A federal appeals court Wednesday affirmed a lower court’s ruling against a Tokio Marine unit in litigation with a Brooklyn school, stating the school had failed to adequately disclaim coverage in an accident.

“M.G.,” a child, was a pedestrian who was struck and severely injured by a school bus carrying students to a school operated by Yeshivat Beth Hillel of Krasna, according to the ruling by the 2nd U.S. Circuit Court of Appeals in New York in Philadelphia Indemnity Insurance Co. v. Yeshivat Beth Hillel of Krasna, Inc., et al.

M.G. and M.G.’s parents, Rami and Olivia Garber, sued Yeshivat, which promptly notified its insurer, Tokio Marine unit Philadelphia Indemnity, of the claim against it.

Philadelphia investigated the claim and sent a reservation of rights letter to the school informing it that its claim might not be covered under the policy.

Three years later, Philadelphia filed suit in U.S. District Court in Brooklyn seeking declaratory judgment that it had no duty to defend or indemnify the school for the Garbers’ claims.

According to court papers, it denied coverage based on the issues that the bus driver may have been a school employee, and that the school may have owned the bus.

The school countered by seeking a declaratory judgment the policy required Philadelphia to defend and indemnify it. 

The U.S. District Court in Brooklyn ruled in the school’s favor, and was affirmed by a unanimous three-judge appeals court panel.  “We agree with the District Court that Philadelphia failed to adequately disclaim coverage as required by New York law,” the ruling said.

An insurer that seeks to disclaim coverage in connection with a motor vehicle accident must “give written notice as soon as is reasonably possible of such disclaimer of liability or demand of coverage” it said, in citing New York insurance law.

It must also “apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated,” it said, in citing an earlier case.

“The ‘reservation of rights’ letter upon which Philadelphia relies did not meet those standards,” it said. The letter stated only there was question as to whether the insurer had a duty or indemnify the school.

“The letter otherwise informed Yeshivat that Philadelphia would provide a defense, and it identified only two circumstances in which coverage might be denied under the policy’s exclusion for auto losses, neither of which came to pass.

“The record shows that Philadelphia knew or should have known of all the material, relevant facts underlying the claim for which it sought to disclaim coverage,” the ruling said.

“The letter was therefore not an effective denial of coverage, even though it reaffirmed that the policy at issue was a ‘general liability policy not an auto policy,’” the ruing said, in affirming the lower court’s ruling.

The attorney for M.G. and M.G.’s father, Josh Kelner, of Kelner & Kelner, Esqs. in New York, said in a statement, “We're gratified by the court’s ruling, which recognized that the insurer here clearly failed to meet its obligation under New York law to issue a timely and highly specific disclaimer.”

School attorney Jack Glanzberg, senior associate at the Aboulafia Law Firm LLC in New York, said in a statement, “The court’s decision denying Philadelphia’s appeal is in line with the long-standing principle in New York that a carrier has to timely disclaim coverage and to do so with specificity. Philadelphia’s arguments did not sway the lower court on no less than three occasions, and it came as no surprise that the Second Circuit was unconvinced as well."

Tokio attorneys did not respond to a request for comment.