"No Prejudice" No More: New York and the Death of the No-Prejudice Rule

By Eric Tausend
Hastings Law Journal, Volume 61, Issue 2

I've posted several times about New York's legislative about-face on its "no prejudice rule" for late notice liability coverage disclaimers that took effect in January 2009.  Most of those posts can be found under this blawg's Direct DJ/Late Notice Bill label, and my April 8, 2009, 35-minute webinar on the new law is available for downloading free of charge here.

It may be some time later this year or early next that we'll begin seeing reported New York cases on the new law and its new issues, including the question of when an insured's or claimant's delay in providing required notice can be said to have "materially impair[ed] the ability of the insurer to investigate or defend the claim."  For now, the "old law" late notice cases are running off. 

Last week I received a complimentary copy of Volume 61, Issue 2 of the Hastings Law Journal from third-year law student, Eric Tausend, who finds insurance law fascinating (pleased to see that there are such law students out there) and wrote that issue's excellent Note entitled, "'No-Prejudice' No More:  New York and the Death of the No-Prejudice Rule".  Eric sent me a copy of his Note in appreciation of the information and research materials he was able to cull from this blawg.  Footnotes 121, 131 and 207 mark the  first time, to my knowledge, that Coverage Counsel has been cited in a law review.

Eric's conclusion:

Chapter 388 represents a monumental change for the State of New York. For far too long the state applied a rigid no-prejudice rule when notice to insurers was untimely.  The results of this application were anything but fair. The change in the law is welcome and long overdue; however, it is not without its own issues and shortcomings.

There are likely to be a number of highly litigated provisions in chapter 388. New York courts will have many difficult questions to answer. Beyond that, with regard to certain aspects of the law, the New York Legislature might even need to enact additional legislation to remedy the gaps and problems that were created by chapter 388. But the real importance of this legislation will likely be beyond the borders of New York. As the champion for and advocate of the no-prejudice rule, New York led a minority of jurisdictions in its application. However, without the leadership and support of New York, it is likely that the remaining jurisdictions that apply the no-prejudice rule will soon stop doing so. It will likely take time but, as New York insurance law goes, so goes the country.

Since the no-prejudice rule under pre-2009 policies is in hospice and awaiting death, I won't debate Eric on whether that rule was fair or unfair, instead merely noting that our highest state court, the New York Court of Appeals, had had plenty of opportunities to change or abandon that rule since first pronouncing 38 years ago in Sec. Mut. Ins. Co. of N.Y. v. Acker-Fitzsimons Corp., 31 NY2d 436 (1972) that "the insurer need not show prejudice before it can assert the defense of noncompliance."  I do agree with Eric, however, that a number of Chapter 388's less than pellucidly clear operative provisions will be litigated extensively in the New York courts.

Thanks for your scholarly and insightful contribution to this subject area, Eric.