The First Department Focuses on the Applicable Standard when Assessing the Validity of a Disclaimer Rather than the Label Afforded by the Insurer

On January 17, 2013, the New York Appellate Division, First Department decided QBE Insurance Corporation v. Jinx-Proof, Inc., et al., No 114856/10, 2013 WL 174089 (1st Dept. January 17, 2013), affirming the New York County Supreme Court’s prior award of summary judgment to QBE Insurance Corporation (“QBE”) in this declaratory judgment action. The court held that QBE properly disclaimed coverage as to its insured, Jinx-Proof, Inc. (“Jinx-Proof”), under QBE’s General Liability policy’s Assault and Battery Exclusion, in connection with an underlying bodily injury action that alleged both negligence and assault and battery causes of action where “reservation of rights letters” were timely issued to Jinx-Proof specifically denying coverage for the assault and battery claims. Although QBE entitled its letters as a “reservation of rights” and a separate “disclaimer letter” was never issued, the court found that QBE’s reservations of rights letters sufficiently notified Jinx-Proof of lack of coverage under its policy’s Assault and Battery Exclusion in a timely manner, should only an assault and battery cause of action exist.

By way of background, on August 25, 2007, while a patron Jinx-Proof’s Manhattan bar, the underlying plaintiff got into a fight with the bar security guard, which escalated such that plaintiff was struck in the face by a glass thrown by the guard. Thereafter, plaintiff brought suit against the security guard as well as Jinx-Proof seeking recovery for the injuries she sustained. Jinx-Proof tendered its defense to QBE on January 28, 2008. Although the majority of claims asserted in the underlying action sounded in assault and battery, plaintiff also asserted negligence claims, which had the potential for falling within the scope of the QBE Policy.  As such, QBE responded to Jinx-Proof by letters dated January 31, 2008, and February 26, 2008, respectively. Both letters were labeled “reservation of rights,” and agreed to defend Jinx-Proof under a reservation of rights; however, at all times, QBE pointed out the lack of any coverage available for any assault and battery claims.

QBE commenced the instant action on November 15, 2008, seeking a declaration that it could deny coverage to Jinx-Proof as all claims asserted in the underlying action were rooted in intentional tortious behavior. QBE moved for summary judgment, and by Order dated August 17, 2011, the New York County Supreme Court found QBE had clearly denied coverage for all assault and battery claims in the underlying action with the requisite degree of specificity when it stated that it would “not be defending or indemnifying [Jinx-Proof] under the General Liability portion of the [QBE] policy for the underlying assault and battery allegations.” Moreover, even with the possibility Jinx-Proof could be held liable under theories of negligence, the trial court held that any potential negligence claims were outweighed by the application of the Assault and Battery Exclusion.

While four of the five justices agreed that the lower court’s decision should be affirmed, there was some difference of opinion amongst these justices, leading to two separate concurring opinions. In the first opinion, two of the justices concluded that the attendant circumstances rendered QBE’s two reservation of rights letters as effective disclaimers of coverage. The justices opined that while a reservation of rights does not typically afford an insurer the opportunity to subsequently deny coverage for a claim, the mere use of the term “reservation of rights” should not defeat the effective written disclaimer contained within its two letters to its insured. The second concurring opinion similarly concluded the QBE letters provided clear and unambiguous language that a reasonable person would not have expected coverage for assault and battery claims. Once all potentially covered claims in the underlying action were dismissed, it was clear that QBE had no further coverage obligation as the remaining claims sounded in assault and battery and, therefore, were not covered under the QBE General Liability Policy.

The one dissenting justice disagreed, finding QBE’s two letters, by their terms, nothing more than a reservation of rights. QBE did not use clear and unambiguous language as required for an effective written disclaimer of coverage; rather, both letters were deemed to be contradictory and confusing. As such, summary judgment was not appropriate as QBE had a continuing defense obligation.

As the majority ultimately affirmed the trial court finding QBE to have effectively disclaimed coverage to Jinx-Proof, a further appeal to the Court of Appeal is likely. This decision is nonetheless instructional with respect to disclaimers and reservation of rights. In sum, any basis for disclaimer must be timely asserted within the 30-day period set out by New York Insurance Law Section 3420(d) citing to the specific policy provisions.