New Late Notice Legislation Proposed In New York
Only two months after Governor Spitzer vetoed efforts to permit "direct actions" in New York and impose a requirement of prejudice in late notice cases, a new bill has been introduced in the State Senate and Assembly that would change New York law in much the same way that SB 06306 proposed to. The new proposal, which is co-sponsored by 38 senators and 120 Assemblymen, would:
- Permit injured parties to bring declaratory judgment actions directly against the insurer of the party responsible for their injuries.
- Give insurers that deny coverage for bodily injury claims on the basis of late notice a 60 day grace period in which to file a DJ naming the third party claimant (in which event the claimant may not bring its own DJ).
- Stipulate that untimely notice will not invalidate coverage (except as to claims made policies) without proof of prejudice. Prejudice is defined as the impairment of a "significant interest," including the ability to investigate, settle or defend a claim.
- Require insurers to prove prejudice if the delay was two years or less but assign the burden of disproving prejudice to policyholders if the delay was longer than two years. Prejudice shall exist as a matter of law if, prior to notice, the insured's liability is fixed by a judgment, arbitration or settlement.
- Add a new section to 3420(d) requiring insurers to confirm the existence and limits of liability insurance coverage to injured parties within 60 days of a written request.
To the extent that there are olive branches in this legislative thicket, they appear to be contained in the 60 day "safe harbor" provision; the shifting burden of proof provision and the determination of prejudice as a matter of law.
The "safe harbor" provision at least allows the insurer to choose where it wishes the coverage litigation to occur (but is there a trap here?--under Mighty Midgets, insurers are only liable for an insured's DJ fees if the the insurer commenced the DJ).
The shifting burden rule reflects the compromise approach that some states have adopted by legislaton (Wisconsin) or common law and reflects the general view that prejudice is not only more likely to increase with the passage of time but that, as a practical matter, the longer the delay, the more difficult it is for the insurer to recreate what might have been to show how it would have investigated or responded to the claim had it been timely.
The prejudice as a matter of law provision is welcome but does little more than is already accepted at common law. It does at least moot the argument that has been accepted in some states that even a settlement is not prejudice per se unless the insurer can show that it would have gotten a better deal if it had control of the defense.
When Governor Spitzer vetoed SB06036 last August, he stated in his veto message that he felt that the bill had been brought forward precipitously and without adequate consideration for its implications. While there has since been some consultation with the insurance industry, it' far from clear that this latest proposal truly takes into account the role that notice provisions play in a liability policy, the crucial inter-relationship between timely notice and an insurer's ability to exercie its right to defend or the consequences of such a significant restructuring of the common law mere years after it was affirmed by the Court of Appeal in Argo. Nor does the legislation address the patent unfairness that a mere 60 day delay can estop an insurer from disputing coverage under 3420(d), whereas an insured can now wait up to two years with relative impunity. Nevertheless, given the number of co-sponsors, it's clear that the insurance industry will face an uphill battle in any effort to block or substantially modify this new
