Washington, DC, February 23, 2009—Patton Boggs won a significant legal victory on behalf of global beauty company Estée Lauder, Inc. against OneBeacon Insurance Group, LLC.
The February 19 ruling by the New York Supreme Court’s Appellate Division (First Department) marks the first case holding that when an insurance company believes that the policyholder has given untimely notice of a claim or occurrence, it has an affirmative duty, imposed by law, to promptly and specifically disclose that belief to the policyholder. The failure of the insurer to do so, the Court held, waives any untimely notice defense even if the insurer has issued a letter to the policyholder containing a catch-all “reservations clause” purporting to “reserve” “any and all” defenses. A breach of this disclosure duty by the insurer constitutes a “constructive” waiver that becomes effective even if the insurer did not “actually intend” to waive the defense.
In reaching this holding, the Court unanimously reversed a ruling by Justice Carol Robinson Edmead, who had ruled that a “catch-all” reservations clause in the insurer’s disclaimer letter permitted it to selectively disclose known defenses.
Justice James M. McGuire, writing for a unanimous court, stated “an insurer cannot avoid a waiver of a defense of which it has actual or constructive knowledge…by a unilateral assertion in a disclaimer notice that it is reserving or not waiving a right to disclaim on other, unstated grounds.” Justice McGuire went on to state that “the duties of an insurer to disclaim coverage in a timely, specific and nonselective manner . . . are imposed by law.”
In addition to reversing the IAS Court’s grant of summary judgment to OneBeacon, the Appellate Division reversed the lower court’s denial of summary judgment to Estee Lauder. The Court held that Estee Lauder was covered under a lost policy issued by OneBeacon’s predecessor company. Estee Lauder met its burden of establishing the terms of the lost policy by coming forward with a “renewal policy” that referred to the lost policy as the policy being renewed. This evidence, along with certificates of insurance referring to the lost policy, Justice McGuire held, was sufficient to “establish the existence of the policy and to invoke the presumptions that the terms of the renewal policy are identical to the term of the policy being renewed.”
The ruling was significant because it “should end insurers’ gamesmanship of using ‘catch-all’ reservations clauses in their coverage-position letters to play ‘hide-the-ball’ and mislead policyholders,” said John W. Schryber, lead counsel for Estée Lauder in the case and the founder of Patton Boggs’ cost recovery and indemnification practice group. The ruling also is significant, he said, because it “should end the silliness of an insurer denying that it ever issued a policy that, in fact, it actually pocketed premium payments to ‘renew.’”