July 27, 2007 - Insurance Coverage Update - July 2007
NEW YORK LEGISLATURE SET TO AMEND 'LATE NOTICE' RULE TO REQUIRE INSURER PREJUDICE
The New York Legislature recently sent a bill to the Governor that will reverse years of case law by imposing what is sometimes referred to as the "notice prejudice" rule. This rule states that an insured's failure to provide timely notice of a claim or suit will not relieve the carrier of a duty to provide coverage where the insurer has not suffered prejudice as a result of the timing of the notice.
The bill in question is S6306 (A8363-A) and was sent to the Governor's office on July 20, 2007. It amends the Insurance Law to add Section 3451, entitled "Notice of a Claim for Insurance Coverage." Section 3451 provides that an insurer shall not deny coverage based upon an insured's failure to give timely notice of a claim unless the insurer can demonstrate that it has suffered "material prejudice" as a result of the delayed notice. This suggests that the insurer will have the burden of proving it was prejudiced.
The legislation further provides that evidence that the insurer had knowledge of the accident that is the subject of the claim (including communications from claimants or health care providers) will create a rebuttable presumption that the insurer was not prejudiced by delayed notice from the insured. Notice to any licensed agent of the insurer in New York with particulars sufficient to identify the insured will be deemed notice to the insurer.
Finally, the bill explains that the provisions of the section are to be liberally construed to effectuate the purpose of the legislation, which is "to mitigate against the potential for procedural denial of insurance coverage resulting in unreasonable loss of insurance protection for claimants."
The changes apply only to policies that were executed, issued, reissued or renewed on or after the effective date of the law. The bill also amends Section 3001 of the CPLR to allow a party who has interposed a claim against another party to bring a declaratory judgment action for a determination of the existence or extent of coverage owed by an insurer to the party against whom the original claim is interposed. This means that personal injury plaintiffs will be able to bring declaratory judgment actions against defendants' insurance carriers to determine coverage for the defendants.
If Governor Spitzer signs the bill into law it will constitute a major change in New York insurance law. We will continue to track the progress of this bill.