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The New York Court of Appeals has been asked to settle two issues concerning limits on the right of insurance companies to delay giving notification of the denial of coverage. Citing an issue involving important policy considerations that was likely to recur under New York Insurance Law � 3420(d), the 2nd U.S. Circuit Court of Appeals Tuesday certified the following two questions to the state’s highest court: First, may an insurer who has discovered grounds for denying coverage wait to notify the insured until after the insurer has conducted an investigation into alternate, third-party sources of insurance benefitting the insured, although the existence or non-existence of alternate insurance sources is not a factor in the insurer’s decision to deny coverage? And second, if an investigation into alternate sources of insurance is not a proper basis for delayed notification under � 3420(d), is an unexcused delay in notification of 48 days unreasonable as a matter of law under that section? The certification came in Jetco Contracting Corp. v. First Financial Insurance Co., 01-9455, a case involving the injury of a worker who was struck by a piece of scaffolding at a construction project in Manhattan’s Washington Square. Section 3420(d) requires certain liability insurers to issue a notice of disclaimer of liability or deny coverage “as soon as reasonably possible.” Southern District of New York Judge Naomi Reice Buchwald ruled for First Financial following a bench trial, finding that the company’s 48-day delay in notifying the general contractor for the job site on the denial of coverage was reasonable. First Financial was investigating alternate, third-party sources of insurance that was “clearly” for the general contractor’s benefit, she said, and such investigations should be encouraged as a matter of public policy. At the 2nd Circuit, Judge Chester J. Straub said Judge Buchwald had identified a policy interest that has not been explored in two major Appellate Division, 2nd Department, cases on the subject: “protecting the insured to the greatest extent possible by promoting an insured’s access to insurance, whatever the source.” “Rather than decide for ourselves in the first instance the significant and novel public policy question of additional source investigations in the context of notification under N.Y. Ins. Law Section 3420(D), we respectfully defer to the New York Court of Appeals,” he said, adding that the resolution of the issue requires “balancing the interests of New York’s insureds and insurance companies.” Judge Straub also said that even if “additional source investigations are deemed an impermissible basis for delay” under the statute, “we must still decide whether in this case the resulting unexcused (or at least inadequately excused) delay of 48 days by First Financial is unreasonable as a matter of law.” While the New York Court of Appeals has held unexcused delays of 60 days or more unreasonable, Straub said, “There remains some ambiguity, however, as to whether the unreasonableness of the delay as a matter of law is gauged from the length of the delay, or by the lack of explanation by the insurer, or by both.” Second Circuit Judge Reena Raggi joined in the two-member panel’s opinion. Judge Robert A. Katzmann recused himself after oral argument. Joseph P. Dineen of Goddard Ronan & Dineen in Garden City represented Jetco Contracting Corp., the general contractor. Jay S. Bielat and Edward S. Benson of Nicoletti Gonson & Bielat represented First Financial.

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