Choice of law

October 28, 2013

Policyholders: Beware of Choice of Law Provisions

Source: Saxe Doernberger & Vita, P.C., October 2013

New York District Court Applies “No Prejudice” Rule to Late Notice Claim for Policy “Issued and Delivered” Outside the State with NY Choice of Law Provision

A New York federal district court applied the antiquated “no prejudice” rule to an insured’s late notice claim in Indian Harbor Insurance Co. v. City of San Diego, 2013 WL 5340380 (S.D.N.Y. Sept. 25, 2013). The insurance policy in question was issued in Pennsylvania, delivered to the policyholder in California, and insured risks located in California. The policy contained both New York choice of law and forum selection clauses. In holding that the insurer had no duty to indemnify, the court held that only those policies “issued and delivered” in New York are entitled to take advantage of New York’s statutory “notice-prejudice” standard, which requires that an insurer show prejudice resulting from the policyholder’s late notice in order to deny coverage on that basis. Rather, the court held that foreign insurance policies with New York choice of law provisions are subject to the draconian common law “no prejudice” standard, under which an insurer does not have to show that it was prejudiced by late notice in order to deny coverage.

The Indian Harbor case involved three underlying pollution claims made against the California State Association of Counties and the City of San Diego (collectively “the City”). For each claim, the City failed to give timely notice to the insurer after receiving the claim. The insurer disclaimed coverage and sought a declaration that it had no duty to indemnify the City due to the late notice.…