Lawmakers Pass IIABNY-Led Late Notice Bill

Passage of legislation that the Independent Insurance Agents & Brokers of New York Inc. helped draft will limit insurers’ ability to deny coverage based on late notice of claim—a benefit to producer and insured alike.

Before passage of the bill (A.11541/S.8610), an insurance company could deny coverage for a claim that it believed to be reported late, even if the late report did not prejudice its ability to investigate, defend, or negotiate a settlement of the claim. This is unfair to insurance buyers and contrary to the laws in most other states, according to IIABNY.

The 2007 version of the late notice bill—opposed by IIABNY and vetoed on Aug. 1 by then Gov. Eliot Spitzer—would have restricted carriers from denying a claim unless the insurer could show prejudice, but may have dramatically increased litigation because of onerous declaratory judgment provisions. Last year’s legislation included a trial lawyer-crafted portion that would allow attorneys to “shop around” for the most lucrative lawsuits by allowing them to sue policyholders to find out what coverages and limits are available before liability against the policyholder was established.

Within three weeks of the veto, IIABNY submitted comments to the New York Insurance Department on draft legislation for a new bill. The submission was based on the department’s request.

In September 2007, the association contacted top executives of property and casualty insurance companies in New York, asking that they “not invoke late notice unless there is material prejudice” while the association worked with the Governor’s office to help craft acceptable bill language.

The 2008 version includes the following highlights:

· Prohibits insurers from denying coverage for claims based on the failure to provide timely notice unless the insurer has suffered “prejudice” as a result of the delay. The insurer’s rights would not be considered prejudiced unless the failure to provide timely notice materially impairs the ability of the insurer to investigate or defend a claim;
· If notice is given within two years of the time required by the policy, the burden of proving prejudice rests on the insurer and if later, the insured. If notice is provided to the insurer after the insured’s liability is determined, then there would be an irrefutable presumption of prejudice;
· Permits a party suing an insured in a personal injury or wrongful death case to commence a simultaneously declaratory judgment action against the defendant’s insurer, in limited circumstances, to challenge the insurer’s denial of coverage based on the insurer’s denial of coverage based on the failure to provide timely notice;
· Establishes a process for a claimant to receive confirmation from an insurer that the insured had an insurance policy in effect on the alleged occurrence date and the limits of the policy.