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May 29, 2014

Fourth Department Lead Paint Decision Places High Burden On Insurers Seeking to Enforce Policy Exclusion

In North Country Insurance Co. v. Ardine Jones and Adam Jones, et al. (2014 NY App.Div. LEXIS 3334 May 9, 2014), the Appellate Division, Fourth Department issued a decision imposing a challenging burden on insurers seeking to disclaim coverage based on an exclusion contained in an older insurance policy.

The plaintiff, North Country Insurance Company, commenced an action seeking a declaration that it was not obligated to defend or indemnify the defendants in the underlying lead paint lawsuit. North Country contended that the insurance policy which covered the subject property contained a lead paint exclusion, and moved for summary judgment on that basis. Supreme Court granted North Country's motion, finding that "plaintiff excluded from defendant's coverage claims for exposure to lead" and that, with respect to the underlying action, plaintiff "is under no obligation to indemnify" defendants and "is under no obligation to continue to provide defendants with a defense."

However, the Appellate Division, Fourth Department reversed Supreme Court's ruling, finding a question of fact which needs to be determined at trial, since "the evidence submitted by plaintiff in support of its motion does not establish that the exclusion was actually mailed." The Fourth Department explained that the affidavit of plaintiff's employee, who stated that the exclusion was sent to the defendants pursuant to plaintiff's custom and practice, was "conclusory and otherwise insufficient to establish office practice . . . geared so as to ensure the likelihood that the documents were always properly addressed and mailed." Furthermore, the appellate court found, at a minimum, that the Jones defendants raised an issue of fact as to whether North Country's policy included the lead exclusion, by submitting evidence that at least some policies issued by North Country at the time did not contain the exclusion.

This decision may encourage plaintiffs in lead paint cases to commence litigation even in the face of a claimed lead paint exclusion. This will be particularly true when the policy at issue dates back many years, presenting an increased likelihood that the carrier lacks sufficient proof that the exclusion was actually mailed to the insured.

Last, the decision also calls into question the retention policies which have been adopted and revised by insurers. In New York State, the Department of Financial Services requires insurers to retain records for six calendar years after the date the policy is no longer in force. 11 NYCRR 243.2(b)(1).

Should you have questions regarding the information presented in this alert, please contact Anthony J. Piazza, Chair of the firm's Insurance Coverage & Regulation Practice Area, at (585) 295-4420 or apiazza@hblaw.com.

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