SPECIAL EDITION

PRIVATE CAUSE OF ACTION BILL
UNDER SERIOUS LEGISLATIVE CONSIDERATION

 

 

Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York

NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

ASSOCIATE EDITOR
Audrey A. Seeley
[email protected]

ASSISTANT EDITOR
Jennifer A. Ehman
[email protected]

INSURANCE COVERAGE TEAM
Dan D. Kohane, Team Leader
[email protected]
Michael F. Perley
Elizabeth A. Fitzpatrick
Audrey A. Seeley
Steven E. Peiper
Margo M. Lagueras
Cassandra A. Kazukenus
Jennifer A. Ehman
Taylor F. Gabryel
Agnieszka A. Wilewicz
Diane F. Bosse
Joel R. Appelbaum

FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]

Elizabeth A. Fitzpatrick
Cassandra A. Kazukenus
NO-FAULT/UM/SUM TEAM
Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra A. Kazukenus
Jennifer A. Ehman

Taylor F. Gabryel

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]

 Elizabeth A. Fitzpatrick
Diane F. Bosse

                                                                       
Rarely, does Coverage Pointers interrupt its bi-weekly calendar of newsletters to offer a Special Edition but events in the State Capital require your immediate attention. 

The 2015 Legislative Session is winding down.  Anyone who has lived through the final days of a New York legislative session understands that organized chaos reigns with bills that have sat quietly for months suddenly being pulled from committees and rushed to passage, with nary a moment of public debate.

Such a bill is currently under final (and apparently serious) consideration in both houses with passage likely in the Assembly and possibly in the Senate.  If this bill is signed into law, the insurance companies operating in the Empire State will potentially face devastating consequences for ordinary mistakes. Currently, Insurance Law §2601 establishes penalties for unfair claims practices and those penalties are imposed by the New York State Department of Financial Services.

We urge you to reach out to state legislators, particularly in the Senate, and urge defeat.

The Senate version of the bill and the supporting memorandum are attached to this mailing. The bills are cross filed in the Legislature as S4049-A and A257-A (and carry this title:

AN ACT to amend the insurance law, in relation to unfair claim settlement practices.

It would create a new section of the Insurance Law, 2601-a, that would provide a civil remedy to a policyholder by creating a private right of action against an insurer, if a policy holder established, by a preponderance of the evidence that an insurer’s refusal to pay or unreasonable delay in payment was not substantially justified.

Much of the language of the proposed new statute appears directed at claim practices with respect to first party claims, but it is not clear that the act is so limited.  Regardless, the scope of acts or omissions that would violate the statute is broad, and the penalties for violation are draconian.

Any policyholder who establishes liability under the statute would be entitled to recover, in addition to the amounts due under the policy, interest, costs  and  disbursements,  compensatory damages,  and  reasonable  attorneys'  fees incurred by the policyholder from the date of the loss, in recovering  monies due  pursuant  to  the terms  of the policy, as well as such additional punitive damages as the court may allow on a showing that the  acts  giving  rise  to  liability occur with such frequency as to indicate a general business practice.

The proposed statute then enumerates what kinds of conduct are considered not substantially justified

An insurer is not substantially justified in refusing to pay or in unreasonably delaying payment when the insurer:

  1. Failed to provide the policyholder with accurate information concerning policy provisions relating to coverage.   What that means is unclear.  The insured is provided with a copy of the purchased policy and therefore has the policy provisions in hand.  What is being asked of an insurer other than the current requirements of sending a prompt and accurate coverage position letter?  Is the insurer required to provide legal advice to the policyholder regarding the meaning and interpretation of the policy?
  2. Failed to effectuate in good faith a prompt, fair and equitable settlement of a claim submitted by such policyholder in which liability of such insurer to such policyholder was reasonably clear. What is the purpose of this provision?  Is an insurer now forced to settle a case when it believes that the plaintiff or claimant is seeking an amount of money that is unreasonable or unjustified?  Is an insurer no longer entitled to decide that a case ought to be tried rather than settled?  This section focuses on the liability of the insurer to the policyholder, which suggests its intent is to cover first party claims, but the provision fails to consider whether the policyholder is liable to the claimant or whether the claimant is seeking an amount which is not justified by the underlying facts.
  3. Failed to provide a written denial of a policyholder's claim with a full and complete explanation of such denial, including references to specific policy provisions wherever possible.  This provision is unnecessary and duplicative of and in some ways inconsistent with the provisions of Insurance Law § 3420(d)(2).  That provision already requires prompt coverage denials for accidents that occur in New York where the claims are for bodily injury or wrongful death.  Well-established case law has already created a significant penalty for non-compliance with that statutory directive, a waiver of the ability to raise policy exclusions and conditions.  However, this provision would apply the penalties it recites to a failure to provide detailed denials of first party claims. 
  4. Failed  to make a final determination and notify the policyholder in writing of its position on both liability for and the insurer's valuation of a claim within six months of the date on which it received actual or constructive notice of the loss upon which the claim is based.  This provision places an absurd and impossible obligation and burden on the part of the insurer.  It often takes months or years of litigation to properly evaluate liability and damages and the insurer (and its insured) has the right to take depositions, review medical records, conduct medical examinations, take statements of witnesses, etc.  If an insurer is obligated to make “a final determination and notify the policyholder in writing” of its position in six months from the date it received notice of the loss, and the claimant knows that a failure on the part of the insurer to do so will result in extracontractual damages, it may well withhold information from the insurer to make certain it cannot comply with this obligation.  While the provision may be intended to apply only to first party claims, there is nothing within the particular subdivision, or elsewhere in the bill, that makes that limitation. 
  5. Failed to act in good faith by compelling a policyholder to institute suit to recover amounts due under its policy by offering substantially less than the amounts ultimately recovered in suits brought by such policyholder.  This is apparently directed at first party suits.  What does it mean to “compel a policyholder to institute suit”?  If the insurer believes a claim is exaggerated or a loss was within an exclusion, is it now precluded from raising those issues lest a suit be commenced?  This section imposes absolute liability on an insurer for taking even the most reasonable position, that is later not sustained.  And, of course, the same drastic penalties are imposed on a carrier who guesses wrong as to the ultimate determination of coverage.
  6. Failed  to  advise  a policyholder that a claim may exceed policy limits, that counsel assigned  by  the  insurer  may  be  subject  to  a conflict  of  interest, or that the policyholder may retain independent counsel.  Under this provision, the failure to send out an “excess letter” even where there is no realistic possibility of an excess judgment would result in potential extracontractual damages.  On the requirement to advise the policyholder of the “right to independent counsel,” the appellate departments are split on whether such an obligation even exists.  Compare Tower Ins. Co. of N.Y. v Sanita Constr. Co., Inc. __ AD3rd ___ (1st Dept. 6/4/15) with Elacqua v Physicians' Reciprocal Insurers, 52 AD3d 886 (3rd Dept.2008).
  7. Failed to provide, on request of the policyholder or their  representative, all reports, letters or other documentation arising from the investigation of a claim and evaluating liability for or  valuation of such claim.  How can the insurer be assured that this material will not be shared with others, thus destroying any privilege that is attached to material prepared for litigation?  This creates a substantial risk that the materials, prepared for the lawsuit, becomes discoverable by the claimant or plaintiff counsel, thus putting the defendant and the insurer in an extremely disadvantageous position.
  8. Refused to pay a claim without conducting a reasonable investigation.  What is the intention of this provision?  What is a “reasonable investigation?”  Again, conduct of an insurer is regulated by the Department of Financial Services and that agency is in the best position to evaluate the relationship between the policyholder and the insurer.
  9. Negotiated or settled a claim directly with a policyholder known to be represented by an attorney without the attorney's knowledge or consent.  If an agreement is reached between an insurer and a represented party and that agreement was improperly obtained, the courts already have the power to set aside such agreements.
  10. Failed to pay on one or more elements of a claim where there is no dispute as to liability notwithstanding the existence of disputes as to other elements of the claim where such payment can be made without prejudice to either party.  Fair claims regulations, 11 NYCRR Part 216, already impose rules and obligations on insurers for fair claims practices.
  11. Acted in violation of section two thousand six hundred one of this article or any regulation promulgated pursuant thereto.  As indicated, most of these provisions come directly out of this section.

All amounts recovered from an insurer as damages and reasonable attorneys' fees in any action authorized in this section shall be excluded by the insurer in its determinations of the premiums it will charge all policyholders on all policies issued by it.

We urge you to contact your legislators and urge them to vote NO on this devastating bill.

 

2015-2016 Regular Sessions
IN SENATE
S4049-A
February 26, 2015
___________

        Introduced  by  Sen.  LANZA  -- read twice and ordered printed, and when printed to be committed to the Committee  on  Insurance  --  committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee

        AN  ACT  to amend the insurance law, in relation to unfair claim settlement practices

          The People of the State of New York, represented in Senate and  Assembly, do enact as follows:

     1    Section 1. The insurance law is amended by adding a new section 2601-a
     2  to read as follows:
     3    §  2601-a.  Unfair  claim settlement practices; civil remedy.  (a) The
     4  holder of a policy issued or renewed pursuant to this chapter shall have
     5  a private right of action against any insurer  doing  business  in  this
     6  state  for  damages  as  provided in this section upon such policyholder
     7  proving by a preponderance of the evidence that such  insurer's  refusal
     8  to  pay  or unreasonable delay in payment to the policyholder of amounts
     9  claimed to be due under a policy was  not  substantially  justified.  An
    10  insurer  is  not substantially justified in refusing to pay or in unrea-
    11  sonably delaying payment when the insurer:
    12    (1) failed to  provide  the  policyholder  with  accurate  information
    13  concerning policy provisions relating to the coverage at issue;
    14    (2)  failed  to  effectuate in good faith a prompt, fair and equitable
    15  settlement of a claim submitted by such policyholder in which  liability
    16  of such insurer to such policyholder was reasonably clear;
    17    (3)  failed to provide a written denial of a policyholder's claim with
    18  a full and complete explanation of such denial, including references  to
    19  specific policy provisions wherever possible;
    20    (4)  failed  to make a final determination and notify the policyholder
    21  in writing of its position on both liability for and the insurer's valu-
    22  ation of a claim within six months of the  date  on  which  it  received
    23  actual or constructive notice of the loss upon which the claim is based;
    24    (5) failed to act in good faith by compelling a policyholder to insti-
    25  tute  suit  to recover amounts due under its policy by offering substan-

         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD00077-03-5
        S. 4049--A                          2

     1  tially less than the amounts ultimately recovered  in  suit  brought  by
     2  such policyholder;
     3    (6)  failed  to  advise  a policyholder that a claim may exceed policy
     4  limits, that counsel assigned  by  the  insurer  may  be  subject  to  a
     5  conflict  of  interest,  or that the policyholder may retain independent
     6  counsel;
     7    (7) failed to provide, on request of the policyholder or their  repre-
     8  sentative,  all reports, letters or other documentation arising from the
     9  investigation of a claim and evaluating liability for  or  valuation  of
    10  such claim;
    11    (8)  refused  to  pay a claim without conducting a reasonable investi-
    12  gation;
    13    (9) negotiated or settled a claim directly with a  policyholder  known
    14  to  be  represented  by  an attorney without the attorney's knowledge or
    15  consent. The provisions of this paragraph shall not be deemed to prohib-
    16  it routine inquiries to a policyholder to obtain details concerning  the
    17  claim;
    18    (10)  failed  to pay on one or more elements of a claim where there is
    19  no dispute as to liability notwithstanding the existence of disputes  as
    20  to  other  elements  of the claim where such payment can be made without
    21  prejudice to either party; or
    22    (11) acted in violation of section two thousand  six  hundred  one  of
    23  this article or any regulation promulgated pursuant thereto.
    24    (b)  Any policyholder who establishes liability pursuant to subsection
    25  (a) of this section shall be entitled to recover, in addition to amounts
    26  due under the policy, interest, costs  and  disbursements,  compensatory
    27  damages,  and  reasonable  attorneys'  fees incurred by the policyholder
    28  from the date of the loss, in recovering  monies  due  pursuant  to  the
    29  terms  of the policy, as well as such additional punitive damages as the
    30  court may allow on a showing that the  acts  giving  rise  to  liability
    31  occur with such frequency as to indicate a general business practice.
    32    (c)  Any  policyholder may recover damages from an insurer doing busi-
    33  ness in this state pursuant to this section either as part of an  action
    34  to  recover  under  the  terms  of  an insurance policy or in a separate
    35  action.
    36    (d) In any trial of a cause of  action  asserted  against  an  insurer
    37  pursuant to this section, evidence of settlement discussions written and
    38  verbal  offers  to  compromise and other evidence relating to the claims
    39  process shall be admissible. If causes of action relating  to  liability
    40  of  the  insurer  under the policy and under this section are alleged in
    41  the same action, the court may bifurcate the trial of issues  so  as  to
    42  avoid prejudice to the insurer on the issue of liability under the poli-
    43  cy  and  facilitate  admissibility  of  evidence on the causes of action
    44  asserted pursuant to this section.
    45    (e) All amounts recovered from an insurer as  damages  and  reasonable
    46  attorneys'  fees  in  any  action  authorized  in  this section shall be
    47  excluded by the insurer in its determinations of the  premiums  it  will
    48  charge all policyholders on all policies issued by it.
    49    (f)   Nothing   in   this  section  shall  be  construed  to  limit  a
    50  policyholder's right to a trial by jury for  any  claims  arising  under
    51  this section.
    52    §  2. This act shall take effect on the first of January next succeed-
    53  ing the date on which it shall have become a law, and shall apply to all
    54  acts and omissions by insurers occurring  on  or  after  such  effective
    55  date.


 

NEW YORK STATE SENATE
INTRODUCER'S MEMORANDUM IN SUPPORT
submitted in accordance with Senate Rule VI. Sec 1

BILL NUMBER: S4049A

SPONSOR: LANZA

TITLE OF BILL:  An act to amend the insurance law, in relation to
unfair claim settlement practices

 

PURPOSE OF BILL:  To allow insurance policy holders to recover-damages
when an insurance company's refusal to pay or unreasonable delay in
paying a claim was not substantially justified.

 

SUMMARY OF PROVISIONS OF BILL: This bill grants insurance policy hold-
ers a private right of action to seek damages if their insurer unreason-
ably refuses to pay or unreasonably delays payment without substantial
justification.  An insurer would not be substantially justified in
refusing to pay or in unreasonably delaying payment when they:

1. Fail to provide the policy holder with accurate information concern-
ing policy provisions relating to the coverage at issue; or

2. Fail to effectuate, in good faith, a prompt, fair and equitable
settlement of a claim submitted by such policy holder in which the
liability of such insurer to such policy holder was reasonably clear; or

3. Fail to provide a written denial of a policy holder's claim with a
full and complete explanation of such denial, including references to
specific policy provisions wherever possible; or

4. Fail to make a final determination and notify the policy holder in
writing of its position on both the liability for, and the insurer's
valuation of, a claim within six months of the date on which it received
actual or constructive notice of the loss upon which the claim is based;
or

5. Fail to act in good faith by compelling the policy holder to initiate
a lawsuit to recover under the policy by offering substantially less
than the amounts ultimately recovered in the suit by the policy holder;
or

6. Fail to advise a policy holder that a claim may exceed policy limits,
that assigned counsel may be subject to a conflict of interest, or that
the policy holder may retain independent counsel; or

7. Fail to provide, on request of the policy holder or their represen-
tative, all reports or other documentation arising from the investi-
gation of a claim; or

8. Failing to pay a claim without conducting a reasonable investigation;
or

9. Negotiating or settling a claim directly with a policy holder known
to be represented by an attorney without the attorney's knowledge;

10.Failed to pay on one or more elements of a claim where there is no
dispute as to liability notwithstanding the existence of disputes as to
other elements of the claim where payment can be made without prejudice
to either party; or

11. Acted in violation of § 2601 of the Insurance law or any related
regulation.
Any policyholder who establishes liability shall be entitled to recover,
in addition to amounts due under the policy, interest, costs, and
disbursements, compensatory damages" reasonable attorney fees, and puni-
tive damages where violations of this section were found to be part of a
general business practice.

The bill also includes procedural rules to insure that the insurer
receives a fair trial on the issue of liability under the terms of the
policy before the issue of substantial justification is considered.

Finally, in the event an insurer is found liable under this section, the
bill would prevent insurers from passing on the costs to consumers in
the form of higher premiums.

 

JUSTIFICATION:  Insurance companies have an overwhelming advantage in
the handling of a claim, with the power and financial incentive to deny
or delay coverage and otherwise avoid fair payment of legitimate claims.
Under current law, there is no consequence to the insurer when a denial
or delay of coverage is unfounded, or when the insurer offers an unrea-
sonably low settlement. The importance of this issue is becoming appar-
ent as an increasing number of the tens of thousands of New Yorkers
making claims in the aftermath of Super Storm Sandy are experiencing
unfair claims practices.

Currently § 2601 of the insurance law regulates the conduct of insurers,
prohibiting 5 specific actions that constitute unfair claims practices.
However, only the Superintendent of the Department of Financial Services
can enforce these provisions. Furthermore, § 2601 does not go far enough
in regulating the types of unfair claims practices we have seen across
the state in the wake of recent natural disasters.

Under existing statutes and case law, an insurer can simply refuse to
pay a claim with impunity or offer an amount well below the value of the
loss. Even if the policy holder sues and wins the full amount of the
claim, they will still not receive the benefits they paid for under
their policy because of the costs associated with bringing the success-
ful action. This gives insurers an unfair advantage in negotiating a
settlement of any claim - insurers are able to bear the costs of liti-
gation, but most ordinary New Yorkers cannot afford to do so.

New Yorkers who pay insurance premiums should expect insurers to live up
to their obligation to deal in good faith with their policy holders.
When insurers do not meet this obligation it is important that the
consumer has a viable and effective means of seeking redress. This bill
gives consumers the legal means to achieve this goal.

 

LEGISLATIVE HISTORY:  2014: A.7809/S.5664 - A.Cal/S.Ins. 2013:
A.7809/S.5664 - A.Ins/S.Ins.

 

FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:  None.

 

EFFECTIVE DATE:  January 1st next succeeding the date on which it
shall have become a law.