INSURANCE

Recently, Insurance Law Section 3420 was amended making a dramatic change to an insurer's ability to disclaim coverage based upon late notice. Prior there to, whether it was under a policy governing your home, boat, auto, etc.,notice must be given to the insurance carrier within the time limits of the policy. That law has changed. This is from the NYS Insurance Department:

"OGC Op. No. 09-06-08

The Office of General Counsel issued the following opinion on June 23, 20009 representing the position on the New York State Insurance Department.

Re: Interpreting the Amendments to Insurance Law § 3420

Question Presented:

1. Do the Chapter 388 amendments to Insurance Law § 3420, which apply to any “liability policy issued or delivered in this state,” include policies issued in New York but delivered outside of the state?

2. Does the prejudice rule set forth in Insurance Law § 3420 only apply to liability policies?

3. Does Insurance Law § 3420 apply to claims-made policies?1

4. May a third party bring a direct cause of action against a New York insurer in a foreign jurisdiction subsequent to a denial for late notice if the policy was delivered in a foreign jurisdiction that requires a judgment against, or settlement with, the insured prior to the initiation of such cause of action?

Conclusion:

1. Yes. The term “issued or delivered in this state” includes policies issued in New York but delivered outside of the state.

2. Insurance Law § 3420 sets forth minimum requirements for liability policies, which includes the prejudice rule. However, insurers may provide more liberal provisions in their policies to benefit their insureds, and thus may include a prejudice rule in other kinds of policies, too.

3. Yes, Insurance Law § 3420 applies to claims-made policies. However, Chapter 388 recognizes the distinctive nature of claims-made policies and does not allow for duplicate claims under multiple policy periods, or a late claim under a prior policy period.

4. No. Insurance Law § 3104(b) allows a New York insurer to include in any policy of insurance issued for delivery in another jurisdiction any provision required by the laws of such other jurisdiction applicable to such policy.

Facts:

The inquiry is general in nature, without reference to particular facts.

Analysis:

Chapter 388 of the Laws of 2008 amended Insurance Law § 3420 to establish a new “prejudice” standard2 for liability policies that an insurer must satisfy before it may deny a late claim. Chapter 388 also requires insurers under certain circumstances to advise a claimant as to whether a liability insurance policy is in effect. Further, Chapter 388 amended N.Y. Civil Practice Laws and Rules (“CPLR”) § 3001 (McKinney Supp. 2009) to specifically authorize a party who has brought a claim for personal injury or wrongful death against another party to maintain a declaratory judgment action in New York against the insurer of such other party, as provided in Insurance Law § 3420(a)(6).

1. Policies Delivered Out-of-State.

The first query asks whether Chapter 388 applies to policies delivered outside of New York. Section 8 of Chapter 388, which is the effective date provision, is relevant to the inquiry. That section reads as follows:

This act shall take effect on the one hundred eightieth day after it shall have become a law, and shall apply to policies issued or delivered in this state on or after such date and to any action maintained under such a policy (emphasis added);

Section 8 is consistent with other provisions of Insurance Law § 3420, which otherwise employ the language “issued or delivered in this state.” See Insurance Law § 3420 (a), (e), and (f). While that term is not defined in Insurance Law § 3420, it appears in other sections of the Insurance Law, like Insurance Law §§ 3425, 3426, and 3427.

The legislative history of Insurance Law § 3201, as set forth in a discussion of Insurance Law § 155 (a predecessor provision to Insurance Law § 3201) in an internal opinion from the Department’s Office of General Counsel (“O.G.C.”) dated October 15, 1959, indicates that the proper interpretation of the term “issued or delivered in this state” refers both to a policy issued for delivery in New York, and a policy issued for delivery outside of New York. The internal opinion states that 1940 amendments to Insurance Law § 155 changed the language, with respect to life insurance policies, from “issued or delivered in this state” to “delivered or issued for delivery in this state.” The effect of the amendments thus put an end to a requirement that policies issued by domestic life insurers contain certain standard provisions or require approval by the Superintendent. The Bar of the City of New York Committee on State Legislation (“the Committee”), in commenting upon the objective of the 1940 amendment to Insurance Law § 155, stated:

“In amending the language to cover such a situation [,] policies to be delivered or issued for delivery outside of the state are excluded...” Assembly Print 1145, Int. 529 (New York 1939); Senate Print 2640, Int. 1854 (New York 1939)

The substitution of “delivered or issued for delivery in this state” for “issued or delivered in this state” in the 1940 amendment created a disparity in treatment between policies issued and delivered in New York, and those that are issued in New York but delivered outside of the State. However, statutes, such as Insurance Law § 3420, which continue to read “issued or delivered in this state,” apply to both policies issued within New York for delivery in New York, as well as policies issued in New York for delivery outside of New York.

2. Prejudice Rule in Non-Liability Policies.

The second query asks whether the prejudice rule set forth in Insurance Law § 3420, which prevents the invalidation of a claim due to untimely notice by the insured, injured person or any other claimant unless the failure to provide timely notice has prejudiced the insurer, only applies to liability policies. The inquirer asserts that in some states, the prejudice rule is not limited to liability policies, and asks whether non-liability policies in New York may contain a prejudice rule. Insurance Law § 3420 is limited to establishing minimum requirements for liability policies. That statute, however, does not preclude an insurer from adding a similar prejudice provision in non-liability policies. Nothing precludes an insurer from voluntarily including a prejudice rule in non-liability policies.

3. Claims-Made Policies.

The third query asks whether Insurance Law § 3420 applies to claims-made policies. The inquirer asserts that Insurance Law § 3420 only requires an insurer to prove prejudice in order to deny coverage for late notice with respect to occurrence policies, while other states also apply this provision to claims-made policies. Insurance Law § 3420 applies to both occurrence and claims-made policies. A claims-made policy provides that the claim shall be made during the policy period, any renewal thereof, or any extended reporting period. However, Insurance Law § 3420(a)(5) recognizes the distinctive nature of claims-made policies so as to prevent duplicate claims over multiple policy periods, or a late claim under a prior policy period. That statute provides that a claims-made policy may provide that the claim shall be made during the policy period governing the time during which the event occurred; the renewal of such policy; and any extended reporting period under such policy. See Circular Letter No. 26 (2008).

4. Provisions Required by Other Jurisdiction’s Laws.

The fourth query asks whether a third party may bring a direct cause of action against a New York insurer in a foreign jurisdiction subsequent to a denial for late notice if the policy was delivered in a foreign jurisdiction that requires a judgment against, or settlement with, the insured prior to the initiation of such cause of action. The inquirer asserts that Insurance Law § 3420 allows a cause of action to be brought directly against the insurer if a claim is denied for late notice, but that in other states, a third party may not bring such a cause of action against the insurer unless and until it first secures a judgment against, or settlement with, an insured. However, if a jurisdiction outside New York prohibits a direct action, Insurance Law § 3104(b)3 expressly permits a domestic insurer to include in any insurance policy or annuity contract issued for delivery in that jurisdiction and governed by that jurisdiction’s law any provisions required by the laws of that jurisdiction applicable to the insurance policy or annuity contract.

For further information you may contact Associate Counsel Alexander Tisch at the New York City Office.

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1 Section 73.0(a) of N.Y. Comp. Codes R. & Regs. (“NYCRR”), tit. 11, Part 73 (Reg. 121) explains the distinction between “claims-made” and “occurrence” policies as follows:

Traditionally, most liability insurance policies protect against injury or damage that occurs during the policy period. Such “occurrence” policies generally provide coverage, even though an actual claim is made or suit is filed, arising from that occurrence, subsequent to the policy period. In contrast, “claims-made” policies generally provide coverage only when a claim is made during the policy period with regard to injury or damage that has taken place during that time.

2 The “prejudice” standard set forth in Insurance Law § 3420(a)(5) provides that a claim by an insured, injured person or any other claimant shall not be invalidated because of a failure to give timely required notice, unless the failure to provide timely notice has prejudiced the insurer.

3 Insurance Law § 3104(b) provides that “[a]ny domestic insurer may include in any policy of insurance or contract of annuity issued for delivery in another jurisdiction and governed by the laws thereof, any provision required by the laws of such other jurisdiction applicable to such policy or contract.”"