New York Appellate Court Affirms Insured Has No Cause Of Action For Violations Of Insurance Law Pertaining To Claims Handling
January, 2012
The New York State Supreme Court, Appellate Division, Second Department recently upheld the bar on private causes of action for an insurance carrier's alleged violation of New York Insurance Law § 2601 and part 216 of the Insurance Regulations. Mallory v. Allstate, 2011 N.Y. Slip Op. 08912, 2011 WL 6091493 (2d Dep't 2011).
Section 2601 of the Insurance Law prohibits insurers doing business in New York from engaging in unfair claims settlement practices. Pursuant to Section 2601, the New York Superintendent of Insurance issued part 216 of the Insurance Regulations (11 NYCRR 216), which sets forth claim practice rules that insurers "must apply to the processing of all first- and third-party claims arising under policies subject to this Part." 11 NYCRR 216.0(a).
In Mallory, the Insured filed suit to recover the proceeds of a fire insurance policy. Allstate asserted several affirmative defenses based upon its policy exclusions. The Mallorys then moved to dismiss Allstate's defenses, arguing that Allstate had failed to timely respond to the Insured's claim, and should therefore be precluded from raising such exclusions as a result of its noncompliance with 11 NYCRR 216.6(c). Mallory, 2011 N.Y. Slip Op. 08912.
In particular, 11 NYCRR 216.6(c) provides:
Within 15 business days after receipt by the insurer of a properly executed proof of loss and/or receipt of all items, statements and forms which the insurer requested from the claimant, the claimant, or the claimant's authorized representative, shall be advised in writing of the acceptance or rejection of the claim by the insurer. When the insurer suspects that the claim involves arson, the foregoing 15 business days shall be read as 30 business days pursuant to section 2601 of the Insurance Law. If the insurer needs more time to determine whether the claim should be accepted or rejected, it shall so notify the claimant, or the claimant's authorized representative, within 15 business days after receipt of such proof of loss, or requested information. Such notification shall include the reasons additional time is needed for investigation. If the claim remains unsettled, unless the matter is in litigation or arbitration, the insurer shall, 90 days from the date of the initial letter setting forth the need for further time to investigate, and every 90 days thereafter, send to the claimant, or the claimant's authorized representative, a letter setting forth the reasons additional time is needed for investigation. If the claim is accepted, in whole or in part, the claimant, or the claimant's authorized representative, shall be advised in writing of the amount offered. In any case where the claim is rejected, the insurer shall notify the claimant, or the claimant's authorized representative, in writing, of any applicable policy provision limiting the claimant's right to sue the insurer.
Despite this apparent mandate, the trial court denied the Mallorys' motion on the grounds that they failed to demonstrate entitlement to the relief sought. Mallory, Index No. 18410/2010 (Sup Ct, Suffolk County, Dec. 13, 2010, Jones, J.). On appeal, the Second Department affirmed the lower court's ruling. Mallory, 2011 N.Y. Slip Op. 08912.
In its review of the trial court's decision, the Second Department declined to overrule its prior precedent in the case of De Marinis v. Tower Ins. Co. of N.Y., 6 A.D.3d 484 (2d Dep't 2004). Like Mallory, in De Marinis the insured homeowner experienced water damage and more than 60 days after the claim was filed, the insurer disclaimed coverage on the basis of an exclusion. De Marinis filed suit against its insurer and asserted that Tower was precluded from disclaiming coverage due to its violation of 11 NYCRR 216.6(c).
The trial court ruled in favor of De Marinis, but on appeal the Second Department reversed, noting that "[i]t is well settled that no private cause of action exists for a violation of Insurance Law § 2601 or for an alleged violation of part 216 of the Insurance Regulations." De Marinis, 6 A.D.3d at 486; Rocanova v. Equitable Life Assur. Socy. of U.S., 83 N.Y.2d 603, 614 (1994), citing Kapeleris v. Colonial Penn Ins. Co., 163 A.D.2d 918 (4th Dep't 1990); Bettan v. Geico Gen. Ins. Co., 296 A.D.2d 469 (2d Dep't 2002); Klinger v. Allstate Ins. Co., 268 A.D.2d 562 (2d Dep't 2000). Allegations that an insurance company engaged in unfair claims settlement practices under Insurance Law § 2601 may more properly be evaluated and redressed by the Superintendent of Insurance, who is charged by law with the regulation of the insurance industry, rather than private litigants. Kapeleris, 163 A.D.2d at 918.
Thus, the Mallory Court, like the courts which preceded it, confirmed that an insurer's technical failure to comply with 11 NYCRR 216.6(c) did not estop it from asserting its policy exclusions as a defense. Mallory, 2011 N.Y. Slip Op. 08912; see also, Schunk v. New York Cent. Mut. Fire Ins. Co., 237 A.D.2d 913 (4th Dep't 1997) and May v. Aetna Life & Cas. Co., 204 A.D.2d 1007 (4th Dep't 1994) (holding that an insurer's failure to comply with different requirements of 11 NYCRR 216.6(c) was insufficient to estop the insurer).
Learning Point
Although it is generally good practice to comport with the claims handling regulations set forth by a given State, not all regulations are enforceable under all circumstances. Carriers who are concerned about their potential exposure for violations of claims handling regulations should consult with an attorney.
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