“[A]ll liability policies” issued or delivered in New York on or after January 17, 2009 will be subject to the recent Legislation promulgated under Chapter 388 of the Laws of 2008 (the “Legislation”). The New York Insurance Department (“Department”) has issued Circular Letter No. 26 (2008), dated November 18, 2008, to remind liability insurers writing property/casualty policies of the changes resulting from the new law, and also to clarify certain aspects of the Legislation. Click here to read the Circular Letter.
As reported here and here, new Legislation amending Insurance Law Sections 2601 and 3420 and Civil Procedure Law and Rules (“CPLR”) § 3001, was signed into law by New York Governor David Patterson on July 23, 2008. Among other things, the Legislation prohibits insurers from denying a claim under policies issued in New York after January 17, 2009 based on late notice unless the insurer can show that it was prejudiced by the untimely notice, and would also allow an underlying plaintiff to bring a declaratory judgment action directly against the tortfeasor’s insurer under limited circumstances.
First, the Circular Letter states that the Legislation applies to “all liability policies,” including renewals, issued or delivered in New York on or after the Legislation’s effective date, including those policies issued in the excess/surplus lines market. Although the Legislation employs arguably more restrictive language, stating that it applies to policies “insuring against liability for injury to person…or against liability for injury to, or destruction of, property,” N.Y. Ins. Law § 3420(a), the underlying definition of “personal injury liability insurance” under New York’s insurance law includes claims for economic injury as the result of negligence in rendering expert, fiduciary or professional service.
The Circular Letter clarifies that the Legislation extends to policies issued through the excess/surplus lines market. It therefore appears that the Legislation’s treatment of claims-made policies will apply to claims-made-and-reported policies which may only be issued in New York by unauthorized insurers through the excess/surplus lines market.
Accordingly, the Legislation provides that insurers may, at their option, include a provision in claims-made policies that “the claim shall be made during the policy period, and renewal thereof, or any extended reporting period….” N.Y. Ins. Law § 3420(a)(5). However, it appears that even claims-made policies are subject to the new requirement that the policy include a provision stating that failure to give timely notice will not invalidate a claim unless an insurer can demonstrate it was prejudiced by the late notice. That prejudice requirement applies to the notice condition that is included in claims-made policies, but not to the requirement of timely reporting that is part of the insuring agreement of claims-made policies.
The Circular Letter also provides that reference to “any renewal” of a claims-made policy “does not permit duplicate claims under multiple policy periods, or a late claim under a prior policy period…[n]or does the prejudice standard for late notice apply when notice is given under a claim-made policy after the expiration of: the policy period governing the time during which the event occurred; the renewal of such policy; and any extended reporting period under such policy.”
The Circular Letter further states that the amendments apply solely to liability policies, and do not govern first-party benefits under the no-fault endorsement of a motor vehicle insurance policy.
The Circular Letter also advises liability insurers to promptly revise their policy forms and summarizes the key provisions now required. Significantly, the Circular Letter summary provides that in adding new Insurance Law § 3420(a)(5), the Legislation established that a “claim may not be denied if: 1) it had not been reasonably possible to give notice within the prescribed time, and notice is given as soon as reasonably possible, even if the insurer has been prejudiced; or 2) the insurer has not been prejudiced, even if the claim was not made as soon as reasonably possible.”
For a detailed summary of the other requirements and amendments set forth in the Legislation, click here.
The Circular Letter concludes by urging insurers to file their revised policy forms as soon as possible due to the large volume of policy form filings expected as a result of the new Legislation, and notes that liability insurers need not send any conditional renewal notice to their insureds pursuant to Insurance Law § 3426 (e)(1)(B), as the Legislation does not reduce policy coverage.
Finally, the Circular Letter warns insurers not to prematurely issue or deliver policies with inception dates prior to the January 17, 2009 effective date of the Legislation, noting that insurers who attempt to circumvent the law in this manner may be found liable for an unfair or deceptive act in violation of Article 24 of the Insurance Law