Permits an insurer to rescind or retroactively cancel a policy in circumstance involving an accident staged to defraud an insurer

Summary of specific provisions

Section 1- Adds a new section 3455 to the insurance law that: provides insurance companies the ability, within the first 30 days, to rescind a policy to its inception due to nonexistence of a bank account, or the unauthorized use of the account.

Subsection B provides that a person injured during this period may have recourse to his or her own policy or the motor vehicle accident indemnification corporation, provided they were not participating in any fraudulent activity.

Section 2-Amends Subsection (d) of section 3420 of the insurance law to provides insurers the ability to rescind coverage pursuant to section 3455 for death or bodily injury arising from an uninsured motorist endorsement by any occupant of a motor vehicle involved in a staged accident who is without knowledge of the staging or arranging of the staged or arranged accident.

Section 3-Paragraph 1 of subsection (f) of Section 3420 of the insurance law, as amended by chapter 305 of the laws of 1995, is amended to add rescinded policies to the list of scenarios that a driver would be insured against in the event of bodily injury or death.

Section 4-Subparagraph A subsection (f) of section 3420 of the insurance law is amended to deal with supplementary uninsured/underinsured coverage.

Section 5-Section 5103 of the insurance law is amended to address individuals who are involved in a staged accident who is without knowledge of the staging or arranging of the staged or arranged accident.

Section 6-subsection (2) of section 5103 of the insurance law is amended to account for vehicles whose coverage has been rescinded or cancelled.

Section 7-Paragraph (a) of subdivision 1 of section 313 of the vehicle and traffic law is amended to exempt section 3455 of the insurance law from the 20 day mailing notice to cancel an insurance policy.

Section 8-sets forth in the Motor Vehicle Insurance Indemnification Law coverage for innocent victims of staged accidents.

Justification

Automobile no-fault states have higher average premiums than tort states. One of the reasons for this is that fraud tends to be more prevalent in no-fault systems, as the rules under which they are implemented make it relatively easy for bad actors to submit fraudulent claims. Additionally, an accident can create a multiplicity of lawsuits, since providers and collection attorneys may initiate a lawsuit for each and every bill. New York's generous no-fault benefits, with minimal oversight, provide huge incentives for unbundling of services and supplies.

Staged accidents are one type of fraudulent claim that is becoming more and more prevalent in New York. Staged accidents begin with bad actors procuring an automobile insurance policy with the intent of submitting a fraudulent claim. In many cases, they procure a policy by submitting a bad payment (either using a nonexistent bank account or stolen credit card information). Most states allow the retroactive cancellation of a policy in the case of a reversed payment to prevent this type of activity. New York, however, does not permit retroactive cancellations; rather cancellations are currently only prospective in nature. That turns into a gold mine where no-fault is involved. The time between the policy is "purchased" to the time it is cancelled provides ample opportunity for no-fault fraud.

This bill allows for retroactive cancellation in New York of newly issued automobile insurance policies to prevent this type of fraud. This would bring New York in line with the other large no-fault states. In fact, only seven other states (AZ, CO, KS, ME, MD, NC and SD) do not allow for retroactive cancellation. Innocent victims of uninsured drivers (i.e. mandatory uninsured motorist coverage), would be covered under their own policy or the Motor Vehicle Accident Indemnification Corporation.

The proposal would allow retroactive cancellation of the automobile policy, in the first thirty days, where the payment is made with insufficient funds or the identity used to procure the policy turns out to be fraudulent. The automobile insurer would be allowed to cancel a policy retroactively in these cases.

By permitting retroactive cancellations, New York would join the great majority of other states, and would remove many of the incentives for staged accidents.

Fiscal implications

None.

Effective date

Two hundred seventy days after it shall have become a law