Changes in New York’s Late Notice Laws?

New York’s “late notice” law — perhaps the most “draconian” in the United States — is on the verge of a fundamental change. While at one time late notice served as virtually an insurmountable defense to an insurance company’s coverage obligations, whether or not the insurance company was prejudiced by the delay, recent authority exists requiring that an insurance company must show that it was prejudiced by late notice before it can disclaim coverage. See Nationwide v. Brandon, 97 N.Y.2d 491 (2002); Great Canal Realty Corp. v. Seneca Ins. Co., 787 N.Y.S.2d 22 (1st Dept. 2004); St. Charles Hosp. & Rehab. Center v. Royal Globe Ins. Co., No. 29155-98 (April 28, 2004). New York is one of the last few states where it is possible for an insurance company to escape its coverage obligations without demonstrating some form of prejudice as a result of a delay in providing notice.

In Brandon, however, New York’s highest court determined that the no-prejudice exception did not apply to an untimely notice of suit, where the policyholder had previously given timely notice of occurrence. In doing so, the court indicated that its holding was a first step in the process of bringing New York into line with its sister states.

Subsequent courts have applied this decision broadly, requiring insurance companies to demonstrate prejudice where a policyholder allegedly submits late notice of an occurrence or claim, as well as late notice of suit. For instance, in St. Charles Hospital, the court required the insurance company to demonstrate that it was somehow prejudiced by its policyholder’s alleged nine month delay in providing timely notice of claim. Granting the policyholder summary judgment, the court pointed out the “turning of the tide” in New York with respect to the application of the “no prejudice” exception and refused to apply it in a late notice of claim case where, among other things, the underlying rationales for the rule were not advanced. More recently, in Great Canal, the court took head-on the questionable validity of the “no prejudice” exception. The Great Canal court affirmed the denial of an insurance company’s motion for summary judgment based on its policyholder’s alleged four-month delay in providing notice of an occurrence on the ground that a triable issue of fact existed as to whether the insurance company was prejudiced by the delay.

These developments, and the fact that New York’s highest court recently heard oral argument in two matters concerning the forfeiture rule of late notice in New York, auger well for pharmaceutical companies, which: (1) often buy insurance subject to New York law; and (2) frequently face claims of the type for which immediate notice is an impossibility.