When a claim relates to loss or injury in a geographic area where the governor has declared a disaster emergency, New York lawmakers are considering a bill that would establish a private right of action against an insurer for engaging in unfair insurance settlement practices. The bill, A. 5780, would also provide for punitive damages if there is a finding that the insurer willfully or knowingly violated Section 2601 of the New York Insurance Law. Section 2601 prohibits New York insurers from engaging in unfair claims settlement practices.
Under the bill, disaster victims could accuse insurers of misrepresenting policy provisions, unfairly delaying decisions on claims, or offering substantially less than what policyholders ultimately recover through litigation. The proposed law leaves untouched the New York insurance regulator's power to impose fines for unfair claims settlement practices.
Supporters of the bill argue that, in the wake of Superstorm Sandy, there remains evidence that some insurers have taken advantage of insureds regarding the adjustment of losses sustained in disaster emergencies. The bill states that a private right of action is necessary “to make certain that insurers are held responsible for unfair claims practices.” Opponents of the proposed legislation, however, warn that it may influence insureds to file more individual and class action lawsuits against insurance companies. This ultimately could lead to higher rates for customers, and the potential to increase insurers’ legal bills. In addition, the legislation could also encourage insureds to retain attorneys to pursue these claims. Under the current regulations, an insured can pursue mediation, which does not require legal representation.
The bill remains pending in the New York State Assembly.