New York Legislature Passes Bill Mandating That Insurers Demonstrate Prejudice To Rely On Late Notice Defense, Effectively Abrogating Common Law "No Prejudice" Late Notice Rule
July, 2008
On June 23, 2008, a bill was passed by both houses of New York’s Legislature containing proposed changes to New York’s civil law and practice rules and insurance law relating to disclaimers based on an insured’s alleged failure to provide timely notice. Specifically, under the terms of Bill S8610: (1) insurers are prohibited from denying coverage on the basis of late notice unless the failure to provide timely notice has prejudiced the insurer; and (2) if a carrier has disclaimed coverage based on late notice with respect to a claim involving bodily injury or death, the claimant may sue the carrier directly, and prior to obtaining a judgment against the carrier’s insured, on the “sole question” of the carrier’s denial of coverage based on late notice. The bill was signed into law by Governor Paterson on July 23, 2008.
The legislation is directed at the State’s current common law rule that carriers may disclaim coverage on the basis of an insured’s failure to provide timely notice of an occurrence, claim or suit without demonstrating prejudice. New York’s courts have long held that an insured’s compliance with the notice provisions of an insurance policy operates as a condition precedent to coverage and that a carrier need not show prejudice to rely on the defense of late notice. See, e.g., Security Mut. Ins. Co. v. Acker-Fitzsimmons Corp., 31 N.Y.2d 436, 340 N.Y.S.2d 902 (1972); Great Canal Realty Corp. v. Seneca Ins. Co., Inc., 5 N.Y.3d 742, 800 N.Y.S.2d 521 (2005).
Bill S8610 amends subsection (a) of Insurance Law § 3420 to add a requirement that policies contain “[a] provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer”. The bill amends subsection (b) of Insurance Law § 3420 to add the following prejudice standard, similar to the prejudice standard employed by most states: “[t]he insurer’s rights shall not be deemed prejudiced unless the failure to timely provide notice materially impairs the ability of the insurer to investigate or defend the claim”.
Other significant features of the bill include: (1) a provision that if notice is given within two years of the time required by the policy, the burden of proving prejudice rests on the insurer, however, if notice is provided more than two years after the time required by the policy, there is a presumption of prejudice and the insured bears the burden of proving no prejudice to the insurer; (2) a provision that there is an irrebuttable presumption of prejudice to the carrier if, prior to notice, the insured’s liability has already been determined by a court or arbitration, or if the insured has settled the settled the claim or suit; and (3) a provision allowing prejudgment declaratory judgment actions by claimants directly against carriers (in cases involving wrongful death and personal injury) on the sole question of late notice and only if the insurer or insured fails to commence a declaratory judgment action within 60 days of the disclaimer.
Also, the bill amends subsection (d) of Insurance Law § 3420 to provide claimants the right (in cases involving wrongful death and personal injury) to seek information from a carrier concerning the existence of policies and policy limits. The provision states:
Upon an insurer’s receipt of a written request by an injured person who has filed a claim or by another claimant, an insurer shall, within sixty days of receipt of the written request: (i) confirm to the injured person or other claimant in writing whether the insured had a liability insurance policy of the type specified in subparagraph (A) of this paragraph in effect with the insurer on the date of the alleged occurrence; and (ii) specify the liability insurance limits of the coverage provided under the policy.
If the claimant has not provided sufficient information for the carrier to identify the relevant policy, the carrier may request more information within 45 days of the claimant’s request, and upon receipt of the further information, the carrier must respond within 45 days.
Notably, the bill states that it will take effect on the 180th day after it becomes law (on or about January 19, 2009), and that it will apply to policies “issued or delivered in this state on or after such date and to any action maintained under such a policy”, provided however, that “effective immediately, the addition, amendment and/or repeal of any rule or regulation necessary for the implementation of this act on its effective date are authorized and directed to be made and completed by the superintendent of insurance on or before such effective date”. It remains to be seen what “immediate” changes, if any, the Superintendent of Insurance makes in concert with the implementation of the bill now that it has been signed into law.
Learning Point
New York’s “no prejudice” rule, by which a carrier may disclaim coverage based on the insured’s failure to provide timely notice without prejudice to the carrier, will no longer apply to policies issued 180 days after Bill S8610 was passed, or on January 19, 2009.
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