In May 1996, the ITT Sheraton Corp. (Sheraton) hired St. James Mechanical, Inc. (St. James) to renovate the ventilation system in a lower level of its hotel in New York City. A worker employed by Budd Contracting Corp. (Budd) fell off a ladder on top of a scaffold on July 25, 1996 while removing the curtain wall in a garage to accommodate the new exhaust system. Royal Insurance Company (Royal) insured St. James at the time of the accident under a commercial general liability policy that had a requirement that the insured must provide prompt and timely notice of an occurrence that might result in a claim.
Budd's employee sued Sheraton to recover damages for the injuries he allegedly sustained as a result of the accident in October of 1997 but did not name St. James as a defendant until he filed an amended complaint in August of 1998. St James notified Royal when it received the amended complaint. Royal denied coverage, citing that St. James failed to provide timely notice of the accident. St. James initiated an action against Royal seeking a declaratory judgment that Royal was obligated to defend and indemnify St. James in the underlying personal injury action brought by Budd's employee. St. James and Royal both moved for summary judgment. The trial court granted Royal's motion and St. James appealed.
In general, insurance companies are not obligated to pay a loss if the insured fails to provide timely notice of an incident that may result in a claim because not doing so is a failure to satisfy a condition precedent that invalidates the policy. However, there are circumstances where the insured's failure to do so is excusable, such as when the insured either does not know about the accident or in good faith reasonably believes it is not liable, based on its inquiry into the circumstances of the accident. In most cases involving prompt and timely notice, the insured must prove that its failure to do so was reasonable. It is only when the facts are indisputable and not subject to conflicting inferences that the matter can be decided as a matter of law.
Royal made its case for summary judgment as a matter of law based on the over two-year delay in reporting the accident. St. James raised a triable issue of fact as to whether its delay in notification was reasonably based on its good-faith belief that it was not liable. The appellate court determined that the trial court should not have granted Royal's cross motion for summary judgment because of the genuine fact issue as to whether St. James' two-year delay in giving notice was reasonable under the circumstances and reversed its decision.
Supreme Court, Appellate Division, Second Department, New York. St. James Mechanical, Inc., appellant, v. Royal & Sunalliance, et al., respondents. Oct 30, 2007. 44 A.D.3d 1030, 845 N.Y.S.2d 83.