Insurance Coverage
NOVEMBER 2002
The Second Circuit Certifies to New York’s Highest Court
a Potentially Important Question Concerning Whether
Prejudice Is a Necessary Element of an Insurer’s Late
Notice Defense
For years, insurers with frequent success have
invoked the late notice defense under New York law
to deny insurance coverage to insureds. Under New
York’s traditional “no prejudice” rule, insurers
contend that an insurer generally need not show any
prejudice suffered by the insurer as a result of an
insured’s late notice. As New York law is applied by
insurers, an insured is barred from coverage if the
notice was late, on the theory that notice is a
condition precedent to coverage under the policy.1
Insurers, however, may be losing ground in their
ability to assert such positions.
In Varrichio v. Chicago Ins. Co., Docket No. 02-7002,
2002 U.S. App. LEXIS 23508 (2d Cir. November 14,
2002), the United States Court of Appeals for the
Second Circuit certified to the New York Court of
Appeals, New York’s highest court, a question that
may assist policyholders seeking to avoid forfeitures
of coverage based on late notice. In Varrichio,
Varrichio, a lawyer, notified his insurer of a potential
claim against him in the spring of 1999. In July 2000,
Varrichio was served with a summons and complaint,
which he failed to forward immediately to the insurer.
In September 2000, the insurer learned that Varrichio
had been served with suit papers, and promptly
denied coverage on the basis of late notice. Varrichio
then brought a declaratory judgment action to force
the insurer to defend and indemnify Varrichio in the
malpractice case arguing, among other things, that
the insurer had to show prejudice resulting from
Varrichio’s late notice of the suit in order to deny
coverage. The district court rejected Varrichio’s
arguments and granted summary judgment to the
insurer.
On appeal, the United States Court of Appeals for the
Second Circuit determined that a recent decision of
the Court of Appeals of New York put in doubt the
continued force of the so-called “no prejudice” rule
in the context of the claim in Varrichio. Citing In re
Brandon, 769 N.E.2d 810 (N.Y. 2002), a case decided
after the district court issued its opinion in Varrichio,
the Second Circuit found New York law to be
uncertain as to whether the insurer must demonstrate
prejudice from Varrichio’s late notice of the legal
action against him. In Brandon, the New York Court
of Appeals had ruled that prejudice was a necessary
element of an insurer’s late notice defense where the
insured had notified its automobile insurer of an
automobile accident but had delayed in giving notice
of his own claim against the underinsured driver. In
1 See Security Mut. Ins. Co. v. Acker-Fitzgerald Corp., 293 N.E.2d 76, 78 (N.Y. 1972); American Home
Assurance Co. v. International Ins. Co., 684 N.E.2d 14, 16 (N.Y. 1997).
Kirkpatrick & Lockhart LLP
doing so, the Court signaled a potential willingness
to consider the continued applicability of the “no
prejudice” rule in other circumstances. The Court
noted:
New York is one of a minority of States that
still maintains a “no-prejudice” exception.
Formerly a majority of states took this
approach, but, as the Supreme Court of
Tennessee noted when it recently adopted
a prejudice requirement in a case involving
a late notice of claim for uninsured motorist
coverage, “the number of jurisdictions that
still follow the traditional view has dwindled
dramatically.” Indeed, that court noted that
in the preceding twenty years, only two
States — New York and Colorado — had
“considered the issue” and “continued to
strictly adhere to the traditional approach.”
Since then, Colorado adopted the majority
rule, requiring insurers to demonstrate
prejudice.
Should the New York Court of Appeals accept the
certified question, it would allow the court to
reexamine New York notice law, definitively bring
New York notice law into line with the law of nearly
every other state to have addressed the issue, and
require that prejudice be a necessary element of any
insurer late notice defense.
THOMAS M. REITER
treiter@kl.com
412.355.8274
DAVID E. SMITH
david.e.smith@kl.com
412-355-6338
2 Varrichio, 2002 U.S. App. LEXIS 23508 at *15.
In Re Brandon, 769 N.E.2d at 813 n.3.
In light of the In Re Brandon decision, the Varrichio
court certified the following question to the New York
Court of Appeals:
Where an insured has already complied
with a policy’s notice of claim requirement,
does New York require the insurer to
demonstrate prejudice in order to disclaim
coverage based on the insured’s failure to
comply with the policy’s notice of suit
requirement?2
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authored Policyholder’s Guide to the Law of Insurance
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should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2002 KIRKPATRICK & LOCKHART LLP.
ALL RIGHTS RESERVED.