By Ryan C. Chapoteau, Sedgwick New York
We previously reported on the New Jersey Legislature’s attempts to enact a bill that would allow policyholders to sue an insurer for bad faith in the wake of Superstorm Sandy. New Jersey Assembly Bill A3710 is still pending. On the other hand, New York’s Assembly has been very active after Superstorm Sandy and resoundingly passed 12 new bills on June 4, 2013, which would affect changes to the Insurance Law. The State Senate is now holding debates for these bills, which provides insurers an opportunity to request the legislature to reject these proposed laws.
The American Insurance Association has attacked the new legislation, stating that it is “misguided, if well-intentioned” because the bills “would simply open the floodgates for even greater litigation after a catastrophe.” Although policyholders already have considerable privileges under current law, the New York Assembly is attempting to rewrite insurance policies by rejecting basic contractual principles that allow parties to form the terms of their own agreements. If passed, the insurance market may raise premiums to ensure they can pay the newly-mandated covered claims, and handle an increase in litigation costs.
The New York insurance reform legislative package includes the following bills:
• Investigation and Settlement Standards (Bill No. A01092, passed 121-23). The Assembly is attempting to require insurers to investigate a claim and advise the claimant in writing within 15 days (with a potential additional 15 day extension) on whether the insurer has accepted or rejected the claim. The insurer then must pay the claim within 3 days from the settlement date.
• Creating a Task-Force for Disasters (Bill No. A01093, passed 144-0). This bill creates an 18-member task force, including officials from federal and state agencies, insurers and independent representatives who will examine and report on whether policyholders and communities have adequate insurance coverage for disasters.
• Discounts on Fire and Homeowner’s Insurance Upon Completing Residential Home Safety and Loss Prevention Course (Bill No. A01475, passed 141-3). The Assembly is attempting to force insurers to provide discounts to homeowners for a three-year period upon completing a state-certified course that would teach insureds how to prevent losses triggered by weather-related events. The bill does not comment on the amount of the discount, but requires the discount to be based on sound actuarial practices.
• A Homeowner’s Bill of Rights (Bill No. A02287, passed 118-26). Legislators are attempting to educate homeowners who purchase property and casualty coverage by obligating insurers to provide them with a consumer guide written “in plain language in a clear and understandable format.” This disclosure must provide information, such as how coverage is affected by different types of weather conditions and natural disasters as well as whether the property is located in a flood zone. Additionally, the Department of Financial Services will be required to establish a “Consumer’s Guide on Insuring Against Catastrophic Loss” brochure.
• A Uniform Windstorm Deductible (Bill No. A02729, passed 144-0). The Superintendent of Insurance will have the duty to institute a uniform and reasonable standard for hurricane windstorm deductibles. Proponents of the bill claim it will help promote a better understanding of the applicability and amount of hurricane windstorm deductibles.
• Expediting State Disaster Emergency Insurance Claims (Bill No. A05570, passed 117-26). This bill establishes an expedited procedure for claimants to advance any lawsuit against insurers that deny claims related to property damage sustained in counties where a State Disaster Emergency is declared by the Governor.
• Private Right of Action for Unfair Claim Settlement Practices (Bill No. A05780, passed 108-34). The bill creates a private right of action for unfair claim settlement practices for claims relating to a loss or injury in an area under a declared disaster emergency. If enacted, insurers will be liable for punitive damages if their claims practices are deemed willful.
• Limiting Insurers from Deciding Not to Renew Homeowners Policies (Bill No. A06913, passed 120-24). The Assembly is trying to restrict insurers’ reduction of coverage by regulating notices of intention to not renew homeowner’s insurance policies. If passed, insurance companies must file a plan with the Superintendent of Insurance if they intend to reduce by 20% the net number of these policies in New York, or if they plan to reduce the number of these policies by 500 within five years, whichever is greater. Additionally, insurers must file a plan if they intend to not renew 4% or more of their total number of covered policies within New York.
• Coverage for Business Interruption Claims Arising From Excluded Perils (Bill No. A07452, passed 113-30). This bill would force insurers to cover business interruption claims even if the loss directly or indirectly arose from or was caused by an excluded or uninsured peril.
• A Standard Set of Definitions (Bill No. A07453, passed 115-29). This bill would force all New York insurance policies to adopt a standard set of definitions, as promulgated by the Superintendent of Insurance, for all commonly used terms and phrases. The proposed legislation does not include a list of the terms and phrases it considers to be common, but provides that an insurer may use alternative definitions as long as they are not any less favorable to the policyholder.
• Providing a Copy of a Policy Prior to it Being Purchased (Bill No. A07454, passed 119-24). The bill would require insurers to provide potential customers of personal and commercial lines of insurance a copy of the policy prior to the policy being purchased. Legislators want customers to have sufficient time to review a policy before agreeing to buy it.
• Outlawing Anti-Concurrent Clauses (Bill No. A07455, passed 119-24). The law would forbid insurers from denying a claim when a loss occurred from several causes, and one cause is covered while another cause is precluded from coverage. If enacted, New York would be joining California, North Dakota, West Virginia, and Washington in eliminating anti-concurrent causation clauses.
The Assembly also passed Bill No. A07456 on June 10, 2013, by a vote of 125-14, which would require the Superintendent of Financial Services to prepare a report card on insurers’ responses to emergencies and disasters. Insurers would be graded on: (1) the number of claims the insurer received and the status of those claims; (2) the number of independent adjusters the insurer has working in the field; (3) the number of policyholders who have hired public adjusters; (4) the average amount of time, in days, for the insurer to investigate a claim, make a payment, and close a claim; (5) the number of complaints the insurer has received from its insureds and the number of complaints the Department has received on each insurer; and (6) any other information the Superintendent deems necessary. This report card must be published within 20 days of the declaration of a disaster or emergency and updated every week for at least 6 months or until the Superintendent determines that the report card is no longer necessary.