The New York Commercial Divisions and the Court of Appeals (in an appeal from a Commercial Division case) recently have issued several interesting cases on the enforceability of contractual provisions and waiver.

In the first, on June 12, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Zucker v Ron Waldmann, Basel, LLC, 2014 NY Slip Op. 50914(U), rejecting an argument that a parol forum selection clause could apply with respect to a written contract that did not contain a forum selection clause.

In Zucker, the defendant moved to dismiss, inter alia, for lack of personal jurisdiction. In granting the motion, Justice Demarest held that she lacked personal jurisdiction over the defendants, rejecting the plaintiff’s argument that the parties had agreed in a telephone call that any dispute would be litigated in New York. The court explained:

Plaintiff, in his affidavit, attests that [the defendants] specifically agreed with him that any and all disputes concerning his investment could be taken care of in a court action here in New York. He claims that this agreement as to New York jurisdiction was reached during a telephone call made to him in Brooklyn before he signed the Investment Agreement. He states that he accepted [the individual defendant's] word on this, without insisting that he put it in writing. While conceding that the Investment Agreement does not mention this aspect of their agreement, plaintiff points to the fact that the Investment Agreement does not specifically state that it constitutes the entire agreement between him and [defendants]. He further states that he relied upon this representation . . . executing the Investment Agreement, and claims that since [the individual defendant] was also a New York City resident at that time, he thought that it made sense that they would have access to New York courts in the event of a dispute. He argues that there is an issue of fact as to whether [the parties] agreed that all disputes among them could be litigated in New York. . . . Here, there is no forum selection clause contained in the Investment Agreement. When parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms, and evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing. Thus, since the written Investment Agreement between the plaintiff and Basel was unambiguous, parol evidence to add terms to this agreement is inadmissible.

(Internal quotations and citations omitted).

In the second case, on June 3, 2014, Justice Demarest issued a decision in Sasidharan v. Piverger, 2014 NY Slip Op. 50890(U), refusing to enforce a personal guaranty because the loan it guaranteed was usurious.

In Sasidharan, the plaintiffs sued a guarantor for payment on a guaranty. The trial court granted the guarantor’s motion to dismiss on the basis that:

Under New York law, usurious contracts are unenforceable. A usurious contract is void and relieves the obligor thereunder of the obligation to repay principal and interest thereon.

A transaction is usurious under civil law when it imposes an interest rate exceeding 16% per annum, and it is criminally usurious when it imposes an interest rate exceeding 25% per annum. While the defense of civil usury is unavailable to a corporation or an individual guarantor of a corporate obligation, a corporation or a guarantor of a corporation’s debt may assert a defense of criminal usury. Thus, Piverger, as a guarantor of ACI’s obligation, who was not involved in the drafting of the note, and did not obtain any direct benefit from the loan transaction, may raise the defense of criminal usury.

Here, since the note was extended to January 18, 2012, it was a one-year loan of $150,000 with interest of $32,000 (plus the $7,500 extension fee) resulting in interest of $39,500 for one year, which is in excess of 25% annual interest (which would be $37,500), rendering it criminally usurious. In addition, the sums retained by a lender are included as interest. Thus, since ACI never received the amount of $63,000 of the $150,000 loaned which was held in escrow and later released to plaintiffs, this effectively resulted in an annual interest of $39,500 on disbursed funds of $87,000, rendering it further in excess of the rate of 25% established for criminal usury.

(Internal quotations and citations omitted) (emphasis added).

Finally, on June 10, 2014, the Court of Appeals issued a decision in KeySpan Gas Electric Corp. v. Munich Reinsurance America, Inc., 2014 NY Slip Op. 04113, holding that the “mere passage of time” does not effect a waiver of a liability insurer’s right to disclaim coverage for untimely notice by the insured; rather the insurer’s delay must be assessed under the common law doctrines of waiver and estoppel.

In KeySpan, the plaintiff brought a declaratory judgment action seeking coverage for losses relating to environmental contamination at sites formerly owned by LILCO. The insurer asserted an affirmative defense based on LILCO’s failure to give timely notice of the claim, which was a condition precedent to coverage under the policy. On summary judgment, the Supreme Court rejected LILCO’s argument that the insurer waived the untimely notice by failing to disclaim coverage on that basis prior to the lawsuit. The Appellate Division reversed, finding that “issues of fact remain as to whether defendants waived their right to disclaim coverage based on late notice” by “failing to timely issue a disclaimer.” The Appellate Division held that, on remand, a jury should consider whether the insurance company “possessed sufficient knowledge to require that they meet the obligation to issue a written notice of disclaimer on the ground of late notice as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability.”

The Court of Appeals held that the Appellate Division applied the wrong standard in evaluating the waiver argument. The Appellate Division’s “as soon as reasonably possible” standard derives from a provision of the New York Insurance Law (Section 3420(d)(2) that by its terms is limited to coverage for “death or bodily injury”:

If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.

The Court of Appeals held that this standard did not apply in this case, where the coverage at issue concerned environmental harm rather than death or bodily injury:

The Legislature enacted section 3420(d)(2) to “aid injured parties” by encouraging the expeditious resolution of liability claims. To effect this goal, the statute establishes an absolute rule that unduly delayed disclaimer of liability or denial of coverage violates the rights of the insured or the injured party. Compared to traditional common-law waiver and estoppel defenses, section 3420 (d) (2) creates a heightened standard for disclaimer that depends merely on the passage of time rather than on the insurer’s manifested intention to release a right as in waiver, or on prejudice to the insured as in estoppel.
By its plain terms, section 3420(d)(2) applies only in a particular context: insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy. Where, as here, the underlying claim does not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in Insurance Law § 3420 (d) are inapplicable. In such cases, the insurer will not be barred from disclaiming coverage simply as a result of the passage of time, and its delay in giving notice of disclaimer should be considered under common-law waiver and/or estoppel principles.

Here, the Appellate Division erred when it held that defendants had a duty to disclaim coverage “as soon as reasonably possible” after they learned that LILCO’s notice was untimely under the policies. The environmental contamination claims at issue in this case do not fall within the scope of Insurance Law § 3420 (d) (2), which the Legislature chose to limit to accidental death and bodily injury claims, and it is not for the courts to extend the statute’s prompt disclaimer requirement beyond its intended bounds. Indeed, Keyspan has never relied on section 3420 (d) (2) and instead asserts a common-law waiver defense. The Appellate Division must determine whether the evidence supporting this defense is sufficient to defeat defendants’ motion for summary judgment based on LILCO’s failure, as a matter of law, to give timely notice under the policies. Specifically, the Appellate Division must consider if, under common-law principles, triable issues of fact exist whether defendants clearly manifested an intent to abandon their late-notice defense. We therefore remit this matter to the Appellate Division to make these determinations.

(Citations omitted) (emphasis added).