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In a convoluted legal malpractice case, an insurance company won on principle but lost on the facts in its efforts to deny coverage to an Albany, N.Y., law firm. Senior U.S. District Judge Neal P. McCurn left intact a legal assumption that in New York an insurer seeking to deny coverage on the ground of late notice need not show that actual prejudice occurred because of the lateness. But he also said that Chicago Insurance Co. (CIC) must defend and indemnify the firm of Cade & Saunders. The notice at issue was not late, he ruled. Cade & Saunders was sued by the aunt and uncle of one of its attorneys after the firm represented them in an unsuccessful personal injury action. The insurer attempted to disclaim coverage because of allegedly late notice. It prevailed in its argument that prejudice, or harm, is irrelevant in a New York late-notice case. But it is still responsible for defending Cade & Saunders and paying any damages resulting from the malpractice action, the court said. The case, Cade & Saunders v. Chicago Insurance Co., 1:02-CV-1203, began with an automobile accident in the mid 1990s involving Joe and Laura Nigro. Mr. Nigro crossed three lanes of traffic to make a left turn, and his vehicle was rear-ended. The car flipped over and, he said, he suffered a head injury. Mr. and Mrs. Nigro sued the other driver. A month before the trial was to begin, Mrs. Nigro contacted her nephew, attorney Kyran Nigro, then of Cade & Saunders. She expressed dissatisfaction with their attorney and asked Mr. Nigro if his firm would take the case to trial. The Cade firm took the case but wanted to retain a different expert from the one hired by prior counsel. The new expert was tied up in another trial, and his report was not available until the weekend before the Nigros’ case was set for jury selection. Kyran Nigro provided the report to the defense immediately. However, neither he nor his firm was aware of a disclosure timetable agreed upon by the prior attorney. The trial judge disallowed the expert’s testimony because of the disclosure agreement. The case proceeded to trial without a liability expert for the Nigros. Twenty minutes into deliberations, the jury held for the defense. After the verdict was upheld on appeal, the Nigros hired another lawyer and sued the Cade firm for malpractice. The firm promptly noticed Chicago Insurance Co., its carrier. The insurer disclaimed coverage, making two main arguments. First, the insurer said, it should have been notified of Cade’s potential liability when the order disallowing the Nigros’ expert was entered, not when the malpractice action was actually commenced. Second, it claimed that under New York law it makes no difference whether it was actually compromised by the late notice. McCurn found no reason why Mr. Nigro, the lawyer or his firm would have suspected that Mr. Nigro’s relatives would initiate a malpractice action. Consequently, he said, the firm had no reason to notify Chicago Insurance of the preclusion order. SHOWING PREJUDICE Of perhaps more legal significance were the court’s conclusions on whether insurers must show prejudice to disclaim coverage for late notice. New York law is unclear on that question. Federal courts have recently assumed that New York is sticking with a longstanding “no prejudice” rule even though, as McCurn said, “it does appear that the tide may be turning.” Two years ago, the 2nd U.S. Circuit Court of Appeals certified the question to the state Court of Appeals in Varrichio and Associates v. Chicago Insurance Co., 312 F.3d 544. The court accepted the certified question, suggesting it is eager to speak on the matter and perhaps adopt a new rule. But it never got the opportunity because the case was withdrawn. The 2nd Circuit has since assumed that in New York failure to provide timely notice to an insurer is a complete defense to coverage, whether or not the insurance carrier was prejudiced by the late notice. Green Door Realty Corp. v. TIG Ins. Co., 329 F.3d 292 (2003). McCurn relied on that assumption. “[P]laintiffs suggest that this is an appropriate case in which to resolve the issue of ‘whether New York should continue to maintain a no-prejudice rule to notice claims,’ ” the court said. “ The court declines to do so.” Consequently, McCurn said, “at least for the time being, the state of the law on the issue of prejudice is unchanged in New York: there is no requirement that an insurer make such a showing when claiming late notice.” Appearing were John T. Maloney and Nancy E. May-Skinner of Carter Conboy Case Blackmore Maloney & Laird in Albany for Cade & Saunders; and Steven A. Coploff of Steinberg & Cavaliere in White Plains for Chicago Insurance.

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