Relates to unfair claim settlement practices

Summary of provisions

This bill provides that an insurer doing business in this state shall be liable to a holder of property and casualty insurance policy for damages upon such policy holder proving that such insurer's refusal to payor unreasonable delay in payment to the policy holder of amounts claimed to be due there under was not substantially justified.

An insurer would not be substantially justified in refusing to payor in unreasonably delaying payment when:

1. Intentionally, recklessly or by gross negligence failed to provide the policy holder with accurate information concerning policy provision 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 lawsuit 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 attorneys fees.

Finally, there are procedural rules established to insure 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 provides a code of conduct for insurers in this state. Insurance Law Section 2601 now provides that no insurer in this state shall engage in five enumerated unfair claims settlement practices. Yet, only the Superintendent of Insurance can enforce these provisions against the company. The holders of property and casualty insurance policies who have incurred substantial costs in obtaining reimbursement under the policy terms have no remedy. Any doubt about this unfortunate state of the law was removed by the Court of Appeals in its 1994 decision in ROCANOVA 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". ROCANOVA V. EQUITABLE LIFE, 83 NY2d at 614-515. (emphasis added). 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., 99 AD2d 644 (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 Superintendent of Insurance regulates the industry within the constraints of available resources. Each citizen should be entitled to prove his or her claim in court when an insurer takes a position in settling a claim which is found not to have been substantially justified.

Legislative history

S.486A of 1997-98; S.545 of 1999-00; S.577 of 2001-02; S.1486A of 2003-04; S.51 of 2005-06; S.1269/A.10307 of 2007-08.

Fiscal implications

None.

Effective date

January 1st next succeeding the date on which it shall have become a law.