INSURER'S UNTIMELY DISCLAIMER OF COVERAGE OBLIGATED IT TO DEFEND OR INDEMNIFY INSURED

Professional Liability	Duty to Defend
Cooperation

Continental Casualty Company (Continental) provided counsel for defendant Terrance D. Stradford (Stradford) in two underlying actions that began in 1998 to recover damages for dental malpractice. It first requested Stradford's cooperation in February 1999. During the investigation and defense of both actions, Stradford ignored a series of written correspondence and telephone calls from Continental's representatives and defense counsel. In addition, he repeatedly refused to provide requested documents, records and evidence and unreasonably refused to consent to a recommended settlement based on adverse findings of experts retained to review the underlying actions. Even though he requested a change in counsel, Stradford refused to execute stipulations consenting to a change in attorney and failed to appear for scheduled depositions and meetings. Two separate letters written by Continental's claims consultants on July 8, 2004 advising him that he was in breach of the policy cooperation clause and at risk of a disclaimer of coverage in the underlying actions for failure to cooperate were returned to Continental on August 11, 2004 marked "Unclaimed."

On October 13, 2004, Continental's attorney disclaimed coverage based on Stradford's pattern of non-cooperation and initiated a declaratory judgment action on October 29, 2004, seeking judicial permission to cease any further defense or indemnification coverage. Stradford defaulted in appearing in this action. Continental then moved for leave to enter a default judgment against Stradford and for summary judgment against the claimants in the underlying actions. The claimants cross-moved for summary judgment, arguing that Continental failed to prove a willful failure to cooperate and to disclaim coverage on a timely basis. Continental's motion was granted and the cross-motion denied. On appeal, the claimants took the position that Continental should have done more to encourage Stradford's cooperation after the unclaimed letters were returned.

To effectively deny coverage based on lack of cooperation, an insurance carrier must demonstrate that it acted diligently in seeking to bring about the insured's cooperation, that the efforts it used were reasonably calculated to obtain the insured's cooperation, and that the attitude of the insured, after his cooperation was sought, was one of willful and avowed obstruction. To the extent that it tried to comply with these requirements, Continental found itself in the untenable position of being between the proverbial rock and the hard place. It had to diligently try to get Stradford to cooperate but could disclaim only after he demonstrated willful and avowed obstruction, all while adhering to time constraints that apply to situations where the reason to disclaim is immediately apparent when the claim is received. The Supreme Court agreed that Stradford's pattern of conduct was sufficient to satisfy Continental's heavy burden of establishing willful and avowed obstruction on his part but further concluded that its disclaimer was untimely as a matter of law. This is ascertained or decided by application of statutory rules or the principles and determinations of the law, as distinguished from the investigation of particular facts. It found that Continental's failure to disclaim coverage on grounds of lack of cooperation until October 13, 2004, more than five years after the underlying actions first commenced, was unreasonable. In addition, it failed to raise a triable issue of fact as to the timeliness of its disclaimer.

The order of the trial court was reversed, on the law, with costs, Continental's motion was denied, the cross-motion was granted and the matter remitted for the entry of a judgment that Continental was obligated to defend and indemnify Terrance D. Stradford in the underlying actions.

Supreme Court, Appellate Division, Second Department, New York. Continental Casualty Company, respondent, v. Terrance D. Stradford, defendant, Hector Gunaratne, et al., appellants. Dec 11, 2007. 46 A.D.3d 598, 847 N.Y.S.2d 631, 2007 N.Y. Slip Op. 09718