New York's Timely Disclaimer Statute Does Not Apply to Foreign Risk Retention Groups, Holds Court or Appeals: Nadkos, Inc. v Preferred Contrs. Ins. Co. Risk Retention Group LLC.

• Author: Rogak, Lawrence N.

The Court of Appeals holds that a foreign Risk Retention Group's failure to timely disclaim coverage is not an "unfair business practice," while its failure to timely disclose the details of its coverage, is. The Federal Risk Retention Group Act of 1986 pre-empts State law regarding disclaimers and thus the timely disclaimer requirement of Insurance Law 3420(d)(2) does not apply to out of state RRGs.--LNR

* On this appeal, we conclude that a general business practice of failing to promptly disclose coverage within the meaning of Insurance Law [section] 2601 (a) (6) does not include violations of the timely liability disclaimer requirement of Insurance Law [section] 3420 (d) (2).

The genesis of this appeal is in an insurance coverage dispute between plaintiff Nadkos, Inc., the general contractor in an underlying personal injury action by an employee of Nadkos's subcontractor, and defendant Preferred Contractors Insurance Company Risk Retention Group LLC (PCIC), the subcontractor's general liability insurer. PCIC is a risk retention group (RRG) charted in Montana and doing business in New York. An RRG is an issuer of insurance owned and operated by insureds who work in the same industry and are exposed to similar liability risks.

The PCIC policy named Nadkos as an additional insured, extending coverage to Nadkos for liability related to the "ongoing operations" of the subcontractor and other members of the risk retention group. After PCIC disclaimed coverage based on certain exclusions in the policy, Nadkos sought a declaratory judgment that the policy obligated PCIC to defend and indemnify Nadkos in the employee's personal injury action. Nadkos also maintained--without objection from PCIC--that the disclaimer was untimely. Thus, according to Nadkos's interpretation of Insurance Law [section] 3420 (d) (2), the disclaimer was void.

PCIC moved for summary judgment, arguing that section 3420 (d) (2) is inapplicable to a nondomiciliary RRG. Nadkos then cross-moved for summary judgment, asserting that Insurance Law [section] 2601 (a) (6), which undisputedly applies to foreign RRGs, cross-references section 3420 (d) and therefore subjects PCIC to the timely disclaimer requirements of section 3420 (d) (2). As such, PCIC is barred from asserting all coverage defenses as applied to Nadkos. Supreme Court granted PCIC summary judgment dismissing the complaint, denied Nadkos's cross-motion and made a declaration in favor of PCIC.

The Appellate Division affirmed, holding that an insurance coverage disclaimer is not a disclosure of coverage within the meaning of Insurance Law [section] 2601 (a) (6), and therefore section 3420 (d) (2) does not apply to nondomiciliary PCIC. We granted Nadkos leave to appeal.

We begin our analysis with the applicable insurance provisions of the state's statutory and regulatory...