N.Y. Gov. Signs Liability Claims Reform Legislation

New York Gov. David Paterson has signed legislation to reform the laws governing insurers’ ability to deny liability claims for late notice.

The Independent Insurance Agents & Brokers of New York Inc. worked closely with legislators, regulators and the governor's office for passage of the bill. In a letter to Paterson’s acting legal counsel dated July 16, IIABNY expressed its strong support for amending the current law and urged Paterson to sign the reforms into law.

The so-called “no prejudice” law (S.8610) that goes into effect March 1, 2009, prohibits insurers from denying a claim based on the failure to provide timely notice of a claim unless the delay compromises their ability to process the claim or caused “material prejudice.”

The legislation corrects a serious problem for insurance producers and their customers by enacting a statutory definition of late notice claims. IIABNY contended the widespread use of late notice denial of claims had escalated, with procedures varying from company to company and sometimes within one carrier. The situation created uncertainty for producers and their clients when submitting claims.

A 2007 version of this late notice bill—opposed by IIABNY—was vetoed last August by former Gov. Eliot Spitzer. 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.

The association has since worked with the Governor’s office to help craft acceptable bill language.

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.”

The 2008 version includes the following highlights:

* This bill 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.

Introduced at the request of the Governor, this legislation received sponsorship in the Assembly by Helene Weinstein (D-Brooklyn) and Joseph Morelle (D-Rochester) and in the Senate by John DeFransisco (R-Syracuse).