In late June, as previously reported here, both houses of the New York state legislature passed a bill proposing to reverse New York's longstanding "no-prejudice rule," which provides that an insurer need not establish prejudice in order to disclaim coverage on late notice grounds. In addition to its "no-prejudice" language, the bill would also have allowed an injured party to file suit for declaratory judgment against an insurer without first obtaining judgment directly against the insured-tortfeasor which remained unsatisfied, as New York law otherwise requires. Although the bill was subsequently vetoed by Governor Elliot Spitzer on August 1, 2007, debate on these issues continues and further proposed legislation is possible in the next legislative session.

The Governor's Veto Memorandum invited further debate on the “actual impact” of the proposed legislation. With respect to the Bill’s late notice provision, the Governor noted that “[a]lthough there are some drafting issues with these provisions, particularly with respect to the burden of proof that must be met, if this bill merely permitted late notices of claim where there is no prejudice to the insurer, I would sign it.” As concerns the Bill’s declaratory judgment provision, Governor Spitzer acknowledged the strong objections expressed by many insurers and business groups. Because the Legislature did not have an opportunity to hear testimony or other evidence from interested parties, the Governor ordered his staff and the Superintendent of Insurance to work with the state legislators and other interested parties to further investigate the implications of the proposed Bill. Governor Spitzer concluded by stating that “hopefully we can enact a new bill that accomplishes these important goals in a manner that protects the interests of claimants, policyholders and insurers alike.” The full text of Governor Spitzer’s Veto Memorandum is available here.

The Governor's Veto Memorandum appears to invite a revised version of the Bill. Although a revised version of the Bill was not introduced in the current legislative session, there is the possibility that a revised Bill will be introduced in the next legislative session, which commences on January 3, 2008.

We will continue to monitor the legislative activity regarding this issue and will keep you apprised of any developments on InsureReinsure.com.