Relates to unfair claim settlement practices

1. Intentionally, recklessly or by gross negligence failed to provide the policy holder with accurate information concerning policy provisions relating to coverage at issue; or

2. Failed to effectuate, in good faith, a prompt, fair and equitable settlement of a claim submitted by such policy holder in which liability of such insurer to such policy holder was reasonably clear; or

3. Failed to provide a written denial of a policy holder's claim with a full and complete explanation of such denial, including references to specific policy provisions wherever possible; or

4. Failed to make a final determination and notify the policy holder in writing of its position on both the liability for, and the insurer's valuation of, a claim within six months of the date on which it received actual or constructive notice of the loss upon which the claim is based; or

5. Failed to act in good faith by compelling the policy holder to initiate a law suit to recover under the policy by offering substantially less than the amounts ultimately recovered in the suit by the policy holder.

Any policy holder who establishes liability shall be entitled to recover, in addition to amounts due under the policy, interest, costs, and disbursements, compensatory damages and reasonable attorney's fees. There is also a provision for punitive damages if the insurer's unjustified position was the result of intentional, reckless, grossly negligent conduct or an express or implied company procedure for processing claims.

The bill would establish procedural rules to ensure that the insurer receives a fair trial on the issue of liability under the terms of the policy before the issue of substantial justification is considered.

Justification

Existing law forbids insurers from engaging in unfair practices in the settlement of insurance claims. Current Section 2601 of the Insurance Law defines "unfair claims settlement practices" but provides only for proceedings maintainable by the Superintendent of Insurance, as a remedy against violations of the law. In order to succeed in such proceedings the Superintendent must prove that an insurer engaged in the acts prescribed by the statute "with such frequency as to indicate a general business practice." Thus, an individual has no remedy against an insurer's unfair practices and unwarranted delay tactics in settling claims, which can cause extreme financial and sometimes emotional or physical hardship to an individual and his or her family. Any doubt about this unfortunate state of the law was removed by the Court of Appeals in its 1984 decision in ROCANOV A V. EQUITABLE LIFE, 83 NY2nd 603 (1984). "The law of this State does not currently recognize a private cause of action under Insurance Law 2601... To the extent that a variety of appellate division decisions hold otherwise, they are not to be followed." ROCANOV A V. EQUITABLE LIFE, 83 NY2nd at 614-515.

Citizens of this state who pay insurance premiums should expect insurers to live up to their policy obligations. Under existing statutes and case law, an insurer can simply refuse to pay a claim or offer an amount well below the value of the loss with impunity. SEE E.G. LTS CONTRACTORS V. HARTFORD INS., 99AD2d 622 (4th Dept. 1984) no remedy for unreasonable delay in payment; UNILAND DEV. V. HOME INS., 97 AD2D 973 (4th Dept. 1983) no remedy for intentional refusal to pay. Even if the policy holder sues and wins the full amount of the claim, he or she loses because of the costs and counsel fees associated with bringing the successful action. This fact gives insurers a terribly unfair advantage in negotiating a settlement of any claim because of the ability of the insurers to financially bear the burden of litigation which the ordinary citizen cannot afford to do.

The proposed legislation would rectify the inadequacy in the current law, which does not provide redress for the individual who has actually suffered from wrongful insurer conduct. The private right of action enables the injured policy holder to sue an insurer directly and recover the actual damages flowing from such conduct. The bill also eliminates the "general business practice" requirement in a private right of action, since such settlement is wholly irrelevant in an action seeking relief from harm suffered by an individual and is unduly burdensome to an individual plaintiff.

The bill also empowers the court to award attorney's fees in a private right of action to a prevailing plaintiff in an appropriate case. This provision would enable the claimant with a relatively small but meritorious claim to effectively enforce his or her rights.

The bill also addresses the situation where an insurer's claims practices involve particularly outrageous and unacceptable conduct. By authorizing an award of punitive damages in these limited situations, the statute provides a legal mechanism for deterring such conduct. This legislation is consistent with the statutes of many other states which provide deterrent remedies such as punitive damages for exceptionally aggravated wrongful conduct.

To prevent the insurers from increasing their premiums to make up for losses in damages suits, the legislation prohibits insurers from including such losses in determining future rates.

Legislative history

2007 - S2407 Referred to Insurance 2008 - S2407 Referred to Insurance

Fiscal implications

The state may realize some revenue by securing a percentage from the punitive damages award.

Effective date

This act shall take effect immediately.