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Practice Tip: Consider this Scenario

January 21, 2016
By: Frank Scahill

Your Insurance Carrier's claim representative calls you in a panic. A complaint received months earlier by the carrier from its insured has gone unanswered as the complaint was lost in the wrong "workflow queue" and a default has been entered. Is all lost? You know there is such a thing as "law office failure" as a reasonable excuse, but there is no "insurance company failure". How can you muster a reasonable excuse for failing to timely answer the complaint when the insured was served properly and timely sent the complaint to his or her carrier for an answer?

All is not lost. Consider a gift from the First Department in Heskel's W. 38th St. Corp. v. Gotham Const. Co. LLC, 14 A.D.3d 306, 787 N.Y.S.2d 285 (2005). This negligence action claimed that plaintiffs' building was damaged by construction, demolition, excavation and development work performed on defendants' adjacent property. The action was commenced by filing on October 10, 2003, and on October 24, 2003 defendant general contractor Gotham Construction Company, LLC, forwarded the summons and complaint to its insurer, Allied North America. However, Allied, through the inadvertence of its assigned adjuster at AIG, failed to forward the complaint to counsel, and this failure was discovered only after defendants' time to answer had expired. Defendants then filed a motion to vacate the default and for an extension of their time to answer. They submitted the affidavit of the AIG claims adjuster, who explained the circumstances that led him to inadvertently file plaintiffs' complaint without forwarding it to defense counsel. They also furnished the affidavits of the parties in order to establish a meritorious defense. The IAS court denied defendants' motion, holding (1) that defendants had failed to offer a reasonable excuse for their default because defendants further delayed in answering even after they were apprised of their default, (2) that plaintiffs would be prejudiced by granting the relief, and (3) that defendants had failed to establish the existence of a meritorious defense.

The Appellate Division reversed and vacated the default, "We find that defendants offered a reasonable excuse for their delay, an absence of willfulness, and a meritorious defense. Because, in addition, the prejudice plaintiffs claim cannot be said to have been caused by defendants, we reverse and vacate the default. Excusable delay is sufficiently established since the failure to forward the complaint to counsel prior to December 1, 2003 was concededly due to the inadvertence of the insurer (see Parker v. I.E.S.I. N.Y. Corp., 279 A.D.2d 395, 720 N.Y.S.2d 59 [2001], lv. dismissed 96 N.Y.2d 927, 733 N.Y.S.2d 363, 759 N.E.2d 361 [2001] ), and the additional delay through the time defendants attempted to serve their answer in February was not unreasonable. And, given the form of the complaint and the causes of action pleaded, the defenses raised by defendants may not be rejected out of hand as meritless, but require determination on their merits upon a more complete review of the facts, in a summary judgment motion or at trial. There is a "strong public policy favoring the determination of actions on their merits" (Damselle Ltd. v. 500-512 Seventh Ave. Assocs., 184 A.D.2d 367, 584 N.Y.S.2d 846 [1992] ). While this policy may give way when a defendant's failure to timely answer the complaint causes prejudice to the plaintiff (see Mayers v. Cadman Towers, 89 A.D.2d 844, 845, 453 N.Y.S.2d 25 [1982] ), here, such prejudice as plaintiffs may have experienced cannot properly be attributed to defendants' delay in answering......Under the circumstances, the claimed prejudice cannot properly be blamed on defendants' failure to timely answer the complaint. The denial of defendants' motion therefore constituted an improvident exercise of discretion. "

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