In a recent decision addressing the timeliness of an insurer’s disclaimer of coverage under New York Insurance Law § 3420(d), the Second Circuit Court of Appeals reaffirmed how an unjustified delay may be untimely as a matter of law and, significantly, the showing required for an insurer to establish that an otherwise untimely disclaimer should be excused.
In Midvale Indemnity Co. v. Zuniga, et al.,1 a liability insurer sought a declaration that it had no obligation to defend or indemnify any party with respect to an underlying action involving a worksite incident. The plaintiff in the underlying action alleged that he sustained personal injuries while working on the construction site of a new residential building.
On October 4, 2021, following the commencement of the underlying action, the general contractor tendered to a subcontractor and that subcontractor’s insurer seeking defense and indemnity for the claim. While the insurer responded to that tender with a reservation of rights letter dated November 23, 2021, the insurer did not issue a denial of coverage until January 5, 2022, approximately three months after the general contractor sent its tender. Notably, the insurer cited the Multi-Unit and Tract Housing Residential Exclusion on the subject policy as the basis for its denial. The insurer then commenced a separate declaratory judgment action, arguing that the Multi-Unit Exclusion applies and operates to preclude coverage for any party, given that the subject work involved construction of a multi-unit building.
On the ensuing summary judgment motions in the declaratory judgment action, the district court found that the insurer could not rely on the Multi-Unit Exclusion, as the denial based on that exclusion was untimely as a matter of law under § 3420(d). On appeal, the Second Circuit agreed and affirmed, holding that the tender from October 4, 2021, triggered the insurer’s duty to promptly raise the Multi-Unit Exclusion, and the insurer failed to offer any justification for the three-month delay in doing so.
The Second Circuit explained that, notwithstanding the untimely disclaimer, the insurer could have justified that delay with sufficient evidence demonstrating that a reasonable investigation was necessary to determine whether the Multi-Unit Exclusion applied and that the delay in disclaiming was related to that investigation. Given the publicly available information confirming that the subject work site was a multi-unit building, and the insurer’s mere conclusory statements that an investigation was necessary prior to disclaiming, the insurer failed to establish that its untimely denial was excusable, and it accordingly could not rely on the Multi-Unit Exclusion.
This decision highlights the importance of timely coverage decisions by insurers. A liability insurer may be foreclosed from relying on an untimely disclaimer based on a policy exclusion or condition unless the insurer can establish that it engaged in a prompt, thorough, and necessary investigation of the claim and that the delay in disclaiming was reasonably related to the necessary completion of that investigation.
If you have any questions regarding the content of this alert, please contact Jessica Tariq, counsel, at jtariq@barclaydamon.com; Tony Piazza or Mark Whitford, Insurance Coverage & Regulation Practice Area co-chairs, at apiazza@barclaydamon.com and mwhitford@barclaydamon.com; or another member of the firm’s Insurance Coverage & Regulation Practice Area.
12026 U.S. App. LEXIS 4902 (2d Cir. Feb. 19, 2026).