NEW YORK—Timely notice must be given to obligate an insurer to pay defense costs, a New York Supreme Court's appellate division has ruled.

The case, Continental Casualty Co. et al. vs. Employers Insurance Co. of Wausau and Robert A. Keasbey Co., stems from a long-running asbestos liability dispute. At issue is how to allocate defense costs among insurers involved in the litigation against now-defunct contractor Keasbey.

In a previous ruling, a judge agreed with Continental's parent company—CNA Financial Corp.—that the four insurers involved, including CNA, had an equal duty to defend Keasbey, and that CNA was entitled to be reimbursed by OneBeacon America Insurance Co. for one-quarter of the cost of defending Keasbey.

According to Thursday's decision, Keasbey never bought a policy directly from OneBeacon, but was covered by two wrap-up policies issued by OneBeacon that provided liability coverage to contractors working on a specified project at a nuclear power plant. Neither policy had an asbestos exclusion.

The court said defense coverage provided to Keasbey under CNA's primary policies was exhausted by 1992, but that CNA did not find evidence of the OneBeacon wrap-up policies until 2003 and sought to make OneBeacon reimburse CNA for its costs in defending Keasbey in asbestos actions since March 1, 2003.

Review overturns previous ruling

Upon review, a New York Supreme Court appellate division reversed much of the previous ruling. The court said CNA is not entitled to be reimbursed by OneBeacon for the costs of defending Keasbey in asbestos actions from March 1, 2003, to Sept. 30, 2007, or for any portion of the costs defending the same actions after Sept. 30, 2007, because it had “failed to establish that it gave OneBeacon timely notice of any of the actions.”

The court also held that to the extent CNA paid for Keasbey's defense in any asbestos actions commenced after Sept. 30, 2007, CNA was barred from seeking reimbursement from OneBeacon unless it established that it had provided OneBeacon with “timely notice of that particular action under the terms of the OneBeacon policies.”

The court, however, also held that CNA “has no further obligation to defend or indemnify” Keasbey in asbestos actions involving primary comprehensive general liability policies it had issued to Keasbey from Feb. 15, 1970, to Feb. 15, 1987.