Dear Coverage Pointers Subscribers:

The Governor's Program Bill relating to late notice and direct actions released to the Legislature in New York last week received final legislative approval, by both the New York State Assembly and Senate, yesterday (without amendment). Since its language was proposed by the Governor, there isn't much chance of veto.  For more information, contact the undersigned.  Once the bill is signed into law - and particularly, if regulatory language follows - we'll provide implementation guidance in future issues of Coverage Pointers. 

For those who may  have misplaced the summary we provided when the bill was introduced on 6/11, we reprise it here

Quick Points: 

  • A carrier cannot disclaim on late notice unless it proves material prejudice defined as that which impairs the ability of the insurer to investigate or timely defend the claim;
  • If notice giving within two years of time required by policy, the burden of providing prejudice rests on the insurer and if later, the insured.
  • Pre-judgment declaratory judgment actions by injured parties are only permitted on sole question of late notice and only if the insurer or insured fails to commence a declaratory judgment action within 60 days of disclaimer;
  • Where personal lines primary or statutorily required policies are involved, the injured party can seek coverage information from carrier pre-lawsuit
  • The law would apply to policies issued 180 days after bill becomes effective.
  • No quid pro quo.  Insurer's late notice would still invalidate disclaimers even without the insured or injured party being prejudiced.

Detailed Summary:

  • The Governor's draft amends CPLR 3001 to reference the direct action statute which is contained in Insurance Law Section 3420(a).  It gives the injured party the right to commence a declaratory judgment action as referenced in the Direct Action statute.  
     
  • Under current law, both the insured and injured party may give notice to the insurer of the accident, occurrence or lawsuit.  That right is maintained in this version. Ins. Law Section 3420(a)(3).
     
  • Under current law, the failure to give any notice required by such policy shall not invalidate any claim made by the insured, injured party or any other claimant if it shall be shown not to have been reasonably possible to give such notice and that notice was given as soon as was reasonably possible thereafter.  That provision is maintained as well.  Ins. Law Section 3420(a)(4).
     
  • Prejudice Required For Disclaimers Based on Late Notice
    A new subdivision, Section 3420(a) (5) is added.  It provides that: failure to give any notice required to be given by such policy within the time prescribe therein shall not invalidate any claim made by the insured, the injured party or any other claimant unless the failure to provide timely notice has prejudiced the insurer  (with carve-outs for claims made policies). Ins. Law Section 3420(a)(5).
     
  • Defining Prejudice
    As part of a new Section 3420(c)(2), this bill defines prejudice as follows: 

The insurer's rights shall not be deemed prejudiced unless the failure to timely provide notice materially impairs the ability of the insurer to investigate or timely defend the claim
 

  • Direct Actions
    In wrongful death and personal injury claims, if the insurer disclaims liability or denies coverage upon the failure to provide timely notice, then the injured person or other claimant may maintain an action directly against such insurer, in which the sole question is the insurer's disclaimer or denial based on the failure to provide timely notice.  This limits direct actions to late notice cases only, unless there is a judgment already against the purported insured.

    The pre-judgment direct action could not be commenced, however, if within 60 days following the disclaimer or denial of coverage, the insured or the insured commences a declaratory judgment action, naming the injured person or any other claimant as a party to the action.

    In summary, the only direct action that may be commenced, prior to the injured party taking judgment against the insured, is one based on late notice.  It can only be brought by a person who seeks recovery for injury or wrongful death.  It can only be brought if the insurer or the insured has not commenced a declaratory judgment action within 60 days after the denial, naming the injured person as a party.
     
  • Burden of Proof in Establishing Prejudice
    In any action where the insurer alleges it was prejudiced as a result of a failure to provide timely notice, the burden of proof is on the insurer to demonstrate prejudice if notice was provided within two years of the time required by the policy and on the insured or injured person if the notice was provided more than two years after the time required by the policy.

    There is an irrebutable presumption of prejudice if, prior to notice, the insured's liability has already been determined by a court or arbitrator or if the insured has settled the case on his, her or its own.
     
  • Written Request to Confirm Coverage
    With respect to liability policies that provide coverage with respect to claims for bodily injury or wrongful death, where the policy is a personal lines policy (subject to Section 3425 of the Insurance Law) other than an excess or umbrella policy, an insurer shall, within 60 days of receipt of a written request by an injured party who has filed a claim or by another claimant, (a) confirm to the injured person or other claimant in writing whether the insured had a liability insurance policy in effect with the insurer and the limits of coverage provided under that policy.

    If the insurer does not have sufficient information to identify such a policy, the insurer has 45 days from the initial request to ask for more information and then another 45 days after it is provided to provide the information requested.
     
  • Effective Date
    The bill would take effect 180 days after it is enacted into law and then apply to policies issued or delivered in this state on or after such date and to any action maintained under such a policy although the Insurance Department is permitted to develop appropriate regulation for the implementation of the new law.

Dan