STATUS UPDATE (Part II) -- Late Notice/Material Prejudice Bill in New York State

Since posting earlier today, I've acquired and learned (not necessarily the same) some more information.

The Legislative Bill Drafting Commission (LBDC) issued its latest version of the draft DJ/late notice bill on May 7, 2007 and it's viewable here. This version would:

>>> Add language to CPLR § 3001 permitting "a party who has brought a claim for personal injury or wrongful death against another party may maintain a declaratory judgment action directly against the insurer of such other party".

>>> Add to paragraph 4 of Insurance Law § 3420(a) "an injured person" to "the insured" and "any other claimant" as parties whose failure to provide notice as required by a policy would not invalidate their claim "if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as was reasonably possible thereafter".

>>> Add a new paragraph 5 to Insurance Law § 3420(a) mandating that BI and PD liability policies issued or delivered in New York State 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, except as provided in paragraph four of this subsection.

>>> Add a new paragraph 6 to Insurance Law § 3420(a) mandating that BI and PD liability policies issued or delivered in New York State contain:

A provision that, with respect to a claim arising out of death or personal injury of any person, if the insurer disclaims liability or denies coverage based upon the failure to provide timely notice, then the injured person or other claimant may maintain an action directly against such insurer, in which the sole question is the insurer's disclaimer or denial based on the failure to provide timely notice, unless within sixty days following such disclaimer or denial, the insured or the insurer: (A) initiates an action to declare the rights of the parties under the insurance policy; and (B) names the injured person or other claimant as a party to the action.

>>> Add a new paragraph 2 to Insurance Law § 3420(c) providing that:

(2)(A) In any action in which an insurer alleges that it was prejudiced as a result of a failure to provide timely notice, the burden of proof shall be on: (i) the insurer to prove that it has been prejudiced, if the notice was provided within two years of the time required under the policy; or (ii) the insured, injured person or other claimant to prove that the insurer has not been prejudiced, if the notice was provided more than two years after the time required under the policy.

(B) Notwithstanding subparagraph (A) of this paragraph, an irrebuttable presumption of prejudice shall apply if, prior to notice, the insured's liability has been determined by a court of competent jurisdiction or by binding arbitration; or if the insured has resolved the claim or suit by settlement or other compromise.

(C) The 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.

>>> Add a new paragraph (1) to Insurance Law § 3420(d) that, as respects applicable policies, would provide that:

(B) 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.

(C) If the injured person or other claimant fails to provide sufficient identifying information to allow the insurer, in the exercise of reasonable diligence, to identify a liability insurance policy that may be relevant to the claim, the insurer shall within forty-five days of receipt of the written request, so advise the injured person or other claimant in writing and identify for the injured person or other claimant the additional information needed. Within forty-five days of receipt of the additional information, the insurer shall provide the information required under subparagraph (B) of this paragraph.

As you can see, except for the fact that it is limited only to parties who have brought personal injury or death claims, the direct DJ component of this draft bill is similar to S6306 from last year.

"Material prejudice" for S6306, however, has become just plain ol' "prejudice" in this draft bill, defined as that which "materially impairs the ability of the insurer to investigate or defend the claim."

Worth noting is the new section regarding burdens of proving or disproving prejudice: on the insurer to prove if the notice was less than two years late; or on the insured, injured person or other claimant to disprove if the notice was more than two years late.

There would also be a new requirement and procedure for disclosing, upon request, the existence and limits of qualifiying liability insurance policies.

It is my understanding that this draft bill is being reviewed for comments by insurance industry groups as you're reading this. If you have any comments about the draft bill that may be useful to the LBDC, post them here and I'll forward to those who should be able to relay them to the Commission.

June 24, 2008 -- The Governor's Program Bill #65 passed yesterday. See my Status Update (Part IV) post and related posts for details.