Can an Insurer Raise an Exclusion After the Denial Letter?

Is an Insurer’s right to raise a policy exclusion waived when it fails to identify the exclusion in its denial letter or disclaimer? Not in New York. In fact, this is the case in most jurisdictions. Generally, the doctrines of waiver and estoppel are not applicable in the context of coverage of policy risks which are either expressly excluded or not covered under the terms of the policy.¹

This issue came up while I was discussing a case with two of my colleagues. A carrier had failed to incorporate an applicable policy exclusion in its denial letter disclaiming coverage and we were debating whether in so doing the carrier had waived its right to assert the exclusion as a defense. As it turns out it did not…at least not in New York.

The case law is well settled on this matter. Justice Mercure, in Perras v. Transportation Insurance,² held that an insurer’s failure to disclaim coverage on a breach of contract claim on the grounds that breach of contract losses were not covered under the policy did not effectuate a waiver of the insurer’s rights to disclaim coverage on that ground.³ In Schiff v. Flack⁴ the court found “where the issue is the existence or nonexistence of coverage (e.g., the insuring clause and exclusions), the doctrine of waiver is simply inapplicable.”⁵

The doctrine has been re-affirmed at the federal level in multiple cases, including North American Foreign Trading Corp. v. Mitsui,⁶ where the court expounded that under New York law, waiver cannot be used to extend an insured’s coverage or narrow a policy’s exclusions beyond that for which the insured originally bargained. Perhaps more generally the Southern District asserted the doctrine of waiver is inapplicable where the defense raised by an insurer is existence or nonexistence of coverage.⁷

As a point of clarification this standard does not apply to liability claims where the defense of waiver can and does apply. In a liability claim in New York a notice of disclaimer “must promptly apprise the claimant with a high degree of specificity of the grounds under which the disclaimer is predicated.”⁸ In liability actions if the carrier doesn’t specify the grounds for disclaimer the exclusion can be waived.

Ultimately, when dealing with first party property disputes in New York it is essential to look to the insurance policy itself when analyzing a case in terms of coverage or lack thereof. The fact that a carrier did not specify an exclusion or lack of coverage in its disclaimer will not negate either the disclaimer or lack of coverage being raised by the carrier.

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¹ W.C. Crais III., Annotation, Comment Note: Doctrine of estoppel or waiver as available to bring within coverage of insurance policy risks not covered by its terms or expressly excluded therefrom, 1 A.L.R. 3d 1139 (Originally Published 1965).
² Perras Excavating Inc. v. Transportation Insurance Company, 737 N.Y.S. 2d 692 (3rd Dep’t 2002).
³ Id.
⁴ Schiff Associates, Inc. v Flack, 51 NY 2d 692 (N.Y. App. 1980).
⁵ Id. (emphasis added).
⁶ North American Foreign Trading Corp. v. Mitsui Sumitomo Ins. USA, Inc., 499 F. Supp. 2d 361 (S.D. N.Y. 2007) (applying New York Law).
⁷ Steadfast Ins.Co. v. Stroock & Stroock & Lavan LLP, 277 F. Supp. 2d 245 (S.D.N.Y. 2003) (Applying New York law; See also, Nicoletta v. Berkshire Life Ins. Co., 99 A.D. 3d 567, 952 N.Y.S.2d 532 (1st Dep’t 2012).
⁸ General Acc. Ins. Grp. V. Cirucci, 46 NY 2d 862, 864 (1979); See, Adames v. Nationwide Mut. Fire Ins. Co. of New York, 55 AD 3d 513 (2nd Dep’t 2008).