Hammersmith v. TIG Ins Co

Opinions of the United

2007 Decisions States Court of Appeals

for the Third Circuit

3-15-2007

Hammersmith v. TIG Ins Co

Precedential or Non-Precedential: Precedential

Docket No. 05-3730

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 05-3730

SCOTT HAMMERSMITH,

Appellant

v.

TIG INSURANCE COMPANY

(W.D. of PA. Civil Nos. 02-cv-01829 & 03-cv-01333)

Appeal from the United States District Court

for the Western District of Pennsylvania

(D.C. Civil Nos. 02-cv-01829 & 03-cv-01333)

District Judge: Honorable Gary L. Lancaster

Argued December 4, 2006

Before: RENDELL and AMBRO, Circuit Judges,

and BAYLSON,* District Judge.

__________________

* Honorable Michael M. Baylson, Judge of the United

States District Court for the Eastern District of

Pennsylvania, sitting by designation.

(Filed: March 15, 2007)

Thomas E. Birsic

Paul K. Stockman [ARGUED]

Kirpatrick and Lockhart

Nicholson Graham

535 Smithfield Street

Henry W. Oliver Building

Pittsburgh, PA 15222

James D. Belliveau

Michael H. Rosenzweig

Edgar Snyder & Associates

600 Grant Street

10th Floor, U.S. Steel Tower

Pittsburgh, PA 15219

Counsel for Appellant

Scott Hammersmith

Dennis J. Roman

Marshall, Dennehey, Warner,

Coleman & Goggin

600 Grant Street

2900 U.S. Steel Tower

Pittsburgh, PA 15219

2

Peter G. Thompson [ARGUED]

Thompson, Loss & Judge

1133 21st Street, N.W.

Two Lafayette Centre, Suite 450

Washington, DC 20036

Counsel for Appellee

TIG Insurance Co.

Robert E. Dapper, Jr.

Dapper, Baldasare, Benson, Behling & Kane

444 Liberty Avenue

10th Floor, Four Gateway Center

Pittsburgh, PA 15222

Counsel for Appellees

AON Risk Services

and AON Risk Services NY

OPINION OF THE COURT

BAYLSON, District Judge.

In this dispute over insurance coverage arising out of a

tragic accident at the Pittsburgh International Airport, three

issues are presented for decision following the District Court’s

grant of summary judgment to the excess insurer, Defendant-

Appellee TIG Insurance Company (“TIG”):

1. Did the District Court err in holding that New

York law governs this dispute as the state in which the insurance

3

contract was issued and delivered, applying the lex loci principle

on choice of law?

2. Did the District Court err in concluding as a matter

of law that late notice to TIG prevented coverage?

3. Did the District Court err in concluding as a matter

of law that TIG disclaimed coverage within a reasonable period

of time?

We write at some length on the choice of law issue

because of confusing dictum in prior decisions of this Court.

We conclude that although Pennsylvania’s choice of law rules

have abandoned the lex loci doctrine, the modern flexible

“interest/contacts” choice of law doctrine requires application of

New York law. On the issues of late notice and disclaimer, we

conclude the District Court erred because a number of material

facts prevent summary judgment from being granted in favor of

the insurer.

I. Introduction

Understanding the issues in this case requires a brief

excursion into the facts of the underlying accident and ensuing

litigation. On February 21, 1998, Plaintiff-Appellant Scott

Hammersmith (“Hammersmith”), an employee of Delta

Airlines, was unloading bags at the Pittsburgh International

Airport. As a result of the malfunctioning of the baggage

handling equipment, he was severely injured and is now a

quadriplegic requiring constant round-the-clock care. He

instituted suit in the Court of Common Pleas of Allegheny

4

County by suing Delta Airlines and Allegheny County in August

1998. Allegheny County then brought into the suit the

manufacturer of the equipment, CCC Conveyers, Inc. (“CCC”),

which was a wholly owned subsidiary of the Dyson-Kissner-

Moran Corporation (“DKM”). CCC and its parent, DKM, first

became aware of Hammersmith’s accident and lawsuit on

October 16, 1998, when they received a copy of Allegheny

County’s writ of summons. However, neither the Complaint nor

the Amended Complaint contained any specific damage

allegations.

The record shows that DKM immediately forwarded

these pleadings to its insurance broker, Aon, requesting that Aon

notify DKM’s insurer. DKM and its subsidiaries, including

CCC, were covered by a multi-layer liability insurance program.

The first $250,000 was self-insured, and the next $1,750,000

was covered under a primary policy issued by National Union

Fire Insurance Company (“National Union”). Defendant-

Appellee TIG then provided excess coverage for liability over

$2,000,000, up to a $25,000,000 limit. After receiving DKM’s

request, Aon promptly notified National Union of the claim, but

did not notify TIG.

Under DKM’s excess insurance policy with TIG, the

insured must notify TIG “as soon as practicable” of an

occurrence which may result in a claim, or when a claim is made

or a suit is brought. TIG. Ins. Co. No. XLB 271 23 83 § IV(F),

App. 1211a. Furthermore, in the event of claim or suit, the

policy requires the insured to “[i]mmediately send US copies of

any demands, notices, summons or legal papers received in

connection with the claim or SUIT.” Id. Nonetheless, TIG was

5

not notified of the Hammersmith claim until October 30, 2000,

almost two years after DKM originally learned of the suit, when

a senior claims representative from AIG Vendor Services

(“AIG”), the National Union affiliate handling DKM claims,

sent TIG a letter.

There are a number of factual issues in the record,

discussed below, as to how AIG’s claims personnel and the

attorneys handling the underlying case in the Allegheny Court

of Common Pleas evaluated CCC’s potential liability and the

settlement value of the case during pretrial proceedings.

However, it appears that just prior to a mediation scheduled for

November 9, 2000, Hammersmith’s demand for $23,000,000

came as a surprise to CCC’s defense counsel. TIG was offered,

but declined, the opportunity to participate in the mediation,

which was unsuccessful.

Despite a great deal of back and forth between TIG and

DKM on coverage issues in the ensuing months, TIG did not

formally disclaim coverage until October 5, 2001, eleven

months after it was originally notified of the Hammersmith

claim.

At that point, National Union agreed to settle with

Hammersmith for its unexpended policy limits, paid

Hammersmith approximately $1,750,000, and assigned CCC’s

claim against TIG to Hammersmith with an agreement for a

non-jury trial to determine his damages.

At the non-jury trial on November 28, 2001,

Hammersmith’s total damages were set at $25,700,000, of

6

which $19,300,000 was awarded against CCC, and subsequently

increased for delay damages to $23,600,000, in which amount

judgment was entered against CCC.

II. Proceedings in the District Court

Acting on his assignment of CCC’s claims against TIG,

Hammersmith filed suit against TIG in the District Court under

diversity jurisdiction. 28 U.S.C. § 1332. TIG brought in Aon

as a third-party defendant. Subsequently, Hammersmith also

filed a separate suit in the District Court against Aon, alleging

that Aon breached its duty to CCC by failing to give prompt

notice to TIG. The two separate cases were consolidated, and

an Amended Complaint was then filed. After discovery, TIG

moved for summary judgment, based on allegedly late notice,

and Hammersmith moved for partial summary judgment,

asserting that TIG’s delay in disclaiming coverage estopped TIG

from avoiding liability.

The District Court granted summary judgment to TIG and

denied Hammersmith’s motion for partial summary judgment.

The District Court’s grant of summary judgment in favor of TIG

did not resolve any of the issues concerning Aon,1 and the Court

1

The District Court specifically noted that plaintiff’s claim

against Aon “is not at issue here . . . and survives the Court’s

instant rulings.” App.10a. Aon’s appeal from the judgment of

the District Court was quashed. Although the parties’ briefs in

this Court discuss Aon’s alleged acts and/or omissions in some

detail, we will not consider these contentions since Aon is not a

party to this appeal.

7

entered an Order under Rule 54, Fed. R. Civ. P., granting final

judgment as to the issues between Hammersmith and TIG. This

appeal follows.

On the choice of law issue, the District Court concluded

that Pennsylvania’s choice-of-law rules require that an insurance

contract be governed by the laws of the state in which the

contract was issued and delivered, which was New York.

As to the issue of late notice, the District Court held that,

under New York law, an excess insurer is entitled to receive

prompt notice and need not show prejudice from delay in

receiving notice. The District Court concluded that, viewing the

facts in the light most favorable to Hammersmith, TIG was not

timely notified of the underlying accident and/or lawsuit, and

thus DKM, the insured parent of CCC, was not entitled to

coverage, absent some showing that TIG was estopped from

disclaiming coverage based on its delay in doing so.

In denying Hammersmith’s Motion for Partial Summary

Judgment on the ground that TIG failed to disclaim coverage as

soon as reasonably possible, the District Court held that TIG’s

investigation of the facts and disclaimer were reasonable as a

matter of law.

III. Choice of Law

The parties disagree as to which state law applies in this

case. Hammersmith urges Pennsylvania law, which requires an

insurer to prove that the notice provision contained in the

insurance contract was breached, and it suffered prejudice as a

8

result. Brakeman v. Potomac Ins. Co., 371 A.2d 193 (Pa. 1977).

TIG maintains that the District Court correctly applied New

York law, which does not require an insurer to establish

prejudice in order to disclaim coverage based on late notice.

Security Mut. Ins. Co. of N.Y. v. Acker-Fitzsimons Corp., 293

N.E.2d 76, 78 (N.Y. 1972). We exercise plenary review over

the District Court’s choice of law determination. Berg Chilling

Sys., Inc. v. Hull Corp., 435 F.3d 455, 462 (3d Cir. 2006).

Because this is a diversity case, we apply the choice-of

law-rules of the forum state, Pennsylvania. Klaxon v. Stentor

Electric Mfg. Co., 313 U.S. 487 (1941). In this case, the District

Judge erred in concluding it was “well-settled” that “[u]nder

Pennsylvania choice of law rules, an insurance contract is

governed by the law of the state in which the contract was

made.” App. 13a. Although both Pennsylvania and federal

courts have dealt with this issue in a rather inconsistent fashion,

we think it is now clear that Pennsylvania applies the more

flexible, “interest/contacts” methodology to contract choice-of-

law questions.2

2

Interestingly, neither party asked the District Court to

consider or apply Texas law. TIG’s principal place of business

is in Irving, Texas. CCC is headquartered in Dallas. The record

is silent as to where the conveyor belt was manufactured.

Texas, like Pennsylvania, requires insurers to prove prejudice

before they can disclaim coverage on late notice grounds.

See Hanson Prod. Co. v. Americas Ins. Co., 108 F.3d 627 (5th

Cir. 1997). Because the parties only argued the choice-of-law

issue with respect to New York and Pennsylvania, we will not

consider Texas in our choice-of-law analysis.

9

A. Abandonment of Lex Locus Contractus in

Pennsylvania

Choice-of-Law Jurisprudence

Prior to 1964, Pennsylvania courts uniformly applied the

law of the place of contract (“lex loci contractus”) or injury

(“lex loci delicti”) in contract and tort actions, respectively. In

Griffith v. United Air Lines Inc., 203 A.2d 796 (Pa. 1964), the

Pennsylvania Supreme Court expressly abandoned the “lexi loci

delicti” rule “in favor of a more flexible rule which permits

analysis of the policies and interests underlying the particular

issue before the court.” Id. at 805. Under this new approach,

Pennsylvania courts are to apply the law of the forum with the

“most interest in the problem,” rather than the law of the place

of injury. Id. at 806.

In the wake of Griffith, it was unclear whether this new

approach to tort choice-of-law questions would displace

Pennsylvania’s traditional “lex loci contractus” rule.3 Several

3

Compare Neville Chemical Co. v. Union Carbide Corp., 422

F.2d 1205, 1210-11 (3d Cir. 1970) (citing Griffith in a breach of

contract action for the proposition that the “Pennsylvania

Supreme Court follows the modern approach and looks to the

law of the place with the most significant relationship to the

parties and transaction, on each issue, or the ‘center of gravity’

of the contract”), with Boase v. Lee Rubber & Tire Corp., 437

F.2d 527, 529-30 (3d Cir. 1970) (“In the six years since Griffith

was decided, the Pennsylvania Supreme Court has not applied

its rule in a contract case.”).

10

years later, in Melville v. American Home Assurance Co., 584

F.2d 1306 (3d Cir. 1978), we predicted that, when the occasion

arises, “Pennsylvania [will] extend its Griffith conflicts

methodology to contract actions.” Id. at 1313. In reaching this

conclusion, we examined several Pennsylvania conflicts

decisions, including In re Hunter, 218 A.2d 764, 767 (Pa. 1966)

(choosing Pennsylvania law to govern the validity of child-

relinquishment forms because Pennsylvania had an “overriding

and continuing interest” in the issue); Crawford v. Manhattan

Life Ins. Co. of N.Y., 221 A.2d 877, 881 (Pa. Super. Ct. 1966)

(choosing West Virginia law to govern a life insurance policy

because the contract was delivered there, but also observing the

“result would be the same even if the standards enunciated in

Griffith applied” because West Virginia had the “most

significant relationship with and interest in the occurrence and

the parties”); and Gillan v. Gillan, 345 A.2d 742, 744 (Pa.

Super. Ct. 1975) (“[I]t would be error for us to apply the old,

single reference rule that . . . the place where the contract

became binding, or the place where it was to be performed,

controls the choice of law.”).

In the years following Melville, the Pennsylvania

Superior Court, federal district courts, and this Court have

continued to apply Griffith’s “interests/contacts” approach to

contract choice-of-law questions. See, e.g., Am. Contract

Bridge League v. Nationwide Mut. Fire Ins. Co., 752 F.2d 71

(3d Cir. 1985) (finding under Griffith that Pennsylvania law

should govern an insurance policy even though the policy was

negotiated, issued and delivered in Tennessee); McCabe v.

Prudential Prop. & Cas. Ins. Co., 514 A.2d 582 (Pa. Super. Ct.

1986) (applying Griffith in a case involving the interpretation of

11

an insurance contract); Compagnie des Bauxites de Guinee v.

Argonaut-Midwest Ins. Co., 880 F.2d 685 (3d Cir. 1989)

(applying Griffith to determine if insured’s notice to excess

carrier was timely); Gen. Star Nat’l Ins. Co. v. Liberty Mut. Ins.

Co., 960 F.2d 377 (3d Cir. 1992) (performing a “significant

contacts” analysis to determine which state’s law should govern

an insurance contract dispute); Wilson v. Transport Ins. Co., 889

A.2d 563, 571 (Pa. Super. Ct. 2005) (“Under the flexible

conflicts methodology approach to insurance contract cases,

which was set forth by our Supreme Court in Griffith, the court

must apply the law of the state having the most significant

contacts or relationships with the contract and not the underlying

tort.”) (internal citations omitted) (quoting Nationwide Mut. Ins.

Co. v. West, 807 A.2d 916, 921 (Pa. Super. Ct. 2002)).

The Pennsylvania Superior Court recently revisited the

issue in Budtel Associates v. Continental Casualty Co., 915

A.2d 640 (Pa. Super. Ct. 2006), and concluded “[a]fter careful

reflection” that the “spirit and weight of this Commonwealth’s

precedents mandate we follow the Griffith rule in the contract

law context.” Id. at *3. Although the Pennsylvania Supreme

Court has yet to apply Griffith to a contract dispute, “[t]o apply

the Crawford rule would be to blindly adhere to [the] ...

principle ... [that] the laws of the place where a contract is

delivered control simply because the contract was delivered

there.” Id. Furthermore, the court noted, “the Crawford rule can

be fairly subsumed by the more comprehensive Griffith rule

because the Crawford rule examines a single contact (where the

contract was delivered) while the Griffith rule ... examines all of

the contacts that occurred within a contractual relationship.” Id.

12

We agree with the Superior Court and expressly reaffirm

our prediction in Melville that the Pennsylvania Supreme Court

would apply Griffith to contract disputes. Although on several

occasions panels of this Court have observed that Pennsylvania

continues to follow the lex locus contractus rule,4 we recognize

4

See Harry L. Sheinman & Sons v. Scranton Life Ins. Co.,

125 F.3d 442, 444 (3d Cir. 1941); New York Life Ins. Co. v.

Levine, 138 F.2d 286, 288 (3d Cir. 1943); Faron v. Penn Mutual

Life Ins. Co., 176 F.2d 290, 292 (3d Cir. 1949); Roth v.

Maryland Cas. Co., 209 F.2d 371, 373 (3d Cir. 1954); Woods v.

Nat’l Life & Accident Ins. Co., 347 F.2d 760, 763 n.2 (3d Cir.

1965); Pittsburgh Bridge & Iron Works v. Liberty Mut. Ins. Co.,

444 F.2d 1286, 1290 n.2 (3d Cir. 1971); Jamison v. Miracle

Mile Rambler, Inc., 536 F.2d 560, 563 n.1 (3d Cir. 1976);

McMillan v. State Mut. Life Assurance Co. of America, 922

F.2d 1073, 1074-75 (3d Cir. 1990); Frog, Switch & Mfg. Co.,

Inc. v. Travelers Ins. Co., 193 F.3d 742, 745-46 (3d Cir. 1999);

CAT Internet Serv. Inc. v. Providence Washington Ins. Co., 333

F.3d 138, 141 (3d Cir. 2003); J.C. Penney Life Ins. Co. v. Pilosi,

393 F.3d 356, 360-61 (3d Cir. 2004); Canal Ins. Co. v.

Underwriters at Lloyd’s London, 435 F.3d 431, 434 (3d Cir.

2006) (no dispute as to choice of law); Regents of Mercersburg

Coll. v. Republic Franklin Ins. Co., 458 F.3d 159, 163 n.4 (3d

Cir. 2006) (noting another line of Pennsylvania cases looking to

law of the state with most significant relationship).

In some of these cases, the parties did not challenge the

applicable law, and thus the Court’s choice of law discussion

was dictum. See, e.g., Frog, Switch, 193 F.3d at 745-46 (“The

parties agree that the insurance contracts are governed by

Pennsylvania law.”). More significantly, all of the decisions

13

that the overwhelming weight of authority is to the contrary.

B. Contours of the Griffith Analysis

1. Classifying the Conflict

Hammersmith contends that under Griffith, the Court

must first determine whether there is a “false conflict” between

the laws of Pennsylvania and New York. Our review of the case

law indicates there is some inconsistency in the way

Pennsylvania and federal courts have defined a false conflict.5

rely either on cases that pre-date Griffith, or on Crawford, 221

A.2d 877 (Pa. Super. Ct. 1966). In Melville, however, we

observed that Crawford “acknowledge[d] the winds of change

portended by Griffith” by applying both the traditional lex locus

contractus and Griffith approaches in selecting the law to govern

a life insurance policy. Melville, 584 F.2d at 1312.

5

At least three district court opinions have recognized this

inconsistency in the case law. See Naviant Marketing Solutions,

Inc. v. Larry Tucker, Inc., No.Civ.A.00-6036, 2002 WL 15918,

at *3 n.14 (E.D. Pa. Jan. 4, 2002) (noting the distinction and

concluding that “a ‘false conflict’ arises not where there are no

relevant differences in the laws of the two jurisdictions but

rather, when there are relevant differences but the court may

apply the law of one jurisdiction without affecting the

governmental interests of the other jurisdiction”); Air Prod. &

Chem., Inc., v. Eaton Metal Prod. Co., 272 F.Supp.2d 482, 490

n.9 (E.D. Pa. 2003) (“Though the concepts are distinct, courts

in Pennsylvania appear to use the term ‘false conflict’ to mean

14

One line of cases provides that a false conflict exists if there are

no relevant differences between the laws of the two states, or the

laws would produce the same result.6 If there is a false conflict

under this definition, the court does not have to engage in a

choice of law analysis, and may refer to the states’ laws

interchangeably. Huber v. Taylor, 469 F.3d 67, 74 (3d Cir.

2006). If the states’ laws do in fact conflict, the court must

both a situation in which no conflict at all exists ... and a

situation in which only one state’s interests would be

harmed....”); Liebman v. Prudential Fin., Inc., No.Civ.A. 02-

2566, 2003 WL 22741415, at *2 n.3 (E.D. Pa. Nov. 14, 2003)

(“Third Circuit precedent varies slightly on the meaning of

‘false conflict.’”).

6

See Huber v. Taylor, 469 F.3d 67, 74 (3d Cir. 2006) (noting

if there is no “true conflict,” the district court “may refer

interchangeably to the laws of the states whose laws potentially

apply”); Berg Chilling, 435 F.3d at 462 (“[W]here the laws of

the two jurisdictions would produce the same result on the

particular issue presented, there is a ‘false conflict,’ and the

Court should avoid the choice-of-law question.”); Williams v.

Stone, 109 F.3d 890, 893 (3d Cir. 1997) (same); Lucker Mfg. v.

Home Ins. Co., 23 F.3d 808, 813 (3d Cir. 1994) (same); Coons

v. Lawlor, 804 F.2d 28, 30 (3d Cir. 1986) (“If the various laws

that might be applied to the case do not differ on the relevant

issue, there is a false conflict.”); Complaint of Bankers Trust

Co., 752 F.2d 874, 882 (3d Cir. 1984) (“If the foreign law to

which the forum’s choice-of-law rule refers does not differ from

that of the forum on the issue, the issue presents a ‘false

conflict.’”).

15

determine which state has the “greater interest in the application

of its law.” Ratti v. Wheeling Pittsburgh Steel Corp., 758 A.2d

695, 702 (Pa. Super. Ct. 2000).7

A different line of cases holds that a “false conflict”

exists “if only one jurisdiction’s governmental interests would

be impaired by the application of the other jurisdiction’s laws.”

Lacey v. Cessna Aircraft Co., 932 F.2d 170, 187 (3d Cir. 1991).8

7

See also Budtel Assoc., LP v. Continental Cas. Co., No. 728

MDA 2005, 2006 WL 3718238, at *2 (Pa. Super. Ct. Dec. 19,

2006) (“[T]he first step in a choice of law analysis under

Pennsylvania law is to determine whether a conflict exists

between the laws of the competing states. If no conflict exists,

further analysis is unnecessary. If a conflict is found, it must be

determined which state has the greater interest in the application

of its law.”) (internal citations omitted); Thibodeau v. Comcast

Corp., 2006 WL 3457582, at *11 (Pa. Super. Ct. Dec. 1, 2006)

(same); Wilson v. Transp. Ins. Co., 889 A.2d 563, 571 (Pa.

Super. Ct. 2005) (same); Keystone Aerial Surveys, Inc. v.

Pennsylvania Prop. & Cas. Ins. Guar. Assoc., 777 A.2d 84, 94

(Pa. Super. Ct. 2001) (same).

8

See also Garcia v. Plaza Oldsmobile Ltd., 421 F.3d 216, 220

(3d Cir. 2005) (“A true conflict exists ‘when the governmental

interests of [multiple] jurisdictions would be impaired if their

law were not applied.’”) (quoting Lacey, 932 F.2d at 187 n.15);

Budget Rent-a-Car Sys., Inc. v. Chappell, 407 F.3d 166, 170 (3d

Cir. 2005) (same); LeJeune v. Bliss-Salem, Inc., 85 F.3d 1069,

1071 (3d Cir. 1996) (same); Shuder v. McDonald’s Corp., 859

F.2d 266 (3d Cir. 1988) (finding the existence of a “true

16

In that case, the court should “apply the law of the state whose

interests would be harmed if its laws were not applied.” Id. On

the other hand, if the “governmental interests of both

jurisdictions would be impaired if their law were not applied,”

there is a true conflict. Id. at 187 n.15 (emphasis in original).

The court must then proceed with the choice-of-law analysis and

apply the law of the state with the “most significant contacts or

relationships with the particular issue.” Budget Rent-a-Car Sys.,

Inc. v. Chappell, 407 F.3d 166, 170 (3d Cir. 2005) (quoting In

re Estate of Agostini, 457 A.2d 861, 871 (Pa. Super. Ct. 1983)).

We think it is incorrect to use the term “false conflict” to

describe the situation where the laws of two states do not differ.

If two jurisdictions’ laws are the same, then there is no

conflict at all, and a choice of law analysis is unnecessary.

Thus, the first part of the choice of law inquiry is best

understood as determining if there is an actual or real conflict

between the potentially applicable laws. See, e.g., Air Prod. &

Chem., 272 F.Supp.2d at 490 n.9 (“Before we even reach the

‘false conflict’ question, we must determine whether, for lack of

better terminology, a ‘real conflict’ as opposed to ‘no conflict’

exists; that is, we must determine whether these states would

actually treat this issue any differently.”).

conflict” because the application of “the law of either Virginia

or Pennsylvania [would] further the policies of that state”);

Rosen v. Tesoro Petroleum Corp., 582 A.2d 27, 31 (Pa. Super.

Ct. 1990) (“[T]his is not a case of ‘false conflict,’ because either

state’s interests would be disserved by the application of the

other state’s law....”).

17

If there are relevant differences between the laws, then

the court should examine the governmental policies underlying

each law, and classify the conflict as a “true,” “false,” or an

“unprovided-for” situation.9 A “deeper [choice of law]

analysis” is necessary only if both jurisdictions’ interests would

be impaired by the application of the other’s laws (i.e., there is

a true conflict). See Cipolla v. Shaposka, 267 A.2d 854, 856

(Pa. 1970) (deciding to “undertake a deeper analysis” because

the plaintiff “is a resident of Pennsylvania which has adopted a

plaintiff-protecting rule” and the defendant “is a resident of

Delaware which has adopted a defendant-protecting rule”);

Rosen v. Tesoro Petroleum Corp., 582 A.2d 27, 30-31 (Pa.

Super. Ct. 1990) (finding a “true conflict” between the malicious

prosecution laws of Texas and Pennsylvania, where the

underlying suit was brought in Texas against Pennsylvania

residents, and the Texas law intended to provide litigants with

“open access to the judicial system,” while Pennsylvania’s law

intended to give greater protection to individuals “who may be

forced to defend a baseless suit”).10

9

An “unprovided-for” case is one in which neither state’s

interests would be impaired if its laws were not applied. Garcia,

421 F.3d at 220. In that situation, courts should apply the

traditional, lex locus contractus rule. Id.

10

The Court notes that in Lebegern v. Forman, 471 F.3d 424

(3d Cir. 2006), we reached a different conclusion in analyzing

New Jersey’s choice-of-law principles. In Lebegern, we held

that a true conflict exists if the laws of the jurisdictions differ.

Id. at 431. If there is a true conflict, then the court should

conduct a choice-of-law analysis, and consider the interests of

18

2. Contacts and Interests Analysis

If a true conflict exists, the Court must then determine

which state has the “greater interest in the application of its

law.” Cipolla, 267 A.2d at 856. In Melville, we described the

Griffith methodology as a combination of the “approaches of

both [the] Restatement II (contacts establishing significant

relationships) and ‘interests analysis’ (qualitative appraisal of

the relevant States’ policies with respect to the controversy).”

584 F.2d at 1311.11 This analysis requires more than a “mere

the states in having their laws applied. Id. Although this was an

appropriate assessment of New Jersey choice-of-law rules, we

think Pennsylvania precedent dictates a different conclusion. In

Lebegern, we emphasized that the New Jersey Supreme Court

initiated its conflict analysis by “review[ing] the substance of

the laws” and determining whether they differed. Id. at 430. “It

was not until the second prong of the governmental interest test -

assessing the interests of each jurisdiction - that the New Jersey

Supreme Court entered into an in-depth discussion of the impact

of the respective states’ underlying policy goals and intent.” Id.

By contrast, in Cipolla, the Pennsylvania Supreme Court asked

whether the interests of both states were implicated at the outset

of the choice-of-law inquiry. After deciding that they were, the

court proceeded to conduct a “deeper analysis.” 267 A.2d at

856. Thus, under Pennsylvania precedent, we think the issue of

a “false conflict” (defined in terms of states’ interests in seeing

their laws enforced) should be treated as a threshold matter.

11

We later reaffirmed this formulation of Griffith in Carrick

v. Zurich-American Ins. Group, 14 F.3d 907 (3d Cir. 1994),

19

counting of contacts.” Cipolla, 267 A.2d at 856. “Rather, we

must weigh the contacts on a qualitative scale according to their

relation to the policies and interests underlying the [particular]

issue.” Shields v. Consol. Rail Corp., 810 F.2d 397, 400 (3d Cir.

1987).

C. Applying the Griffith Choice-of-Law Analysis

As a threshold matter, we note that the TIG-DKM policy

did not contain an express choice-of-law provision. However,

the policy was entitled “New York Coverage Plus Umbrella

Liability Policy,” and it contained a New York cancellation

endorsement and a New York state law conformance clause

governing “operations in the State of New York.” Contrary to

TIG’s assertions, we do not think these references to New York

amount to an implicit agreement between TIG and DKM that

New York law should govern the late notice issue. In

Assicurazioni Generali S.P.A. v. Clover, 195 F.3d 161 (3d Cir.

1999), we concluded that “the parties at least implicitly and

perhaps even explicitly” selected Indiana law to govern the

policy because there were “repeated references” to Indiana law

in the UIM endorsement. Id. at 165. In Clover, however, the

arbitration clause at issue was contained in the state-specific

endorsement. See id. at 164 (“[I]t is the Indiana UIM

endorsement itself[,] not merely the policy, which contains the

arbitration clause whose scope is at issue.”). By contrast, the

where we observed that the Pennsylvania Supreme Court had

not “rendered any opinion ... impugning the validity of [this]

exposition of Pennsylvania’s flexible choice of law rule.” Id. at

909.

20

notice requirement at issue in this case is not contained in any of

the provisions that reference New York law.

1. Identifying and Classifying the Conflict

Applying the above framework, we must first determine

whether there is an “actual” conflict between the New York and

Pennsylvania late notice laws. Pennsylvania requires an insurer

to establish it was prejudiced by an insured’s late notice before

it can disclaim coverage on those grounds (the “prejudice rule”).

Brakeman, 371 A.2d at 198. Under New York law, “absent a

valid excuse” for late notice, an insured’s “failure to satisfy the

notice requirement vitiates the policy” regardless of whether the

insurer can show prejudice (the “no prejudice rule”). Security

Mutual, 293 N.E.2d at 440. Because there are relevant

differences between the New York and Pennsylvania late notice

laws, we must proceed to the second prong of the inquiry and

determine if this is a true or false conflict.

Hammersmith contends there is a false conflict because

only Pennsylvania’s interests will be harmed if the Court does

not apply its law. Hammersmith reasons that the application of

Pennsylvania law will not impair the interests underlying New

York law because, if an insurer actually suffered “the harm New

York’s rule is intended to avert . . . [,] then [it could establish

prejudice and] avoid its coverage obligation even under

Pennsylvania law.” Appellant’s Br. 32. Conversely, applying

New York’s no-prejudice rule would impair Pennsylvania’s

interest in protecting an insured or accident victim from the

“unnecessary forfeiture of insurance benefits.” Id. at 31.

21

We disagree with Hammersmith and find there is a true

conflict between Pennsylvania and New York law. As

Hammersmith points out, Pennsylvania’s prejudice rule is

designed to safeguard the interests of the insured and accident

victim by protecting them against forfeitures on technical

grounds. Brakeman, 371 A.2d at 196-98 & n.8. On the other

hand, New York’s law, by requiring strict compliance with

notice provisions, is meant to protect insurers from fraud or

collusion, and enable them to “take an active, early role in the

litigation process, and in any settlement discussions and to set

adequate reserves.” Argo Corp. v. Greater N.Y. Mut. Ins. Co.,

827 N.E.2d 762, 765 (N.Y. 2005). We believe both

states’ interests are implicated on the facts of this case.

Although the named insured, DKM, had its headquarters in New

York (App. 875a) and thus is not a Pennsylvania resident, the

accident victim is a Pennsylvania domiciliary and was injured

while working in Pittsburgh. In Brakeman, the Pennsylvania

Supreme Court made clear that the prejudice rule serves the

public interest by ensuring that accident victims are not denied

“recovery against the insurance company because it received

late notice of the accident, even though it suffered no prejudice

as a consequence thereof.” 371 A.2d at 198 n.8. New York’s

interests are also implicated even though the insurer, TIG, is not

a New York resident. There is no evidence that New York

intended its “no-prejudice” rule to protect only resident insurers,

rather than all insurers doing business in the state of New York.

Because TIG issued an insurance policy in New York to a New

York resident, New York clearly has a regulatory interest in this

22

matter.12 Thus, there is a true conflict between Pennsylvania

and New York law, and we must determine which state has the

most significant relationship to this dispute.

2. Contacts under the Restatement

We begin the analysis by assessing each state’s contacts

under the Second Restatement of Conflicts of Laws, bearing in

mind that “[w]e are concerned with the contract of insurance”

and not the underlying tort. McCabe v. Prudential Prop. & Cas.

Ins. Co. 514 A.2d 582, 586 (Pa. Super. Ct. 1986). Section 193

of the Second Restatement specifically governs casualty

insurance contracts, and provides that the “validity [of the

contract] . . . and the rights created thereby are determined by

the local law of the state which the parties understood was to be

the principal location of the insured risk during the term of the

policy, unless . . . some other state has a more significant

relationship . . . to the transaction and the parties. . . .”

Restatement (Second) of Conflict of Laws § 193. Comment b

12

We decline to accept Hammersmith’s broader argument that

New York’s interest in applying its no prejudice rule can

never be harmed by enforcing a prejudice requirement because

the laws serve identical goals. New York has decided that

requiring strict compliance with notice provisions is the most

effective means of protecting certain interests of insurance

carriers. See Argo Corp., 827 N.E.2d at 764. We will not

substitute our judgment for that of the New York courts by

concluding that a prejudice rule would just as effectively serve

these interests.

23

explains that courts should generally give the location of the

insured risk “greater weight than any other single contact.” Id.

§ 193 cmt. b. However, if the “policy covers a group of risks

that are scattered throughout two or more states,” the location of

the risk has “less significance” to the choice-of-law

determination. Id. Section 193 clearly reflects a “preference

that only one set of laws govern a given insurance contract, and

a disapproval of the possibility that the laws of different

jurisdictions might apply to different risks under the policy.”

United Brass Works, Inc. v Am. Guar. & Liab. Ins. Co., 819

F.Supp. 465, 469 (W.D. Pa. 1992).

The insurance contract between TIG and DKM provided

coverage for DKM’s subsidiaries in more than twenty states and

throughout the world. App. 1252a-1256a. In this case, then,

there is no “principal location of the insured risk,” and the

significance of this factor is “greatly diminish[ed].” Compagnie,

880 F.2d at 690 (noting the “difficulty in defining, or even

locating, the insured risk” because the equipment manufactured

by the insured is “distributed throughout the world”); see also

Gould Inc. v. Cont’l Cas. Co., 822 F.Supp. 1172, 1175-76 (E.D.

Pa. 1993) (finding § 193 inapplicable because the

“comprehensive general liability policy . . . was intended to

insure the risks of business operations scattered throughout a

number of states”); Manor Care v. Cont’l Ins. Co., No.Civ.A.

01-CV-2524, 2003 WL 22436225, at *6 (E.D. Pa. Oct. 27,

2003) (holding that § 193 did not apply where the insured

facilities were located in thirty states).

Because § 193 is largely inapplicable, we turn to § 188(2)

(the general provision governing contracts), which directs us to

24

take the following contacts into account: (1) the place of

contracting; (2) the place of negotiation of the contract; (3) the

place of performance; (4) the location of the subject matter of

the contract; and (5) the domicile, residence, nationality, place

of incorporation and place of business of the parties. In

Compagnie, we observed that when notice is at issue, the

“location of the insured risk is further diminished in importance

while factors like the location of the injury, the domicile of the

parties, and the location of contracting and negotiation become

relatively more important.” 880 F.2d at 690. In particular, we

explained, “[t]he place of contracting, negotiation, and

performance are the most relevant contacts with respect to the

notice procedures.” Id. (quoting Sandefer Oil & Gas, Inc. v.

AIG Oil Rig of Texas Inc., 846 F.2d 319, 324 (5th Cir. 1988)).

An insurance contract is made in the state where it is

delivered. Harry L. Sheinman & Sons v. Scranton Life Ins. Co.,

125 F.2d 442, 444 (3d Cir. 1941). The evidence in this case

establishes that after TIG issued the policy, it was sent to New

York for review by the underwriter. From there, it was

forwarded to the broker, Brooks Wright, who was in either

Connecticut or New York, and finally to Cynthia Leopold,

DKM’s director of risk management, in New York. Leopold

Dep., App. 877a-878a. The record does not contain any more

specific evidence regarding the state of delivery. See id.

(indicating she did not know where the policy was delivered).

Nonetheless, TIG contends we should presume New York was

the state of delivery because New York is the residence of the

insured, DKM. In light of the fact that DKM’s headquarters are

in New York, the insurance policy lists a New York address for

25

DKM, and the policy was sent to Leopold in New York for final

review, we think it is fair to presume the policy was delivered in

New York. See Jamison v. Miracle Mile Rambler, Inc., 536

F.2d 560, 563 n.1 (3d Cir. 1976) (presuming Pennsylvania was

the state of delivery where the insured was incorporated and

located in Pennsylvania, and the insurer engaged in business in

Pennsylvania).

The second factor, place of negotiation, also points to

New York. DKM’s insurance broker, Aon Risk Services, Inc.

of New York, is a New York corporation with its principal place

of business in New York. Bryson, the wholesale broker which

actually placed the TIG policy for DKM, is also located in New

York. The application materials, as well as some of the

revisions to the policy, were prepared in New York. See Wright

Dep., App. 1150a (testifying that the application was prepared

by Patrice Paz, the broker on the DKM account); Letter from

Patrice Paz (Aon) to Kevin McLaughlin (Bryson), Jan. 9, 1997,

App. 1298a-1300a (listing changes and corrections to be made

to the policy). By contrast, there is no evidence that any part of

the negotiations took place in Pennsylvania.

The next contact, place of performance, is the state in

which notice should have been provided.13 See Compagnie, 880

F.2d at 685 (assessing place of performance with respect to late

notice, and discussing where notice had to be given and by

13

Generally, an insurance contract is performed where the

premiums are received. Gould, 822 F.Supp. at 1176. In this

case, there is no record evidence of where DKM paid its

premiums.

26

whom). Under the insurance contract, DKM, a New York

resident, was responsible for providing notice of claims to TIG,

a California corporation with its principal place of business in

Texas. App. 1211a; 875a; 274a. DKM, in turn, relied on its

New York broker, Aon, to provide notice to its carriers upon

request. See Leopold Dep., App. 839a, 841a, 879a-880a;

McConaghy Dep., 1087a. Presumably, notice of the claim was

to be given to TIG in Texas. See Letter from Hayes Battle

(AIG) to TIG, Oct. 19, 2000, App. 1707a-1708a (providing

notice of claim to TIG in Irving, Texas). It is very likely, then,

that Texas was the state of performance. However, between

New York and Pennsylvania, the third factor favors New York

because the entities responsible for providing notice under the

insurance contract were located in New York.

The fourth factor, location of the subject matter of the

contract, refers to the location of the insured risk. Manor Care,

2003 WL 22436225, at *7. Comment (e) provides that when the

“contract deals with a specific physical thing such as land or

chattel, or affords protection against a localized risk . . . the

location of the thing or risk is significant.” § 188 cmt. e. As we

previously explained in our discussion of § 193, the insured risk

in this case is spread throughout numerous states and countries.

Therefore, this factor is neutral.

Regarding the parties’ domiciles, we note that the only

resident of Pennsylvania is Hammersmith, the accident victim.

DKM (the named insured), Aon (the broker), and Bryson (the

wholesale broker that procured the policy) are all located in

New York. TIG is a resident of both California and Texas, and

CCC (DKM’s subsidiary that manufactured the conveyor) is

27

located in Texas. Comment (e) explains that the significance of

the parties’ domiciles “depends largely upon the issue involved

and upon the extent to which they are grouped with other

contacts.” § 188 cmt. e. For example, “[t]he fact that one of the

parties is domiciled or does business in a particular state

assumes greater importance when combined with other contacts,

such as that this state is the place of contracting or of

performance. . . .” Id. In this case, where the issue is late

notice, we think it is significant that New York domiciliaries

were responsible for providing notice under the terms of an

insurance policy which was issued, delivered and negotiated, at

least in part, in New York.

Weighing the above contacts on a “qualitative scale,” it

is clear that New York has a more significant relationship to the

insurance contract than Pennsylvania. The only connection

Pennsylvania has to this dispute is that the plaintiff resides, and

alleged tort occurred, in Pennsylvania. However, “we are

[primarily] concerned with [the] contract of insurance, and, as

to the insurance policy, [New York] has the most significant

contacts.” McCabe, 514 A.2d at 586.14

14

The fact that TIG had a license to market insurance policies

in Pennsylvania, and knew that DKM had subsidiaries in

Pennsylvania, does not mean (as Hammersmith argues) that

Pennsylvania has a greater interest in this dispute. TIG’s license

to do business in Pennsylvania does not alter the fact that the

insurance policy at issue is between a New York insured and a

California/Texas insurer. Likewise, the fact that DKM had

worldwide subsidiaries, including ones in Pennsylvania, does

not mean that Pennsylvania law should govern because the

28

3. Governmental Interests

Finally, the Court must consider the “interests and

policies that may be validly asserted by each jurisdiction.”

Melville, 584 F.2d at 1311. We conclude that New York has the

greater policy interest. Certainly, Pennsylvania has an interest

in ensuring recovery for its accident victims. However, we

believe New York’s interest in regulating an insurance contract

issued to a New York insured, negotiated by New York brokers,

delivered in New York, and entitled “New York Coverage Plus

Umbrella Liability Policy,” is paramount.

Because, between Pennsylvania and New York, New

York has the most significant relationship to the insurance

contract, and the greatest governmental interest in seeing its

laws enforced, we will apply New York law on the remaining

accident happened to have occurred in Pittsburgh. Under this

logic, TIG could be subject to the laws of more than twenty-five

states or countries under the DKM policy. Clearly, this runs

contrary to the Restatement’s “preference that only one set of

laws govern a given insurance contract.” United Brass Works,

819 F.Supp. at 469.

Additionally, we reject Hammersmith’s claim that New

York’s contacts with the insurance policy are “fortuitous.”

Airplane crashes and car accidents are fortuitous. The location

of a company’s headquarters, and a parent’s procurement of

insurance coverage for its subsidiaries, are deliberate decisions.

29

issues to this dispute.15

IV. Timeliness of Notice to Excess Insurer

Hammersmith argues that the District Court erred when

it decided as a matter of law that notice to TIG was untimely.

According to Hammersmith, a reasonable jury could conclude,

based on the evidence in the record, that DKM was not required

to notify TIG of the Hammersmith claim until October 2000,

15

Hammersmith urges the Court to follow Harrow Stores, Inc.

v. Hanover Insurance Co., 719 A.2d 196 (N.J. Super. Ct. 1998),

where the court chose New Jersey law to govern an insurance

dispute, even though the primary insured (Trojan) was a New

York corporation and only manufactured its products in New

York; the distributor of the allegedly defective product (Harrow

Stores) was also a New York corporation; and the insurance

contract was negotiated and consummated in New York. Id. at

199. The court was persuaded by the fact that the defective

product was sold in New Jersey to a New Jersey resident. Id.

It is unclear how many vendors (other than Harrow

Stores) were included in Trojan’s vendor endorsement. If the

endorsement covered a large number of distributors with

geographically diverse locations, we question whether the court

would have reached the same conclusion. In any event, we are

not bound by the New Jersey Superior Court’s choice of law

determination. The contacts discounted by the court in Harrow

Stores (e.g., the domicile of the insured, and place of negotiation

and consummation of the contract) are of great significance

under Pennsylvania precedent, and we must afford them

appropriate deference.

30

when another product liability claim against DKM settled,

reducing the total amount of coverage available under the

National Union primary policy. Appellant’s Br. 8-9. The

District Court’s legal conclusion on the voluminous evidence in

the record on this allegedly late notice issue was as follows:

We find that, viewing the facts in

the light most favorable to plaintiff,

TIG was not timely notified of the

underlying accident and/or lawsuit.

It is undisputed that DKM notified

Aon the very day it learned plaintiff

had filed a lawsuit. However, for

reasons that are unclear, Aon never

notified TIG, as it was required to

do. Therefore, DKM is not entitled

to coverage under its policy with

TIG.

App. 15a.

A. New York Law on Late Notice

Notice provisions in insurance contracts serve important

policy purposes. They “enable insurers to make a timely

investigation of relevant events and exercise early control over

a claim,” which may assist the parties in reaching settlement

before litigation. Furthermore, timely notice allows insurers “to

establish more accurate renewal premiums and maintain

adequate reserves.” Commercial Union Ins. v. Int’l Flavors &

Fragrances, Inc., 822 F.2d 267, 271 (2d Cir. 1987).

31

A leading New York Court of Appeals decision

addressing late notice provisions in insurance contracts holds

that the failure to give timely notice alleviates an insurer of its

obligation to provide coverage under an insurance policy

because an insured’s compliance with the notice provision of an

insurance policy operates as a condition precedent for coverage.

Late notice serves as a complete defense to liability, regardless

of whether the insurer was prejudiced by the delay. Security

Mut. Ins. v. Acker-Fitzsimons Corp., 293 N.E.2d 76, 78 (N.Y.

1972).

The principles established by Security Mutual and similar

cases have been extended to claims involving excess insurance

policies. The purposes of notice provisions are equally

applicable to both primary and excess insurers. Prompt notice

serves an “important function . . . in furnishing even an excess

carrier with an opportunity to participate in settlement

discussions at a time when its input is most likely to be

meaningful.” Am. Home Assurance Co. v. Int’l Ins. Co., 684

N.E.2d 14, 17 (N.Y. 1997).

However, while excess insurers have most of the rights and

obligations of primary insurers, there is one essential distinction

between them. Unlike primary insurers, excess insurers’

“coverage does not immediately attach after an occurrence, but

rather attaches only after the primary coverage for the

occurrence is exhausted.” Id.

As noted above, DKM’s excess insurance policy with

TIG dictates that, in the event of an occurrence which may result

in a claim, or when a claim is made or a suit is brought, the

32

insured must see to it that notice is provided to TIG “as soon as

practicable.” App. 1211a. Furthermore, in the event of claim

or suit, the policy requires the insured to “[i]mmediately send

US copies of any demands, notices, summons or legal papers

received in connection with the claim or SUIT.” Id.

In a case of excess insurance, the Second Circuit,

applying New York law, has observed that a notice provision

similar to the one found in TIG’s policy, which required

notification to the excess insurer in the event of an occurrence,

claim or suit, “obviously” does not require the “insured to give

notice of suits that do not implicate the [excess] insurer’s

policy.” Maryland Cas. Co. v. W.R. Grace & Co., 128 F.3d

794, 800 (2d Cir. 1997). The court continued, “[n]otice of ‘suit’

must mean notice of suit for recovery of damages for which the

insurer might have to respond, and the same construction applies

to notice of ‘occurrence.’” Id.

Although the New York Court of Appeals has not

considered an appeal from a grant of summary judgment with

facts similar to the present case, its decision in Mighty Midgets,

Inc. v. Centennial Insurance Co., 389 N.E. 2d 1080 (N.Y. 1979),

affirming the trial court’s declaratory judgment rejecting a

disclaimer of coverage by the primary insurer, in an opinion by

Judge Fuchsberg, is relevant to the present case because of the

extended definition of the phrase “as soon as practicable”:

It is well settled that the

phrase “as soon as practicable” is

an elastic one, not to be defined in

a vacuum. By no means does it

33

connote an ironbound requirement

that notice be “immediate” or even

“prompt”, relative as even those

concepts often are; “soon”, a term

close to each of these in common

parlance, is expressly qualified in

the policy here by the word

“practicable”. Nor was compliance

with the insurance policy’s

temporal requirement to be

measured simply by how long it

was before written notification

came forth. More crucial was the

reason it took the time it did. So,

the provision that notice be given

“as soon as practicable” called for a

determination of what was within a

reasonable time in the light of the

facts and circumstances of the case

at hand.

Of course, there is no

inflexible test of reasonableness.

As with most questions whose

answers are heavily dependent on

the factual contexts in which they

arise, rules of general application

are hard to come by.

389 N.E. 2d at 1083 (citations omitted).

34

Therefore, where an insured offers a reason for its delay

in providing notice, a fact finder must make a determination

whether that delay was reasonable in light of the facts and

circumstances of the case at hand. New York courts have

recognized a number of valid excuses for a delay in notifying an

insurer. For example, in New York, an insured’s lack of

knowledge of an accident or claim, or a good faith belief in non-

liability or noncoverage, when reasonable, may excuse a delay

in notifying its insurer. See Security Mut. Ins., 293 N.E. 2d at

78-79. In the case of an excess insurance policy, a delay in

providing notice may serve as a valid excuse where the insured

can demonstrate that the delay was “based on its initial

reasonable, good-faith belief that the excess insurance would not

be triggered.” Morris Park Contracting Corp. v. National Union

Fire Insurance Co. of Pittsburgh, 822 N.Y.S.2d 616, 620 (App.

Div. 2006).

The insured bears the burden of establishing that it held

a good faith belief that its insurance policy would not be

implicated and that the belief was reasonable under all the

circumstances. Security Mut. Ins., 293 N.E.2d at 78-79. “The

existence of such a ‘good-faith belief,’ as well as the question of

whether the belief was reasonable, are ordinarily questions of

fact for the fact finder.” Argentina v. Otsego Mut. Fire Ins. Co.,

655 N.E.2d 166 (N.Y. 1995); Deso v. London & Lancashire

Indem. Co. of America, 143 N.E. 889 (N.Y. 1957) (holding that,

generally, the reasonableness of a delay in notifying an insurer

is a question of fact for the jury). However, when no excuse is

offered or no credible evidence exists to support an insured’s

contention that it had a reasonable, good faith belief that its

excess insurance policy would not be triggered, courts will

35

decide this issue as a matter of law. See Hartford Fire Ins. Co.

v. Masternak, 390 N.Y.S.2d 949, 952 (App. Div. 1977); cf.

Matter of Travelers Ins. Co., 672 N.Y.S.2d 219, 220 (App. Div.

1998) (“Where there is a credible basis to support the reason for

the delay, the issue of reasonableness becomes one of fact.”)

Absent a excuse or mitigating circumstances, “even relatively

short periods of delay have been found to be unreasonable as a

matter of law.” Todd v. Bankers Life & Cas. Co., 523 N.Y.S.2d

206 (App. Div. 1987); see, e.g., Deso, 143 N.E. at 889 (fifty-one

day delay unreasonable as a matter of law); Rushing v.

Commercial Cas. Ins. Co., 167 N.E. 450 (N.Y. 1929) (finding a

twenty-two day delay unreasonable as a matter of law in the

absence of explanation or excuse); American Ins. Co. v.

Fairchild Indus. Inc., 56 F.3d 435, 440 (2d Cir. 1995) (“Under

New York law, delays for one or two months are routinely held

‘unreasonable.’”)

There are four recent decisions by intermediate appellate

courts in New York that address the question of whether an

insured’s delay in providing notice to an excess insurer was

unreasonable as a matter of law. One affirms a lower court’s

decision to deny summary judgment to an excess insurer on the

issue of whether notice was unreasonably late, one rejects a

lower court’s decision as a matter of law that notice was

unreasonably late, a third affirms a decision finding notice

unreasonably late as a matter of law, and the fourth finds as a

matter of law that notice was late. We shall examine the facts

of each case to determine whether the New York Court of

Appeals would find that a court could determine DKM’s delay

in notifying TIG of the Hammersmith claims under the terms of

36

the TIG policy was unreasonable as a matter of law.16

In Morris Park Contracting Corp. v. National Union Fire

Insurance Co. of Pittsburgh, the Second Department upheld the

trial court’s decision to deny summary judgment to the

defendant-excess insurer because the plaintiff-insured raised

triable issues of fact about whether its delay in notifying the

excess insurer was the result of its initial reasonable, good faith

belief that its excess insurance policy would not be triggered.

822 N.Y.S.2d at 620. The insured had been served with a

personal injury complaint that contained an ad damnum clause

for $10 million in damages but only made vague and generalized

allegations of injury. Even though the insured’s primary

insurance policy limit was $1 million, the court found there were

issues of material fact about whether the insured’s notice to the

insurer was untimely. The court observed, “it is the

combination of the ad damnum figure and evidence regarding

the seriousness of the injuries which triggers that obligation.”

Id.

The insured offered evidence that the nature and extent

of the injuries to the opposing party in the underlying litigation

did not become clear until it received a bill of particulars, seven

months after the initial filing of the complaint, and that it

16

See Michalski v. Home Depot, Inc., 225 F.3d 113, 116-17

(2d Cir. 2000) (holding that when there is an “apparent split in

authority among the Appellate Divisions,” a federal court

applying New York law must predict how the New York Court

of Appeals would resolve the issue, by examining “New York

and, if necessary, other jurisdictions’ case law”).

37

notified the excess insurer of the claim eight days later. The

insurer responded by arguing that the insured was aware of the

extent of the party’s injuries at least two months earlier, when

the insured’s counsel had sent a report to the primary insurer

outlining various injuries and damages suffered by the opposing

party. The court found, while this report constituted “some

evidence” that the insured might have had sufficient information

to notify the insurer of a possible excess coverage claim, “we

are unable to reach such a conclusion as a matter of law on this

record.” Id. at 620. In addition, the court noted that the insured

had presented evidence that it had been engaged in a good faith

investigation of the accident and the injuries resulting from it, as

well as its own potential liability, in the time period before it

notified the excess insurer. Accordingly, the court held that

“Morris Park succeeded in raising issues of fact and credibility

regarding whether any period of delay in notifying [the excess

insurer] of the claim was based on its initial reasonable, good

faith belief that the excess insurance would not be triggered in

this case.” Id.

Therefore, for purposes of evaluating the late notice

provision of an excess insurance policy, a court should consider

“when the insured reasonably should have known that the claim

against it would likely exhaust its primary insurance coverage

and trigger its excess coverage, and whether any delay between

acquiring that knowledge and giving notice to the excess carrier

was reasonable under the circumstances.” Id.

The second decision of relevance is Reynolds Metal Co.

v. Aetna Casualty & Survey Co., 696 N.Y.S.2d 563 (App. Div.

1999). In Reynolds Metal, the operator of an aluminum

38

reduction plant sought indemnification for the clean-up costs of

contamination caused by the plant. The Third Department held

that the trial court erred when it granted summary judgment to

the defendant excess insurers because the insured’s notice to the

defendants was untimely as a matter of law. See id. at 569-70.

Noting that there was no evidence in the record that the insured

had an estimate of the potential clean-up costs of contamination

prior to its service of notice on the excess insurers, the court

found that the "defendant excess insurers failed to tender

sufficient evidentiary facts demonstrating plaintiff's knowledge

prior to the summer of 1988, that its primary polices would be

exhausted, implicating excess insurance coverage.” Id. at 570.

In the third case, Long Island Lighting Co. v. Allianz

Underwriters Insurance, 805 N.Y.S. 2d 74 (App. Div. 2005), a

three-judge majority of the First Department held that excess

insurers were not required to defend and indemnify plaintiff in

an underlying action seeking environmental clean-up costs since

the plaintiff had failed to give notice upon the happening of an

occurrence “reasonably likely” to involve the policy. According

to the majority, the “occurrence” took place almost six months

before the insured was sued, when the insured received a letter

from the plaintiff’s lawyer threatening the lawsuit. The majority

said:

We reject plaintiff’s argument that

there was a reasonable possibility

that the subject policies, both

excess, would not be reached by the

[plaintiff’s] claim, where plaintiff

offers no evidence that the timing

39

of its notice was the result of a

deliberate determination to that

effect, and not, as the record

suggests, the belief that it was not

responsible for the . . . cleanup

costs.

805 N.Y.S.2d at 75.

Two judges dissented, believing that there were questions

of fact about whether it was reasonable for the insured to

believe, notwithstanding the receipt of the letter, that it would be

liable and whether the claim would implicate the excess policy.

The dissent emphasized that “the well settled law of this

jurisdiction is that an insurer’s delay or failure to give timely

notice may be excused when the insured has a reasonable belief

that it would not be liable.” Id. at 77. It also noted a distinction

between the reasonableness of notice given for primary

insurance as opposed to excess insurance. Id. at 78-79.

Finally, in Kamyr, Inc. v. St. Paul Surplus Lines

Insurance Co., 547 N.Y.S. 2d 964 (App. Div. 1989), the Third

Department reversed the trial court’s decision to grant summary

judgment to the plaintiff-insureds and instead granted partial

summary judgment to the defendant excess insurer. It held that

the plaintiffs’ notice to the excess insurer of an incident over

two years after it occurred “was untimely as a matter of law

because plaintiffs had no good-faith belief in their nonliability

regarding the [] incident.” Id. at 967. The court reasoned that

the plaintiffs were aware within a day or two of the incident that

the damages from the incident would exceed the limits of their

40

primary insurance coverage, and the record was devoid of

evidence showing any developments in the ensuing two years

that would have changed the plaintiffs’ concern that they would

be found responsible for those losses. Furthermore, the court

noted, approximately a year after the incident, but eight months

before plaintiffs notified their excess insurers, plaintiffs’ general

counsel issued a report to the plaintiffs’ auditor estimating that

damages arising from the incident could run between $4 to $4.5

million, which far exceeded the limits of their primary policy.

Id. at 967.

When considering whether a court may decide notice to

an excess insurer was reasonable as a matter of law, the various

intermediate appellate courts of New York apply the

reasonableness and good faith standards enunciated by the Court

of Appeals, but differ on the application of those standards to

specific facts and circumstances. We conclude that as a federal

court applying these legal standards, we must determine, in the

context of Fed. R. Civ. P. 56, whether the issue of fact is

“genuine,” so as to require a jury trial.17

Federal courts, applying New York law, have held that

notice was untimely as a matter of law where there was

substantial evidence that the insured knew or should have

known that the extent of the damages would exceed its primary

policy but failed to give timely notice to its excess insurer. See

17

A very recent case, Blue Ridge Ins. Co. v. Biegelman, 2007

WL 182056 (N.Y. App. Div. Jan. 23, 2007), found late notice as

a matter of law because of an admitted broker mistake; the

decision is not authoritative for the current appeal.

41

Green Door Realty Corp. v. TIG Ins. Co., 329 F.3d 282, 288 (2d

Cir. 2003) (finding that rumors that someone had died in fire in

plaintiff’s building “put Plaintiffs on inquiry notice that they

might be subjected to liability in excess of their primary

insurance coverage, and any failure to investigate further and

notify [excess insurer] was unreasonable as a matter of law”).18

On balance, after reviewing New York law, we predict

that the New York Court of Appeals, if reviewing a factual

record similar to that discussed below, would adopt the decision

in Morris Park. Where the insured has been able to show facts

that it had a reasonable, good faith belief that a claim was not

likely to exceed its primary policy coverage, the New York

courts have refused to decide whether notice to the excess

insurer was late as a matter of law.

Here, the District Court granted summary judgment to

TIG concluding “DKM is not entitled to coverage under its

policy with TIG” because Aon had failed to notify TIG as it was

required to do. App. 15a. Hammersmith argues that the District

18

See also Olin Corp. v. Ins. of N. Am., 743 F. Supp. 1044,

1052, 1054 (S.D.N.Y. 1990), aff’d, 929 F.2d 62 (2d Cir. 1991)

(holding that the “duty to notify each excess insurer accrued

when the circumstances known to Olin would have suggested a

reasonable possibility of a claim that would trigger that excess

insurer’s coverage,” even though it could “discern no material

difference” between the language of the notice provisions in the

excess insurance and those in the primary insurance); Olin Corp.

v. Ins. of N. Am., 771 F. Supp. 76, 78 (S.D.N.Y. 1990), aff’d,

972 F.2d 1328 (2d Cir. 1992).

42

Court erred in reaching this conclusion. He contends there are

genuine issues of material fact about when DKM should have

known that its primary insurance policy was likely to be

insufficient to cover the damages resulting from his claim.

Although the District Court recognized that, on a motion for

summary judgment the Court must view the evidence in the light

most favorable to the non-moving party, very little of the

detailed evidence in the record is reflected in the District Court’s

Memorandum. We agree with Hammersmith’s contention,

“there is much evidence suggesting that TIG received notice as

soon as it became apparent that the National Union policy was

likely to prove insufficient.” Appellant’s Br. 46.

While New York courts recognize the need to give an

excess insurer notice of a possible claim implicating its policy

in a timely manner in order to ensure its participation in

settlement discussions, among other things, that obligation does

not attach until a fact finder could conclude that an insured

should have had a reasonable, good faith belief that the policy

would be triggered. This is a factual inquiry that a court must

refer to a jury unless there are no material facts in dispute about

when an insured acquired sufficient knowledge to make its

continued belief in noncoverage unreasonable. Therefore, the

inquiry for this Court is to examine whether the district court

erred in determining that DKM should have notified TIG upon

first learning of the Hammersmith claim.19

19

New York courts have not articulated a precise test for how

to evaluate the evidence on the reasonableness of an insured’s

belief that its insurance policy would not be triggered. In

reviewing the District Court’s decision on this issue as a matter

43

B. Facts of this Case Show a Genuine Issue of

Fact As to Reasonableness of Late Notice

“We call that action reasonable which an informed,

intelligent, justminded, civilized man could rationally favor.”

Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389, 406 (1928)

(Brandeis, J., dissenting). Hammersmith argues that there are

genuine issues of material fact about when DKM should have

known that its primary insurance policy was likely to be

insufficient to cover the damages resulting from his claim.

Although the District Court recognized that, on a motion for

summary judgment the Court must view the evidence in the light

most favorable to the non-moving party, very little of the

detailed evidence in the record is reflected in the District Court’s

Memorandum. We agree with Hammersmith’s contention,

“there is much evidence suggesting that TIG received notice as

soon as it became apparent that the National Union policy was

likely to prove insufficient.” Appellant’s Br. 46.

Hammersmith cites evidence that both Hayes Battle, an

experienced claims handler from AIG, the National Union

affiliate handling DKM claims, and CCC’s defense attorney,

Brennan Hart, a trial attorney with twenty-five years experience

particularly in the area of products liability, believed that the

of law, the most useful inquiry for this Court is to determine the

latest time at which there were material facts in dispute about

the reasonableness of DKM’s belief that its excess policy with

TIG would not be implicated. This does not mean, however,

that a fact finder weighing the evidence could not find that the

obligation arose at a much earlier time.

44

Hammersmith claim would not exceed the primary policy limits

well into the year 2000. Appellant’s Br. 46-47; see e.g. App.

695-96a, 706-07a, 1662-67a, 1696-97a.

The number of companies and individuals who

participated in the administration and oversight of DKM’s

insurance policies with respect to the Hammersmith claim make

the factual background of this case unavoidably complicated.

DKM first became aware of Hammersmith’s accident and

lawsuit on October 16, 1998, when it received a copy of a writ

of summons from Allegheny County joining CCC to the action.

The complaint alleged that the accident had damaged

Hammersmith’s spinal cord and rendered him quadriplegic, but

did not allege a specific amount of damages. App. 50-51a ¶¶

10-19, 115a ¶¶ 38-39, 1496-1508a. John Fitzsimmons, DKM’s

general counsel and corporate secretary for CCC, then

forwarded the writ of summons and other correspondence

relating to the lawsuit to Cindi Leopold, DKM’s Director of

Risk Management, (App. 837a), and noted in his forwarding

memorandum “[p]resumably we should notify our carrier of this

matter.” App. 54a ¶¶ 34-35. Ms. Leopold, in turn, sent the writ

of summons, followed by a copy of the complaint a few days

later, to James Coen at Aon, DKM’s insurance broker for its

casualty program, with a note requesting Aon to “Pls. notify

insurer.” App. 1489-1495a. Aon then forwarded the documents

from DKM to Gallagher Bassett Services (“GBS”), the third-

party administrator or claims adjustor to both DKM and AIG

Vendor Services (“AIG”), the representative of National Union

on the Hammersmith case. At GBS, Judith Diehl served as the

claims representative who had primary responsibility over the

Hammersmith claim. App. 58a ¶ 57. At AIG, Richard Crooks

45

and Hayes Battle, both experienced claims handlers, oversaw

the Hammersmith claim. App. 58a ¶¶ 59-61.

On October 30, 1998, GBS retained attorney P. Brennan

Hart to represent CCC in the Hammersmith case. App. 56a ¶

45. In his role as defense counsel for CCC, Mr. Hart

periodically reported to GBS on the status of the case, and GBS,

in turn, provided reports to DKM, AIG, and, subsequently, to

TIG. App. 57-58a ¶¶ 55-56. At the time that he was retained by

GBS to represent CCC, Mr. Hart had been practicing law as a

trial attorney for twenty-five years and had worked on numerous

product liability cases, including several multiple-fatality loss

claims. App. 56a ¶¶ 47-48. After August 1999, Joseph Cullens,

also a trial attorney with extensive experience in product

liability claims involving heavy machinery, joined Mr. Hart as

national supervisory co-counsel. App. 55-57a ¶¶ 52-54.

For the first few months after DKM received notice of

the Hammersmith claim, none of the people involved expressed

a belief that the damages resulting from the claim would exceed

the limits of DKM’s primary insurance policy. In fact, Hart

testified in his deposition that CCC and its attorneys initially

believed that CCC faced little or no liability for Hammersmith’s

accident. Hart. Dep., App. 685-86a; see also Cullens Dep., App.

528a (stating he thought CCC was a “minor player” from a

liability standpoint). He pointed out that the original design of

the conveyors manufactured and installed by CCC had

maintenance catwalks and, in his assessment, the responsible

parties were the parties who had removed the catwalks from the

original design, including the architect and the baggage

consulting firm. Hart Dep., App. 685-87a. The same attitude

46

was reflected in GBS’s and AIG’s early treatment of the claim.

On March 4, 1999, AIG “decontrolled” the claim and sent it

back to GBS for handling, noting that it would not actively

monitor the case unless the assessed exposure exceeded

$150,000 or the case took an unusual or significant turn that

would warrant its involvement. Letter from Richard Crooks to

John T. Ward, Mar. 4, 1999, App. 1620-21a. From December

21, 1998 until April 7, 1999, GBS assigned 0% of the liability

to CCC and set a maximum reserve of $20,000 for the claim.

App. 1537-40a.

As more facts emerged about the role of CCC and its co-

defendants in Hammersmith’s accident and the nature of his

injuries, the estimates about the settlement value of the case

increased. On July 23, 1999, Hart sent a letter to GBS, which

was carbon copied to representatives of Aon and DKM,

estimating that the settlement range for the Hammersmith claim

was in excess of $3 million, based on a potential jury verdict of

$3 to $7 million. Letter from P. Brennan Hart to Judith Diehl,

July 23, 1999, App. 1625a. However, Hart specified in his

deposition that those estimated verdict and settlement ranges

represented the liability for all defendants and not just CCC, an

interpretation also shared by DKM’s general counsel. Hart

Dep., App. 692-93a; Fitzsimons Dep., App. 639a, App. 424-25a.

Furthermore, while Hart conceded that there was a possibility

that a single defendant could be held jointly and severally liable

for the entire verdict, he stated that he had never seen such an

event occur, and that he “could not see a verdict coming in

against CCC alone under any circumstances.” Hart Dep., App.

692-93a, 744a.

47

In response to Hart’s July 1999 letter, GBS set a $2

million reserve for the Hammersmith case, which included both

DKM’s self-insured retention of $250,000 and the $1,750,000

AIG policy. Controlled Loss Report (Update) from Judith Diehl

to Cindi Leopold, July 28, 1999, App. 1629-30a. Copies of the

“Controlled Loss Report” from GBS reflecting that reserve were

sent to both DKM’s Leopold and Aon’s Coen, and similar

reports were sent to the same individuals on October 26, 1999

and January 13, 2000. App. 1627a, 1635a, 1648a. Hart thought

GBS’s $2 million reserve was appropriate. Hart Dep., App.

690a; Letter from P. Brennan Hart to Judith Diehl, Oct. 21,

1999, App. 1639-40a.

During her deposition, DKM’s Leopold testified from a

chronology she had prepared, (App. 1943a), that she believed

that Aon “should have notified TIG” of the Hammersmith claim

as soon as the severity of the claim warranted it, and that GBS’s

July 1999 decision to set “substantial reserves” constituted such

a trigger. Leopold Dep., App. 865a. According to TIG, this

statement was a concession on DKM’s part that it was obligated

to notify TIG by mid-1999 at the latest of the Hammersmith

claim, a full fifteen months before TIG actually received that

notice. Appellee’s Br. 45. However, Leopold specifically said

she did not know if TIG’s late notice defense was “well

founded.” Leopold Dep., App. 888a.

The Controlled Loss Report sent by GBS’s Diehl to

Leopold on July 28, 1999, reported that, “[i]f either the architect

or the baggage consultant company are responsible for the

design system, defense counsel is of the opinion that CCC, [t]he

[a]rchitect, and baggage consultant firm have a shared exposure

48

of 1/3 each.” Controlled Lost Report from Diehl to Leopold,

App. 1630a. The Report goes on to note that, based on

information currently available, the general consensus among

defense counsel was that the architect and or/baggage consultant

were in fact responsible for the design. Consequently, the

Report concludes that “we are basing our reserves on the

assumption that the records will eventually prove that the

architect and/or the baggage consultant are responsible for the

design.” GBS set the settlement value of the claim at $3-5

million with a potential verdict of $6-7 million. Provided that

the parties were able to settle the claim, GBS believed as of July

1999 that CCC would ultimately only be required to pay $1 to

$1.7 million on the claim. While a jury verdict could have

presumably exceeded the estimated settlement value of the

claim, the defendants repeatedly emphasized their desire and

belief that the case would settle. See, e.g., Hart Dep., App. 708a

(testifying that, as of late August 2006, he believed the case was

going to settle); Letter from Richard Crooks to Nanette

Goodman, Dec. 29, 1999, App. 1644-45a, (“[I] fail to see how

extensive litigation will serve to mitigate the loss.”); Battle

Dep., App. 313a. Despite Leopold’s opinion that the excess

insurer “should have been notified,” taking these facts in the

light most favorable to Hammersmith, the Court cannot

conclude that it was unreasonable as a matter of law for DKM

to believe that its excess policy would not be triggered as of July

1999.

Five months after GBS increased its reserve, on

December 29, 1999, Richard Crooks, claims handler for AIG,

the administrator for DKM’s primary insurance policy, sent a

letter to GBS, which was copied to DKM’s Leopold and Aon’s

49

Coen, among others, stating that the Hammersmith claim “is a

claim of adverse liability against the insured and one I should

begin posturing for resolution within our policy limits or for

tendering to the excess insurer.” Letter from Richard Crooks to

GBS, Dec. 29, 1999, App. 1644-45a. He advised GBS to begin

“thoroughly documenting the full scope of the damages and the

insured ultimate liability exposure so we can properly notify all

concerned parties regarding the potential [sic] represented by

this matter.” Id. On the same day, Crooks sent a letter directly

to Aon’s James Coen, which was copied to Leopold, among

others, concluding that “[t]he facts of this loss indicate that this

is a claim of adverse liability against the insured with serious

damages. It is our opinion that this matter has the potential to

exceed the insureds’ $1,750,000 policy limits. Accordingly, we

are writing to suggest that you place the appropriate excess

insurers on notice of this matter.” Letter from Richard Brooks

to James Coen, Dec. 29, 1999, App. 1646a.

Crooks did not recall ever receiving a response from

Coen to his letter. Crooks Dep., App. 478a. According to

Leopold, she assumed that Aon would have followed AIG’s

suggestion to provide notice to TIG of the Hammersmith claim.

Leopold Dep. 862a. Coen viewed the situation differently.

When asked about how he would have responded to the

suggestion from Crooks at AIG to notify DKM’s excess insurer,

“I wouldn’t have done that. The only person who could – who

would tell me I have the right, who could grant me that right is

the client themselves.” Coen Dep., App. 415a.

As of late December 1999, it is clear that Richard Crooks

believed that DKM should have notified its excess insurer of the

50

Hammersmith claim, and that he had informed representatives

from Aon and DKM of his opinion. The question is whether it

was reasonable, in light of this correspondence, for DKM to

continue to believe that its excess insurance policy would not be

triggered. On this record, it is difficult to discern whether

Leopold or Coen actually held a good faith belief at the end of

1999 that notice to the excess insurer was unnecessary. One of

the difficulties presented by this case is that it appears that

neither Leopold nor Coen recalled their contemporaneous

reactions to this correspondence and, instead, testified at their

depositions on what they believed they would have done or

expected at that time. Coen Dep., App. 415-17a; Leopold Dep.

865-67a. Because of this uncertainty, taking the facts in the

light most favorable to Hammersmith, the Court concludes that

the evidence in the record could lead a jury to decide that DKM

held a good faith belief its excess policy would not be triggered.

Furthermore, when Crooks sent his letters in late

December 1999, he had not yet completed a full evaluation of

the case and had not yet recommended a reserve level for

National Union. Crooks Dep., App. 499-500a, 505a. It was not

until March 1, 2000 that Crooks prepared an internal

memorandum, called a High Cost Narrative, estimating that,

“[b]ased on the limited information presently available and the

allegations being made by co-defendants,” 70 to 90 percent of

the liability for the Hammersmith claim could be assessed

against CCC. He recommended that AIG increase its own

reserve to $2 million, in line with GBS’s reserve, a

recommendation AIG adopted. High Cost Narrative Liability

Memorandum from Richard Crooks, Mar. 1, 2000, App. 1658-

1661a; Crooks Dep. 488-492a. However, the same

51

memorandum also reveals that, as of March 1, 2000, AIG did

not have a definitive assessment of Hammersmith’s damages.

Crooks notes under the heading “Plaintiff Damages/Injury” that,

“[t]o date, the plaintiff has not presented us with an economic

expert’s report,” although he estimated that Hammersmith’s

future medical care and lost wages would exceed $1 million

each. High Cost Narrative, Mar. 1, 2000, App. 1659a. In fact,

it appears from the record that defense counsel did not receive

a specific damages statement from Hammersmith until October

26, 2000, when Hammersmith’s attorney forwarded a copy of a

life care plan for Hammersmith, which estimated the costs of

Hammersmith’s future medical care at $9,844,000. Letter from

Michael H. Rosenzeig to Robert E. Dapper, Jr., Oct. 26, 2000,

attaching Projected Life Care Plan, July 3, 2000, App. 1710a,

1731a. TIG received notice of Hammersmith’s claim at the end

of October 2000.

Contrary to Crooks’ position, the evidence in the record

shows that other individuals, including Attorney Hart and

Richard Crooks’ successor at AIG, Hayes Battle, assessed the

value of the Hammersmith claim well into late 2000 as unlikely

to exhaust the limits of DKM’s primary insurance policy. When

asked about his reaction to Crooks’ December 29, 1999

prediction that the Hammersmith matter had the potential to

exceed the insurer’s $1,750,000 policy limits, Hart testified that

“[i]t had the potential, depending on the what the verdict

ultimately came to be, but I still believed that all parties would

be paying, all defendants would be contributing to the

settlement, or the verdict, whichever way it turned out.” Hart

Dep., App. 695-96a. Indeed, there is some evidence in the

record suggesting that Hart believed that CCC’s overall

52

exposure was actually decreasing. On January 24, 2000, Hart

sent a letter to GBS, which was copied to Aon’s Coen and

DKM’s Leopold, stating “as the number of defendants increase

I believe that our overall exposure decreases” although he

qualified that assertion by noting that “Plaintiff still views CCC

as one of the primary target defendants in this case.” Letter

from P. Brennan Hart to Judith Diehl, Jan. 24, 2000, App.

1656a.

Moreover, Hart’s “Defense Attorney Suit Status Report”

to GBS dated March 2000 predicts a verdict of $3 million to $8

million in favor of Hammersmith, but expressly notes that “there

is a significant likelihood that most, if [sic] all of the co-

defendants will be held into the case in relatively equal

percentages.” Defense Attorney’s Suit Status Report, Mar. 20,

2000, App. 1662-67a. While a verdict for Hammersmith had the

potential to exceed the limits of DKM’s primary insurance

policy, Hart’s report emphasized that the co-defendants wanted

to settle the case, opining that “[o]ur chances of a defense

verdict are zero.” App. 1667a. During a conference call in

April 2000 with AIG personnel, Hart made an estimate of what

those settlement percentages would be. He assessed the

settlement value of the case as between $5 million and $7

million, of which CCC would be responsible for 25 percent.

Hart Dep., App. 706-707a. Attorney Cullens characterized this

apportionment of liability as a “worst case scenario.” Cullens

Dep., 532-33a, 536a. Thus, the records shows that CCC’s main

defense attorney believed in April 2000 that the Hammersmith

claim was likely to settle for less than the value of DKM’s

primary insurance policy.

53

This belief was also held by Crooks’ successor at AIG.

In August 2000, Hayes Battle took over as AIG’s claims handler

on the Hammersmith case from Richard Crooks, who had left

the company. Battle Dep., App. 310a. On August 26, 2000,

Battle wrote an internal file memorandum indicating that

Hammersmith had made a settlement demand for $14 million,

but that defense counsel estimated the settlement range of the

case as in the area of $5 million to $5.5 million, with the

potential exposure to DKM in the range of $1.5 to $ 2 million.

Memorandum from Hayes Battle to File, Aug. 26, 2000, App.

1696a. Battle concluded that “[o]ur ground-up reserve is

currently set at $2 million dollars and it appears adequate at this

time.” Id.; Battle Dep., App. 313a.

On September 20, 2000, Hayes Battle wrote another file

memorandum noting that, while TIG was listed as the excess

insurer on CCC’s policy, “[w]e have not hear[d] and/or received

anything from TIG, to date.” He went on to conclude that the

Hammersmith case “might resolve without any participation

from TIG as a result of contribution from the co-defendants and

the use of a structured settlement.” Memorandum from Hayes

Battle to File, Sept. 20, 2000, App. 1697a; Battle Dep., 314a.

Hart agreed with this September 2000 assessment of the case.

Hart Dep., App. 748a.

However, in October 2000, another claim against DKM

(the “Melba” claim) was settled, and the combined reserves

from the Melba claim and the Hammersmith claim exceeded the

aggregate limit of DKM’s insurance policy with National Union

for product liability claims. Battle Dep., App. 316-320a. As a

result, on October 19, 2000, Battle, who assumed from the

54

notice sent to the broker that TIG had been notified, (App.

315a), sent a letter to TIG informing them that the incurred

reserves on the Hammersmith and Melba claims “are equal to

and/or exceed[] National Union’s $1,750,000 ‘Products Liability

Aggregate’ limit.” Letter from Hayes Battle to TIG, Oct. 19,

2000, App. 1707-08a. Battle testified that, because payment of

the Melba claim reduced the amount available under the

National Union policy, “as a courtesy, I sent this letter to make

them aware of that.” Battle Dep., App. 316a. TIG received

Battle’s letter on October 30, 2000, opened a claim file, and

assigned the matter to claims specialist Terri Long. App. 60a ¶¶

68-69. TIG contends that this is the first notice it received of the

Hammersmith claim, and there is nothing in the record to

dispute this. Battle also testified that the first time he believed

that the suit could not be settled within the limits of the National

Union policy was when he attended the mediation on November

9, 2000. App. 326a.

We cannot conclude as a matter of law on a summary

judgment record, without cross examination of witnesses, that

this notice was untimely. The serious nature of Hammersmith’s

injuries is insufficient, standing alone, for a court to find as a

matter of law that TIG was entitled to receive notice of

Hammersmith’s suit shortly after DKM first received a writ of

summons in October 1998. It is telling that, despite the

allegations in the complaint that the plaintiff had suffered a

spinal cord injury and was rendered quadriplegic, neither GBS

or AIG chose to set the reserve level on their policies at $2

million until July 1999 and March 2000, several months after

first receiving notice of the case. The arguably limited role

CCC played in the design of the conveyor, particularly in

55

relation to the involvement of its co-defendants, in the facts

causing Hammersmith’s injuries, was material to both the

defense attorneys’ and the insurance administrators’ assessment

of the claim. Further, it appears from the record that new facts

about the possible settlement value of the case, based on the

solvency of CCC’s co-defendants and their role in contributing

to Hammersmith’s accident, as well as the plaintiff’s future

medical expenses and future lost wages, were in constant flux

during the two year period leading up to the notification of TIG

about the claim. See, e.g,. High Cost Narrative Liability, Mar.

1, 2000, App. 1659a (listing the numerous gaps in information

“clouding” AIG’s assessment of CCC’s liability); Controlled

Loss Report (Update), Jan. 10, 2000, App. 1650a (describing the

numerous factual issues still outstanding in the Hammersmith

case).

These facts led the various insureds’ representatives

overseeing the Hammersmith insurance claim to draw very

different conclusions about CCC’s potential exposure. The

reasonableness of their decision not to notify TIG should not be

taken from a jury. In particular, as Hammersmith points out in

his brief, both Hart and Battle testified that they believed into

late 2000, that the limits of DKM’s primary policy would be

adequate to address the claim. Appellant’s Reply Br. 17.

The standard applied by the District Court did not fully

reflect New York jurisprudence interpreting a requirement in an

excess insurance policy that notice of an occurrence or claim be

given “as soon as practicable.” It merely requires “that notice

be given within a reasonable time under all the circumstances.”

Security Mut. Ins., 293 N.E.2d at 79. Furthermore, under New

56

York law, an insured’s good faith belief that its excess insurance

policy would not be triggered, where reasonable, may excuse a

“seeming failure to give timely notice.” Id.; Morris Park, 822

N.Y.S. 2d at 620. In Morris Park, the court noted that “[t]he

resolution of such questions of reasonableness is ‘heavily

dependant on the factual contexts in which they arise.’” 822

N.Y.S. 2d at 619 (quoting Mighty Midgets, 389 N.E.2d at 1084).

Where the insured has been able to show that there are triable

issues of fact about when it reasonably should have known that

a claim was likely to exceed its primary policy coverage, New

York courts have refused to decide this issue as a matter of law.

Given the conflicting information, reasonable people can

disagree as to when DKM reasonably should have known that

the claim would likely exceed primary coverage. Construing the

facts in favor Hammersmith, in light of the numerous material

issues of fact he has raised, the Court holds that the District

Court erred when it decided that DKM’s notice to TIG was

untimely as a matter of law.

V. Timeliness of Disclaimer

Hammersmith claims the District Court erred in

concluding as a matter of law that TIG “disclaim[ed] coverage

within a reasonable period of time.”20 App. 12a. Under New

20

Hammersmith moved for partial summary judgment on the

ground that TIG unreasonably delayed disclaiming coverage.

The District Court denied Hammersmith’s motion, and

concluded that TIG’s disclaimer was reasonable as a matter of

law - effectively granting summary judgment on this issue in

57

York law, insurers are required by statute to disclaim coverage

for “death or bodily injury arising out of . . . [an] accident

occurring within [New York] . . . as soon as is reasonably

possible. . . .” McKinney’s Ins. Law § 3420(d). Because

Hammersmith was injured in Pennsylvania, § 3420(d) is

inapplicable. However, the New York common law rule of

estoppel applies. See Am. Home Assurance Co. v. Republic Ins.

Co., 984 F.2d 76, 79 (2d Cir. 1993) (concluding that § 3420(d)

did not apply to an out-of-state accident, but considering issue

of late disclaimer under common law principles); Royal Ins. Co.

v. Commercial Underwriters Ins. Co., No.03 Civ. 8325 (NRB),

2004 WL 2609522, at *3 (S.D.N.Y. Nov. 17, 2004) (“Without

statutory regulation, the timeliness of disclaimer is governed by

equitable principles. . . .”).

A court may estop an insurer from disclaiming coverage

if the insurer “acts in a manner inconsistent with a lack of

coverage, and the insured reasonably relies on those actions to

its detriment.” Burt Rigid Box, Inc. v. Travelers Prop. Cas.

favor of the non-movant, TIG. See National Expositions, Inc. v.

Crowley Maritime Corp., 824 F.2d 131, 133 (1st Cir. 1987)

(collecting cases recognizing that a “district court has the legal

power to render summary judgment . . . in favor of the party

opposing a summary judgment motion even though he has made

no formal cross-motion under rule 56”) (internal quotations

omitted); Banks v. Lackawanna County Comm’rs., 931 F.Supp.

359, 363 n.7 (M.D. Pa. 1996) (“A district court may grant

summary judgment in favor of a non-movant where it believes

that the movant has had adequate notice of the grounds for that

judgment, and where there is clear support for such judgment.”).

58

Corp., 302 F.3d 83, 95 (2d Cir. 2002). An unreasonable delay

in disclaiming coverage qualifies as an “act inconsistent with a

lack of coverage.” Id. Thus, in order to take advantage of the

equitable principle of estoppel, Hammersmith must establish

that TIG unreasonably delayed disclaiming coverage, and he

suffered prejudice as a result. Fairmont Funding, Ltd. v. Utica

Mut. Ins. Co., 694 N.Y.S.2d 389 (App. Div. 1999).21 Although

§ 3420(d) does not apply to TIG, cases interpreting the

reasonableness of an insurer’s delay under § 3420(d) are

informative in assessing the timeliness of TIG’s disclaimer.

We measure the timeliness of an insurer’s disclaimer

“from the point in time when the insurer first learns of the

grounds for disclaimer of liability or denial of coverage.” First

Fin. Ins. Co. v. Jetco Contracting Corp., 801 N.E.2d 835, 838-39

(N.Y. 2003). The reasonableness of delay will “depend[] upon

the circumstances of the case which make it reasonable for the

insurer to take more or less time to make, complete, and act

diligently on its investigation of its coverage or breach of

conditions in its policy.” Allstate Ins. Co. v. Gross, 265 N.E.2d

736, 739 (N.Y. 1970). If the basis for disclaimer is “readily

21

Because the District Judge concluded that TIG’s disclaimer

was reasonable as a matter of law, he did not consider whether

the insured was prejudiced by the eleven month delay. As we

discuss below, Hammersmith has raised numerous issues of

material fact with respect to the reasonableness of TIG’s delay

in disclaiming coverage. Accordingly, upon remand, the

District Judge must proceed to the second part of the inquiry,

and consider whether there are genuine factual disputes on the

issue of prejudice.

59

apparent from the face of the claim,” New York courts have

held that relatively short periods of delay are unreasonable as a

matter of law. See Milbank Hous. Dev. Fund v. Royal Indem.

Co., 794 N.Y.S.2d 23 (App. Div. 2005) (finding delay of more

than 60 days unreasonable as a matter of law when grounds for

disclaimer were readily apparent from documents submitted to

insurer); Squires v. Robert Marini Builders, Inc., 739 N.Y.S.2d

777, 780 (App. Div. 2002) (42 days); W. 16th Street Tenants

Corp. v. Public Serv. Mut. Ins. Co. 736 N.Y.S.2d 34, 35 (App.

Div. 2002) (30 days).

On the other hand, “if an insured’s claim requires

investigation into its validity, an insurer must be given

reasonable time to investigate adequately whether it should

disclaim.” Mount Vernon Fire Ins. Co. v. Kent Dev. of N.Y.,

No. 93 Civ.3919, 1996 WL 521426, at *3 (S.D.N.Y. Sept. 12,

1996). When an insured has delayed notifying the insurer of the

claim, the “length of the delay may be relevant” to the

reasonableness of the insurer’s delay in disclaiming coverage.

Safeguard Ins. Co. v. Angel Guardian Home, 946 F.Supp. 221,

229 (E.D.N.Y. 1996).

TIG first received notice of the Hammersmith claim on

October 30, 2000, and formally disclaimed coverage on late

notice grounds on October 5, 2001. TIG contends the eleventh

month delay was reasonable because during this time it was

conducting an investigation of the late notice issue, and DKM

and Aon persistently refused to provide it with information

necessary to make an informed coverage decision. Although the

record certainly contains evidence that Aon and DKM were less

60

than forthcoming with TIG,22 the record is equally replete with

evidence that TIG failed to conduct its investigation in a

reasonable, diligent and prompt manner.

Upon receiving notice of the Hammersmith claim, TIG

“almost immediately” identified late notice as a potential ground

for disclaimer. See Long Dep., App. 927a; E-mail from Valerie

Lameka to Terri Long, Oct. 30, 2000, App. 1790a. On

22

In the November 7, 2000 reservation of rights letter, TIG

asked DKM to provide it with certain information relating to the

late notice issue, including “an explanation as to why TIG was

not provided notice at an earlier date.” Letter from Terri Long

to Cynthia Leopold, Nov. 7, 2000, App. 1830a-1831a. In Aon’s

response, James Coen indicated that answers to the late notice

questions would be “forwarded under separate cover.” Letter

from James Coen to Terri Long, Dec. 15, 2000, App. 1865a.

Despite this promise, Aon did not provide TIG with the

requested information. See Claim Note by Hayes Battle, June

12, 2001 (“[Aon has] decided not to respond to [the] request [for

a response to the notice issue] for now.”). On September 18,

2001, Cynthia Leopold, DKM’s corporate risk manager, directly

answered some of TIG’s questions. See Letter from Cynthia

Leopold to Terri Long, Sept. 18, 2001, App. 1953a (informing

TIG that DKM was first notified of the Hammersmith accident

and claim on October 16, 1998). However, Leopold also

assured Long that a “response will be forthcoming from Aon”

with respect to why TIG was not provided notice at an earlier

date. Id. Aon never provided TIG with a response, despite

promising to do so again in an October 1, 2001 letter. Letter

from James Coen to Terri Long, Oct. 1, 2001, App. 1974a.

61

November 7, 2000, claims specialist Terri Long sent DKM a

reservation of rights letter, specifically identifying late notice as

an issue, and requesting that DKM provide it with certain

information relating to the underlying suit, including the date on

which the insured first received notice, and an explanation as to

why TIG was not notified earlier. App. 1830a-1831a. Aon

responded on behalf of DKM on December 15, 2000 by sending

TIG a copy of DKM’s primary insurance policy, and noting that

answers to the late notice questions would be forthcoming. App.

1865a. Although Long never received this additional

information from Aon or DKM, she did not even begin to draft

a follow-up letter until February 16, 2001. App. 1873a. Despite

the instructions of her technical supervisor, Kathleen Fikes, to

“really push for this info and stay on top of it until you get what

is needed,” Long did not actually send the February 16 draft to

Aon until March 6, 2001. App. 1875a

On June 19, 2001, Stephen Jacobs, TIG’s coverage

attorney, forwarded a draft of a second reservation of rights

letter to Long. The letter reiterated TIG’s request for certain

information, and highlighted an additional coverage issue

relating to the plan’s “wrap-up” policy. App. 1900a-1903a.

Although both Jacobs and Fikes believed the letter was mailed

in June, Long did not actually send it to DKM until September

6, 2001. See E-mail from Kathleen Fikes to Terri Long, July 18,

2001, App. 1926a (“May I have a copy of the ROR that went out

last month?”); E-mail from Stephen Jacobs to Terri Long, Aug.

7, 2001, App. 1927a (“[I]t occurred to me to see whether you

had gotten any response to the letter I believe you sent out the

second half of June. If not, I suggest either a final follow-up

letter or disclaimer.”).

62

These unexplained gaps in the investigation raise material

issues of fact as to whether it was reasonable for TIG to take

eleven months to disclaim coverage. Although the District

Judge concluded this time was necessary for TIG to thoroughly

investigate “if it had in fact been previously notified” and if not,

“why it hadn’t previously been notified,” app. 18a, there is

ample evidence that Long and her colleagues failed to actively

pursue answers to these questions for months at a time. Cf.

Structure Tone, Inc. v. Burgess Steel Prod. Corp., 672 N.Y.S.2d

33, 34 (App. Div. 1998) (“[D]isclaimer . . . [,] issued 38 days

after plaintiff’s own untimely notice, was not unreasonable in

light of the unrefuted showing of a prompt, diligent, and good

faith investigation of the claim....”); Mount Vernon Fire Ins. Co.

v. Harris, 193 F.Supp.2d 674, 678 (E.D.N.Y. 2002) (finding a

fifty-day delay reasonable in order for insurer to conduct a

“prompt investigation” into the claim).

Moreover, Hammersmith has pointed to evidence that by

July 2001, TIG was aware of sufficient facts to disclaim

coverage, but failed to do so until October 2001. On November

1, 2000, Hayes Battle faxed Terri Long a copy of the first

amended complaint in the underlying action between

Hammersmith and CCC. App. 1795a. The next day, Long

forwarded the complaint, along with the declaration pages of the

renewal policy and a DKM company profile and loss history, to

Jacobs. App. 1824a. Although Aon did not send a copy of the

excess policy to Long until March 23, 2001, TIG certainly could

have obtained a copy of its own policy from another source in

the meantime. App. 1876a. On May 1, 2001, defense attorney

P. Brennan Hart provided Long with all of the pleadings in the

underlying action and the deposition of John FitzSimons. App.

63

1889a.

Two months later, on July 5, 2001, TIG received a

controlled loss report from Gallagher Basset which indicated

that the “D/R to Insd” for the Hammersmith claim was October

16, 1998. App. 1905a. Terri Long was a carbon copy recipient

of this report. App. 1906a. Although TIG contends that it did

not know when DKM was first notified of the Hammersmith

claim until it received Leopold’s September 18, 2001 letter, app.

1953a, the Gallagher Basset report suggests otherwise. Thus,

Hammersmith has raised a genuine issue of fact as to whether

TIG had adequate information to disclaim coverage several

months before October 2001.23

23

TIG relies heavily on the fact that DKM and Aon never

provided TIG with an excuse for the allegedly late notice during

the course of TIG’s investigation. Hammersmith has raised an

issue of fact as to whether TIG pursued this information with

diligence, and whether this information was even necessary for

TIG to disclaim coverage. In Jacobs’ memorandum to Long

discussing the late notice issue, he noted that “some New York

federal decisions raise the issue as to whether TIG’s notice

provision would be construed to require notice of all claim[s] (as

its language states) or only those reasonably likely to involve its

policy.” Memorandum from Stephen Jacobs to Terri Long, Oct.

2, 2001, App. 1987a. However, he concluded, “[g]iven the

severity of the injuries alleged in the Hammersmith complaint,

we do not consider the issue determinative.” Id. at 1987a-1988a.

Additionally, in TIG’s response to Hammersmith’s Statement of

Undisputed Facts submitted to the District Court, TIG admitted

that it “construes the notice conditions in its Policy to require

64

There is also evidence in the record that, between April

and July 2001, TIG focused much of its attention on whether

CCC qualified as an insured under the excess policy. Long first

identified CCC’s insured status as an issue on April 27, 2001.

See TIG’s Response to Hammersmith’s Statement of

Undisputed Facts, App. 101a, ¶ 180; Long Dep., App. 1069a-

1070a. Long’s notes indicate she was still researching the issue

in June. See TIG’s Response to Hammersmith’s Statement of

Undisputed Facts, App. 101a, ¶¶ 181-182; Long Dep., App.

976a. In mid-July, Fikes asked Long if she had “resolved

whether or not [TIG] insure[s] CCC, Conveyors, Inc.?” E-mail

from Kathleen Fikes to Terri Long, July 18, 2001, App. 1926a.

The following day, Fikes forwarded Long her own analysis of

the issue, and urged Long to consult Jacobs to the extent he had

already “not studied the issue.” E-mail from Kathleen Fikes to

Terri Long, July 19, 2001, App. 1908a-1911a. Hammersmith

argues, and we agree, that this evidence raises serious factual

issues regarding TIG’s diligence in conducting its investigation.

Although by March 2001 TIG possessed the excess policy and

related application materials reflecting the date DKM sold CCC,

TIG took nearly three months to reach a position on whether

CCC was insured under the policy. This unaccounted-for delay,

along with the other issues of fact cited above, preclude a

that it be notified of every lawsuit against the policyholder,

regardless of whether the claim appears insignificant or unlikely

to impact its coverage.” App. 92a, ¶ 26 (admitting

Hammersmith’s SOF ¶ 26, App. 53a). Thus, there is a genuine

issue of fact as to whether TIG would have accepted any excuse

for late notice from DKM or Aon, under its view of New York

law and the facts of the case.

65

finding that the eleven-month time period between TIG’s notice

and disclaimer was reasonable as a matter of law.24

24

In concluding that TIG’s delay was reasonable as a matter

of law, the District Court distinguished Hammersmith’s case

from several New York Court of Appeals decisions, including

Hartford Ins. Co. v. County of Nassau, 389 N.E.2d 1061 (N.Y.

1979), and Firemen’s Fund Ins. Co. of Newark v. Hopkins, 666

N.E.2d 1354 (N.Y. 1996). In Hartford, the court held that an

unexplained delay of two months was unreasonable as a matter

of law. The District Court thought this was quite different from

Hammersmith’s case, because TIG “offer[ed] a legitimate

explanation for its delay in denying coverage – it was searching

for information that would, as definitively as possible, establish

that it had received late notification of Mr. Hammersmith’s

accident.” App. 16a-17a. We agree with the District Court that,

unlike Hartford, TIG has offered an explanation for its delay.

However, as we discussed above, we think there are important

issues of fact regarding the reasonableness of TIG’s eleven-

month investigation.

In Firemen’s Fund, the court found the insurer’s delay

was unreasonable as a matter of law because it disclaimed

coverage eight months after receiving notice of the claim, and

four months after receiving the complete record of the

underlying accident. 666 N.E.2d at 1355. The District Court

found this case “readily distinguishable” because “notification

of the claims [in Firemen’s Fund] was very straightforward,”

whereas Hammersmith’s case involved a more complicated

investigation of the late notice issue. App. 17a-18a. We agree

that cases involving third party brokers and notice to excess

carriers are necessarily complicated, and may require longer

66

VI. Conclusion

Although we have concluded that the District Court used

the wrong standard to determine the applicable state law, its

decision to use New York law was correct on the facts of record.

However, we vacate the grant of summary judgment to TIG on

the issues of late notice and disclaimer, and remand for further

proceedings.

investigations before insurers can reach coverage decisions.

However, this does not alter our conclusion that Hammersmith

has raised a material issue of fact that TIG failed to conduct its

investigation in a reasonable, diligent and prompt manner. In

Hartford, the court emphasized that “[i]t is only in the

exceptional case that [the late disclaimer issue] may be decided

as a matter of law.” 389 N.E.2d 1061. This is not such a case.

67