster homes. Furthermore, according to the allegations in the complaint and Army’s own admission, the infant plaintiff was injured while in foster care with Army’s foster boarding program. Thus, Army’s actions as the frontline foster care provider are a central component of the infant plaintiff’s alleged injuries. Accordingly, Army has failed to meet its burden demonstrating that the allegations of the complaint cast that pleading solely and entirely within the policy exclusions.

Army argues, in the alternative, that should this court find that the Agreement provides for the City’s coverage as an additional insured with respect to the Stanley complaint, the City’s motion must still be denied because the City’s failure to comply with the notice requirements voids any coverage under the Agreement. The personal injury insurance provision in the Agreement required the City to notify the insurer, in this case Army, of any occurrence, offense, claim or suit as soon as practicable. As soon as practicable has been construed to mean within a reasonable time after the duty to give notice arises. The duty to give notice arises when, based on the information available, an insured could glean a reasonable possibility of the policy’s involvement.

The accident at issue here occurred on June 6, 2006. The City was served with a Notice of Claim in the Stanley action on or about August 2006. In December 2006, the City held a 50(h) hearing of plaintiff Joseph Stanley, father and natural guardian of the infant plaintiff, and on January 3, 2007, the City was served with a summons and complaint in the Stanley action. The City did not notify Army or Chesterfield of the incident until June 21, 2007, when it forwarded a copy of the summons and complaint and requested that defense be provided for the City. This was more than five months after it had been served with the complaint, approximately six months after it held its 50(h) hearing, and more than ten months after it was served with a Notice of Claim in the matter. Because the City has offered no excuse for why it took so long in notifying Army, its delay cannot be construed as reasonable.

It is well established, however, that even where the insured fails to provide the insurer with timely notice, the insurer has an obligation to promptly apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated. Here, the insurer’s disclaimer, given 33 days after it received notice from the City, lacked any specificity as to the reason of the disclaimer other than that it was based on a review of the contract. Army raised the issue of late notice as a basis for its disclaimer for the very first time in October 2008, in opposition to City’s motion for summary judgment and in support of its own cross-motion for summary judgment.

While insurers are encouraged to conduct investigations and gather sufficient information before issuing a disclaimer, where the sole ground upon which the disclaimer is based is obvious from the face of the notice of claim and accompanying complaint, a delay of even 30 days has been held to be unreasonable.

Here, the City has established that the claims alleged in the Stanley accident lawsuit arose from Army’s operations. Army’s disclaimer, which denied coverage based on a review of the contract, was neither timely nor specific. As such, Army is left with no basis to object to the City’s belated notice. Accordingly, the City is entitled to summary judgment on its action for a declaration that Army is obligated to defend it in the Stanley action.

The last issue raised by the City in its motion is its entitlement to reimbursement for attorneys’ fees incurred in defending itself in the Stanley action. The City seeks recovery of fees incurred from June 21, 2007, the date it notified Chesterfield of the claim, to date. Where it is determined that an insurer is obligated to defend its insured in an underlying action, the insurer is also obligated to reimburse its insured for any legal costs incurred in the insured’s defense of the underlying action. Accordingly, City’s motion for a declaration that Army is obligated to reimburse it for attorneys’ fees incurred in its defense of the Stanley action from June 21, 2007, to date is granted. The City shall make an application to the court for a determination of the amount to be awarded.

In light of the foregoing, it is ordered that the City’s motion for a declaration on summary judgment is granted; and it is further ordered, adjudged and declared that Army must defend City in the underlying action; and it is further that Army is obligated to reimburse the City for attorneys’ fees incurred in defense of the underlying action from June 21, 2007, to date; and it is further ordered that the City shall make an application to the court for a determination of the amount to be awarded as reimbursement for such attorneys’ fees; and it is further ordered that Army’s motion for summary judgment dismissing the accident complaint is denied.

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