Establishes a civil private cause of action by a policyholder who has suffered unfair claim settlement practices by an insurer

Summary of provisions

This bill grants insurance policy holders a private right of action to seek damages if their insurer unreasonably refuses to pay or unreasonably delays payment without Substantial justification.

An insurer would not be substantially justified in refusing to pay or in unreasonably delaying payment when they:

1. Fail to provide the policy holder with accurate information concerning policy provision relating to the coverage et issue; or

2. Fail 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. Fail 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. Fail 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. Fail 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.

6. Fail to advise a policy holder chat a claim may exceed policy limits, that assigned counsel may be subject to a conflict of interest, or that the policy holder may retain independent counsel;

7. Fail to provide, no request of the policy holder, reporters or other documentation arising from the investigation of a claim;

8. Failing to pay a claim without conducting a reasonable investigation;

9. Negotiating or settling a claim directly with a policy holder known to be represented by an attorney without the attorneys knowledge;

10. Failed to pay on one or more elements of a claim where there is no dispute as to liability notwithstanding the existence of disputes as to other elements of the claim where payment can be made without prejudice to either party;

11. Acted in violation of Sec. 2601 of the Insurance law.

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 equal to three times the actual damages, reasonable attorney fees, and punitive damages where violations of this section are part of a general business practice.

The bill also includes procedural rules 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.

Finally, in the event an insurer is found liable under this section, the bill would prevent insurers from passing on the costs to consumers in the form of higher premiums.

Justification

Insurance companies have an overwhelming advantage in the handling of a claim, with the power and financial incentive to deny or delay coverage and otherwise avoid fair payment of legitimate claims. Under current law, there is no consequence to the insurer when a denial or delay of coverage is unfounded, or when the insurer offers an unreasonably low settlement. The importance of this issue is becoming apparent as an increasing number of the tens of thousands of New Yorkers making claims in the aftermath of Hurricane Sandy are experiencing unfair claims practices.

Currently Section 2601 of the insurance law regulates the conduct of insurers, prohibiting 5 specific actions that constitute unfair claims practices. However, only the Superintendent of the Department of Financial Services can enforce these provisions. Furthermore, Sec. 2601 does not go far enough in regulating the types of unfair claims practices we have seen across the state in the wake of recent natural disasters.

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 withimpunity. Even if the policy holder sues and wins the full amount of the claim, they will still not receive the benefits they paid for under their policy because of the costs associated with bringing the successful action. This gives insurers an unfair advantage in negotiating a settlement of any claim - insurers are able to bear the costs of litigation, but most ordinary New Yorkers cannot afford to do so.

New Yorkers who pay insurance premiums should expect insurers to live up to their obligation to deal in good faith with their policy holders. When insurers do not meet this obligation it is important that the consumer has a viable and effective means of seeking redress. This bill gives them the legal means to achieve this goal.

Legislative history

None.

Fiscal implications

None.

Effective date

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