By Vivek Chopra, partner, and Laura Basford, associate, Perkins Coie LLP
This commentary discusses an apparent shift in New York law limiting the effectiveness of an insurance company's blanket reservation of rights letter when it is aware of a rescission-based defense to coverage. The New York statute already imposes a general duty on insurers to disclaim promptly when the insurance policy in dispute was issued in New York, and the loss involves death or bodily injury which occurred in New York State. Recent case law in the state has expanded the duty to timely disclaim on the basis of late notice, even when the timely disclaimer statute does not apply. Outside the statute, blanket reservation of rights letters have been found insufficient to prevent a waiver of a late notice defense under New York law.
New York courts require that, once an insurer knows enough to disclaim upon a particular ground, it must do so promptly and specifically. Otherwise, the insurer's delay causes a ratification of the policy and the insurer waives the right to assert that defense. New York courts are also quick to find that an insurer had the requisite knowledge to assert a particular defense, and proof that the insurance company had actual knowledge of the defense is not necessary to establish a waiver.
Given recent New York case law expanding the general duty to timely disclaim, coupled with the robust use of the waiver doctrine by New York courts, the commentary argues that under New York law "an insurance company's generic statement that 'all rights are reserved' in a disclaimer or other correspondence to its insured should not shield it from waiver of a known, but unasserted, rescission-based defense."
Vivek Chopra is a partner and Laura Basford is an associate in the insurance coverage practice of Perkins Coie LLP, where they represent policyholders in insurance-related trials, arbitrations and mediations.
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