New York’s Proposed Late Notice Legislation

Oct 25, 2007

During a recent meeting of a New York Surplus Lines Law Group attended by this Firm, issues related to current developments in the surplus lines laws of various states were discussed, such as the most recent draft of the attached “Late Notice” legislation, which was passed in New York, but vetoed by the Governor.  The Suplus Lines Law Group is an informal gathering composed mostly of attorneys and surplus lines stamping office officials interested in New York surplus lines issues.

The following is a summary of this legislation issued by the Excess Lines Association of New York:

The Governor vetoed a bill earlier this year which was passed at the behest of the plaintiff’s bar.  The Governor’s veto message indicated support for the bill’s concepts but a desire to slightly narrow the bill.  Probability is strong for legislation to pass which may: 
1.    Require proof that an insurer would suffer prejudice in the investigation, litigation or settlement of a claim due to an insured’s late notice of a claim in order for the insurer to disclaim coverage [New York presently has a “no prejudice” rule],
2.    That an insured or claimant will have a limited right to sue the insurer for coverage before liability of the insured has been established in separate proceedings if coverage was denied for late notice.
Other provisions in the bill are cause for concern due to their intention to impact surplus lines.  However, these provisions are completely unrelated to the aforementioned late notice issue. 

The bill draft in Section 5, 6 and 8 amend Section 3420 to apply to policies “issued or delivered in this state.”  The New York State Insurance Department has repeatedly asserted that this refers to policies issued by excess line insurers, as well as admitted insurers.  This is noteworthy, since Section 3420 mandates minimum terms and conditions for liability insurance policies.
Section 6 of the draft bill would require excess line homeowner policies to include workers’ compensation coverage for household employees at standard New York benefits.  This is interesting because excess line brokers are not permitted to place workers’ compensation coverage currently.  The provision also appears to impose retroactivity.
New York Insurance Law Section 3103 gives cause for concern, inasmuch as it allows a judge to “reform” a policy containing provisions in violation of the insurance law.  This section also applies to policies “delivered or issued for delivery in this state.” Thus, the possibility exists that the New York State Department of Insurance would encourage the use of Section 3103 to reform excess line policies not conforming with Section 3420.
Finally, the draft bill defines claims-made policies and indicates a regulation will be promulgated.  Currently, excess line policies are exempt from the existing claims made regulation.
It is expected that this legislation, or substantially similar legislation, may pass very quickly.  Late notice and limited declaratory judgement rights appear to be a given since both houses passed the earlier bill vetoed by the Governor.

Should you have any questions or comments, please do not hesitate to contact this office.