Nadkos, Inc. v. Preferred Contractors Ins. Co.

• Decision Date: 11 June 2019
• Docket Number: No. 37,37
• Citation: 132 N.E.3d 568,108 N.Y.S.3d 375,34 N.Y.3d 1
• Parties: NADKOS, INC., Appellant, v. PREFERRED CONTRACTORS INSURANCE COMPANY RISK RETENTION GROUP LLC, Respondent, et al., Defendant.
• Court: New York Court of Appeals Court of Appeals

34 N.Y.3d 1

132 N.E.3d 568

108 N.Y.S.3d 375

NADKOS, INC., Appellant,

v.PREFERRED CONTRACTORS INSURANCE COMPANY RISK RETENTION GROUP LLC, Respondent, et al., Defendant.

No. 37

Court of Appeals of New York.

June 11, 2019

Melito & Adolfsen P.C., New York City (S. Dwight Stephens, Ignatius John Melito and Kira Tsiring of counsel), for appellant.

Diane Bucci, New York City, for respondent.

RIVERA, J.

On this appeal, we conclude that a general business practice of failing to promptly disclose coverage within the meaning of Insurance Law § 2601(a)(6) does not include violations of the timely liability disclaimer requirement of Insurance Law § 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 ( Wadsworth v. Allied Professionals Ins. Co., 748 F.3d 100, 102 n. 1 [2d Cir. 2014] ; 15 USC § 3901 [a][4] ).

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,¹ 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 § 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 § 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 § 2601(a)(6), and therefore section 3420(d)(2) does not apply to nondomiciliary PCIC ( Nadkos, Inc. v. Preferred Contrs. Ins. Co. Risk Retention Group LLC, 162 A.D.3d 7, 11–12, 76 N.Y.S.3d 528 [1st Dept. 2018] ). We granted Nadkos leave to appeal ( 32 N.Y.3d 905, 2018 WL 4440635 [2018] ).²

We begin our analysis with the applicable insurance provisions of the state's statutory and regulatory framework.³ The Legislature promulgated the Risk Retention Groups and Purchasing Groups Act, codified in Article 59 of the Insurance Law, "to regulate the formation and/or operation in this state of risk retention groups" ( Insurance Law § 5901 ). As relevant to this appeal, Insurance Law § 5904 provides that nondomiciliary RRGs doing business in New York "shall comply with the unfair claims settlement practices provisions as set forth in [ section 2601 ] of this chapter, and any regulations promulgated thereunder" ( Insurance Law § 5904[d] ).⁴

In turn, Insurance Law § 2601(a) lists acts by insurers that, "if committed without just cause and performed with such frequency as to indicate a general business practice, shall constitute unfair settlement practices." Insurance Law § 2601(a)(6) includes, "failing to promptly disclose coverage pursuant to" Insurance Law §§ 3420(d) or (f)(2)(A) ( Insurance Law § 2601[a][6] ).

Insurance Law § 3420(d) contains two paragraphs. The first, paragraph (d)(1), requires insurers to respond to requests for information by insureds or injured individuals. Specifically, it mandates that insurers inform the requesting party, within firm statutory deadlines, whether the insured has a particular policy, the coverage limits of that policy, and whether additional information is needed to identify the policy (see Insurance Law § 3420[d][1] ). The second, paragraph (d)(2), provides that if "an insurer shall disclaim liability or deny coverage ... it shall give written notice as soon as is reasonably possible" ( Insurance Law § 3420[d][2] ). Like section 3420(d)(1), section 3420(f)(2)(A) requires insurers to inform insureds of the limits of coverage for uninsured/underinsured motorist claims (see Insurance Law § 3420[f][2][A] ).

The penalties for violations of the disclosure mandates in sections 3420(d)(1) and 3420(f)(2)(A) differ from those imposed for violations of the disclaimer requirements in section 3420(d)(2). While an insurer is subject to a monetary penalty for failure to timely disclose in accordance with section 3420(d)(1) ( Insurance Law § 2601[c] ), its failure to timely disclaim liability or deny coverage is considered an unduly delayed notice that results in per se prejudice to the insured and limits the defenses an insurer could raise against an insured's claim (see KeySpan Gas E. Corp. v. Munich Reins. Am., Inc., 23 N.Y.3d 583, 590, 992 N.Y.S.2d 185, 15 N.E.3d 1194 [2014] ).

Whether PCIC's disclaimer is regulated by the Insurance Law turns on whether the reference to an insurer's failure "to promptly disclose coverage" in section 2601(a)(6) includes the timely disclaimer requirement of section 3420(d)(2). Nadkos argues that section 2601(a)(6) cites to section 3420(d) without limitation, and thus encompasses both paragraphs (d)(1) and (d)(2). According to Nadkos, if the Legislature intended to limit section 2601(a)(6) to a specific subparagraph of section 3420(d), it knew how to do so, as demonstrated by the cross-reference in section 2601(a)(6) to a specific subparagraph of another provision—3420 (f)(2)(A). PCIC responds that section 2601(a)(6) is intended to impose the disclosure requirements of sections 3420(d)(1) and 3420(f)(2)(A). Section 3420(d)(2) is distinguishable as it requires insurers to timely disclaim liability or deny coverage.

We reject the interpretation advocated by Nadkos, and adopted by the dissent, because the prohibition on an unfair claim settlement practice based on a failure to promptly disclose coverage encompasses the mandates of section 3420(d)(1), not (d)(2).⁵

"When presented with a question of statutory interpretation, a court's primary consideration ‘is to ascertain and give effect to the intention of the Legislature’ " ( Matter of Lemma v. Nassau County Police Officer Indem. Bd., 31 N.Y.3d 523, 528, 80 N.Y.S.3d 669, 105 N.E.3d 1250 [2018], quoting Riley v. County of Broome, 95 N.Y.2d 455, 463, 719 N.Y.S.2d 623, 742 N.E.2d 98 [2000] ). We have long held that "[t]he statutory text is the clearest indicator of legislative intent" and that a court "should construe unambiguous language to give effect to its plain meaning ( Matter of DaimlerChrysler Corp. v. Spitzer, 7 N.Y.3d 653, 660, 827 N.Y.S.2d 88, 860 N.E.2d 705 [2006] ). "In the absence of a statutory definition, ‘we construe words of ordinary import with their usual and commonly understood meaning, and in that connection have regarded dictionary definitions as useful guideposts in determining the meaning of a word or phrase’ " ( Yaniveth R. v. LTD Realty Co., 27 N.Y.3d 186, 192, 32 N.Y.S.3d 10, 51 N.E.3d 521 [2016], quoting Rosner v. Metropolitan Prop. & Liab. Ins. Co., 96 N.Y.2d 475, 479–480, 729 N.Y.S.2d 658, 754 N.E.2d 760 [2001] ). It is also our well-established rule that "statutory language should be harmonized, giving effect to each component and avoiding a construction that treats a word or phrase as superfluous" ( Lemma, 31 N.Y.3d at 528, 80 N.Y.S.3d 669, 105 N.E.3d 1250 ).

The text of Insurance Law § 2601(a)(6) plainly qualifies its reference to Insurance Law § 3420, limiting it to an insurer's failure "to promptly disclose coverage pursuant to" sections 3420(d) and (f)(2)(A). In other words, section 2601(a)(6) applies solely to those portions of subsections 3420(d) and (f) that require a prompt disclosure of coverage-specific information. The term "disclose" is not defined in the Insurance Law, nor is it mentioned in sections 2601 and 3420(d), but that does not render, as the dissent maintains (dissenting op. at 23–25, 108 N.Y.S.3d at 389–91, 132 N.E.3d at 582–84), these two sections ambiguous or their interplay unclear.

The term "disclose" generally means "[t]o make (something) known or public; to show (something) after a period of inaccessibility or of being unknown; to reveal" (Black's Law Dictionary [10th ed 2014], disclose). To "disclaim," on the other hand, is "[t]o state, usually formally, that one has no responsibility for, knowledge of, or involvement with (something); to make a disclaimer about ... [t]o renounce or disavow a legal claim to" (Black's Law Dictionary [10th ed 2014], disclaim).⁶ Section 3420(d)(1) is comprised of three subparagraphs that outline an insurer's requirement to disclose coverage information upon request. Section 3420(d)(1)(A) provides that the subsequent subparagraphs apply only to certain policies ( Insurance Law § 3420[d][1][A] ).⁷ In turn, subparagraph (B) requires an insurer to confirm the existence and limits of coverage for an applicable policy, when such information is requested by an injured person or claimant ( Insurance Law § 3420[d][1][B] ). In furtherance of this goal to reveal an existing policy's coverage, subparagraph (C) requires the insurer to request additional information from the injured person, or claimant, if necessary to identify an applicable policy ( Insurance Law § 3420[d][1][C] ). By requiring insurers to confirm the existence of...