Relates to claim settlement practices when an insurer refuses to pay or is delaying payment of a settlement; provides a policyholder a private right of action against such insurer doing business in the state who has refused or delayed payment of an insurance claim.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A7285A
SPONSOR: Weinstein TITLE OF BILL:
An act to amend the insurance law, in relation to unfair claim settle-
ment practices
PURPOSE OF BILL:
To allow insurance policy holders and injured people to recover damages
when an insurance company's refusal to pay or unreasonable delay in
paying a claim was not substantially justified.
SUMMARY OF PROVISIONS OF BILL:
Section 1 creates a new Insurance Law section 2601-a which grants insur-
ance policy claimants a private right of action to seek damages if the
insurer unreasonably refuses to pay or unreasonably delays payment with-
out substantial justification. An insurer would not be substantially
justified in refusing to pay or in unreasonably delaying payment when
it:
1. Fails to provide the claimant with accurate information regarding
policy provisions relating to the coverage at issue; or,
2. Fails to effectuate in good faith a prompt, fair and equitable
settlement of a claim or portion of a claim and where the insurer failed
to reasonably accord at least equal or more favorable consideration to
its insured's interests as it did to its own interests, and thereby
exposed the insured to a judgment in excess of the policy limits or
caused other damage to a claimant; or
3. Fails to provide a timely written denial of a claimant's claim, or
portion thereof, with a full and complete explanation of such denial,
including references to specific policy provisions wherever possible; or
4. Fails to act in good faith by compelling such claimant to initiate a
lawsuit to recover under the policy by offering substantially less than
the amounts ultimately recovered in such suit; or
5. Fails to timely provide, on request of the policy holder or the poli-
cy holder's representative, all reports or other documentation arising
from the investigation of a claim; or
6. Refuses to pay a claim without conducting a reasonable investigation
prior to such refusal.
Any policyholder who establishes liability shall be entitled to recover
amounts due under the policy, costs and disbursements, consequential
damages, reasonable attorney's fees, interest from the time of the loss
or failure to offer a fair and reasonable settlement and punitive
damages.
The bill also includes procedural rules to ensure a fair hearing for all
parties, including evidentiary issues, notice to the insurer, opportu-
nity to cure, discovery and the right to trial.
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.
Section 2 amends Insurance Law section 3425 to prohibit insurers from
refusing to issue or renew a policy because a consumer has brought an
action under section 1.
Section 3 amends Insurance Law section 2601 to update fair claims
settlement practices.
Section 4 is the effective date.
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 became increasingly apparent in
the aftermath of Superstorm Sandy, when tens of thousands of New Yorkers
making claims to insurers experienced unfair claims practices. More
recently, COVID-19 claims denials have left many victims without even a
settlement offer in the absence of the threat of a trial and many small
businesses in danger of shuttering after insurers refused to pay for
losses due to mandated closures.
Currently § 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, § 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 with impunity or offer an amount well below the value of the
loss. Even if the claimant sues and wins the full amount of the claim,
they will still not receive the benefits to which they should be enti-
tled under the policy because of the costs associated with bringing the
successful action. This gives insurers an unfair advantage in negotiat-
ing a settlement of any claim - insurers are able to bear the costs of
litigation, but most ordinary New Yorkers cannot afford to do so. In
addition, an insurer's bad faith conduct may leave a policy holder
exposed to a liability judgment in excess of the policy limit.
New Yorkers who pay insurance premiums should expect insurers to live up
to their obligation to deal in good faith with regard to claims submit-
ted under the policy. 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 consumers the legal means to achieve this goal.
LEGISLATIVE HISTORY:
2021: A.7285/S.6813 - A.Rules/S. Ins.
2019-20: A.5623 - Third Reading
2017-18: A.2832-A - A. Ins.
2015-16: A.257-A - Third Reading
2013-14: A.7809 - Third Reading
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
None.
EFFECTIVE DATE:
January 1st next succeeding the date on which it shall have become a
law.
STATE OF NEW YORK
________________________________________________________________________
7285--A
2021-2022 Regular Sessions
IN ASSEMBLY
May 3, 2021
___________
Introduced by M. of A. WEINSTEIN, CUSICK, CYMBROWITZ, HYNDMAN, PAULIN,
COLTON, ABINANTI, SEAWRIGHT, SANTABARBARA, ZEBROWSKI, TAYLOR, CARROLL,
DINOWITZ, WEPRIN, JACOBSON, GOTTFRIED, SIMON, GRIFFIN, SOLAGES, ZINER-
MAN, GONZALEZ-ROJAS, DICKENS, ANDERSON, LUNSFORD, GLICK -- Multi-Spon-
sored by -- M. of A. WILLIAMS -- read once and referred to the Commit-
tee on Insurance -- reported and referred to the Committee on Codes --
recommitted to the Committee on Codes in accordance with Assembly Rule
3, sec. 2 -- committee discharged, bill amended, ordered reprinted as
amended and recommitted to said committee
AN ACT to amend the insurance law, in relation to unfair claim settle-
ment practices
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The insurance law is amended by adding a new section 2601-a
2 to read as follows:
3 § 2601-a. Unfair claim settlement practices; civil remedy. (a) The
4 holder of a policy issued or renewed pursuant to article thirty-four of
5 this chapter or injured person shall have a private right of action
6 against any insurer doing business in this state for damages as provided
7 in this section upon proof by a preponderance of the evidence that such
8 insurer's refusal to pay or unreasonably delay payment to the policy-
9 holder or injured person of amounts claimed to be due under a policy is
10 not reasonably justified. An insurer is not reasonably justified in
11 refusing to pay or is unreasonably delaying payment when the insurer:
12 (1) fails to provide the policyholder with accurate information
13 concerning policy provisions relating to the coverage at issue;
14 (2) fails to effectuate a prompt and fair settlement of a claim or any
15 portion thereof, in that the insurer (i) fails to reasonably accord at
16 least equal or more favorable consideration to its insured's interests
17 as it did to its own interests, and thereby exposes the insured to a
18 judgment in excess of the policy limits, or (ii) refuses to settle in
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD11091-04-2
A. 7285--A 2
1 response to a fair and reasonable settlement offer within the policy
2 limits from an injured party;
3 (3) fails to provide a timely written denial of a policyholder's claim
4 with a full and complete explanation of such denial, including refer-
5 ences to specific policy provisions wherever possible;
6 (4) fails to make a final determination and notify the policyholder in
7 writing of its position on both liability for and the insurer's valu-
8 ation of a claim within a reasonable time not to exceed six months of
9 the date on which it received actual or constructive notice of the loss
10 upon which the claim is based;
11 (5) fails to act in good faith by compelling a policyholder to insti-
12 tute suit or compel appraisal to recover amounts due under its policy by
13 offering substantially less than the amounts ultimately recovered in
14 suit or by appraisal;
15 (6) fails to advise a policyholder that a claim may exceed policy
16 limits, that counsel assigned by the insurer may be subject to a
17 conflict of interest, or that the policyholder may retain independent
18 counsel;
19 (7) fails to provide, on request of the policyholder or their repre-
20 sentative, all reports, letters or other documentation arising from the
21 investigation of a claim and evaluating liability for or valuation of
22 such claim;
23 (8) refuses to pay a claim without conducting a reasonable investi-
24 gation;
25 (9) negotiates or settles a claim directly with a policyholder known
26 to be represented by an attorney without the attorney's knowledge or
27 consent. The provisions of this paragraph shall not be deemed to prohib-
28 it routine inquiries to a policyholder to obtain details concerning the
29 claim;
30 (10) negotiates or settles a claim directly with a policyholder known
31 to be represented by a licensed public adjuster;
32 (11) negotiates or settles a claim directly with a contractor or unli-
33 censed public adjuster;
34 (12) requires a policyholder to submit duplicative or repetitive
35 information already submitted by a policyholder or an injured party; or
36 (13) acts in violation of section two thousand six hundred one of this
37 article or any regulation promulgated pursuant thereto.
38 (b) Any policyholder who establishes liability pursuant to subsection
39 (a) of this section shall be entitled to recover, in addition to amounts
40 due under the policy, costs and disbursements, consequential damages,
41 reasonable attorneys' fees incurred by the policyholder, interest from
42 the date of the loss, and punitive damages as determined by the finder
43 of fact.
44 (c) Any policyholder may recover damages from an insurer doing busi-
45 ness in this state pursuant to this section either as part of an action
46 to recover under the terms of an insurance policy or in a separate
47 action.
48 (d) In any trial of a cause of action asserted against an insurer
49 pursuant to this section, evidence of settlement discussions written and
50 verbal offers to compromise and other evidence relating to the claims
51 process shall be admissible. If causes of action relating to liability
52 of the insurer under the policy and under this section are alleged in
53 the same action, the court may bifurcate the trial of issues so as to
54 avoid prejudice to the insurer on the issue of liability under the poli-
55 cy and facilitate admissibility of evidence on the causes of action
56 asserted pursuant to this section.
A. 7285--A 3
1 (e) All amounts recovered from an insurer as damages and reasonable
2 attorneys' fees in any action authorized in this section shall be
3 excluded by the insurer in its determinations of the premiums it will
4 charge all policyholders on all policies issued by it.
5 (f) An action may also be maintained by any injured person or repre-
6 sentative thereof including, but not limited to, a guardian, administra-
7 tor, executor, individual with a power of attorney or any other personal
8 representative against an insurer to recover damages including costs and
9 disbursements, consequential damages, reasonable attorney's fees, inter-
10 est from the time of failure to offer a fair and reasonable settlement
11 in accordance with this section, and punitive damages as determined by
12 the finder of fact or court, not limited to the policy limits, where a
13 preponderance of the evidence establishes that the insurer fails to
14 effectuate a prompt and fair settlement of a claim or any portion there-
15 of, in that under the totality of the facts and circumstances related to
16 the claim, the insurer fails to reasonably accord at least equal or more
17 favorable consideration to its insured's interests as it did to its own
18 interests.
19 (g) At least thirty days prior to the filing of any action pursuant to
20 this section, a written demand for relief, identifying the claimant and
21 reasonably describing the unfair claim settlement act or practice and
22 the injury suffered, shall be mailed or delivered to any insurer doing
23 business in this state. Any insurer doing business in this state receiv-
24 ing such a demand for relief who, within thirty days of the mailing or
25 delivery of the demand for relief, makes a written tender of settlement
26 which is rejected by the claimant may, in any subsequent action, file
27 the written tender and an affidavit concerning its rejection and thereby
28 limit any recovery to the relief tendered if the finder of fact finds
29 that the relief tendered was reasonable in relation to the injury actu-
30 ally suffered by the claimant. In all other cases, if the finder of fact
31 finds for the claimant, recovery shall be in the amount of actual
32 damages; or up to three but not less than two times such amount if the
33 finder of fact finds that the unfair claim settlement act or practice
34 was a willful or knowing violation of subsection (a) or (f) of this
35 section or that the refusal to grant relief upon demand was not reason-
36 ably justified with knowledge or reason to know that the act or practice
37 complained of violated subsection (a) or (f) of this section. For the
38 purposes of this chapter, the amount of actual damages to be multiplied
39 by the finder of fact shall be the amount of the damages as determined
40 by the finder of fact on all claims arising out of the same and underly-
41 ing transaction or occurrence, regardless of the existence or nonexist-
42 ence of insurance coverage available in payment of the claim. In addi-
43 tion, the court shall award such other equitable relief, including an
44 injunction, as it deems to be necessary and proper. The demand require-
45 ments of this subsection shall not apply if the claim is asserted by way
46 of counterclaim or cross-claim.
47 (h) The rights enumerated in this section are not the exclusive reme-
48 dies available to the policyholder or injured person or representative
49 thereof including, but not limited to, a guardian, administrator, execu-
50 tor, individual with power of attorney or any other personal represen-
51 tative and do not preclude any common law claims or other statutory
52 claims that may exist or arise.
53 (i) Upon demand of a claimant policyholder or injured person pursuant
54 to this section, an insurer shall make available to the claimant or
55 injured person the entire claim file within thirty days.
A. 7285--A 4
1 (j) A policyholder or injured person shall have the right to a trial
2 by jury. No mandatory arbitration agreement within or part of any writ-
3 ten contract for insurance shall prohibit an action pursuant to this
4 section.
5 § 2. Section 3425 of the insurance law is amended by adding a new
6 subsection (t) to read as follows:
7 (t) No insurer shall refuse to issue or renew a covered policy solely
8 on the grounds that the policyholder has brought an action pursuant to
9 section two thousand six hundred one-a of this chapter.
10 § 3. Paragraph 4 of subsection (a) of section 2601 of the insurance
11 law, as amended by chapter 547 of the laws of 1997, is amended to read
12 as follows:
13 (4) [not attempting in good faith] where the insurer fails to effectu-
14 ate a prompt[,] and fair [and equitable settlements] settlement of
15 [claims submitted in which liability has become reasonably clear] a
16 claim or any portion thereof, in that the insurer fails to reasonably
17 accord at least equal or more favorable consideration to its insured's
18 interests as it did to its own interests, and thereby exposes the
19 insured to a judgment in excess of the policy limits, except where there
20 is a reasonable basis supported by specific information available for
21 review by the department that the claimant has caused the loss to occur
22 by arson. After receiving a properly executed proof of loss, the insurer
23 shall advise the claimant of acceptance or denial of the claim within
24 thirty working days;
25 § 4. This act shall take effect on the first of January next succeed-
26 ing the date on which it shall have become a law and shall apply to all
27 acts and omissions by insurers occurring on or after such effective
28 date.
