The Bill was introduced at the request of Governor David Patterson, and sponsored by John DeFransisco (R-Syracuse) in the Senate and Helene Weinstein (D-Brooklyn) in the Assembly. As previously reported here and here, the New York Legislature passed a similar bill in June of 2007 only to have it vetoed by then Governor Elliot Spitzer, whose primary objection at the time was the abrupt manner in which the 2007 bill was submitted and passed by the Legislature.
With respect to the late notice provision, the Bill amends Insurance Law Section 3420 and provides that an insurer can disclaim coverage on late notice grounds only where the insured’s untimely notice has prejudiced the insurer. The Bill further provides that the burden of establishing prejudice will rest with the insurer if the delayed notice is within 2 years after the time required under the policy. However, if the delay in providing notice is greater than 2 years, the burden shifts to the insured (or injured person in a direct action) to prove that the insurer was not prejudiced by the delay. The Bill also establishes an “irrebutabble presumption” of prejudice where notice is provided to the insurer after the insured’s liability is determined, or after the insured has settled the claim. Finally, in an effort to provide guidance as to the meaning and application of the prejudice requirement, the Bill states that an insurer’s rights shall not be deemed prejudiced unless the failure to give timely notice “materially impairs the ability of the insurer to investigate or defend the claim.”
The Bill expressly exempts from the prejudice requirement claims-made policies, which the Bill states may still “provide that the claim shall be made during the policy period, any renewal thereof, or any extended reporting period….” The Bill does not expressly address the reporting component of a claims-made-and-reported policy. Although the Bill’s carve-out for claims-made policies should also extend to claims-made-and-reported policies, including the latter’s quintessential reporting requirement that claims be reported during the policy period or extended reporting period, the current wording does not expressly state that.
As regards the declaratory judgment provision, the Bill amends Insurance Law Section 3420(a) and permits a claimant in an action arising out of personal injury or wrongful death to file suit directly against the tortfeasor’s insurer for declaratory relief where the insurer’s denial is premised upon late notice. Previously, New York law permitted a tort claimant to file a direct action against an insurer only where a judgment against an insured remained unsatisfied for 30 days. The “sole question” in a claimant’s declaratory action under the Bill will be limited to the insurer’s denial on late notice grounds. However, third party claimants do not have the right to file suit directly against the insurer if the insured or insurer brings a declaratory judgment action within 60 days of the denial. It is unclear how this will apply in circumstances where an insurer disclaims coverage not only because of untimely notice, but on other grounds well.
The Bill also establishes a process for a claimant in a personal injury or wrongful death action to obtain confirmation from an insurer that the insured had a liability insurance policy in effect at the time of the occurrence and the limits of coverage provided under such policy.
Significantly, the Bill will not apply retroactively to policies already issued. It will have prospective effect only. Section 8 of the Bill states that it shall become effective 180 days after it is signed into law, and only applies to policies issued after that 180-day period. Thus, even assuming the Bill is signed into law shortly, policies issued prior to 2009 will be governed by traditional common law principles regarding prejudice and direct action claims, but those issued in 2009 will be subject to the new rules.
