N.Y. Bill Aims to Give Policyholders Private Right of Action in Unfair Claims Disputes

N.Y. Bill Aims to Give Policyholders Private Right of Action in Unfair Claims Disputes

2021-06-10 13:07:34
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A New York bill addressing unfair claims settlement practices would give policyholders a private right of action against insurers that refuse or delay payment of a claim. The bill comes as many policyholders have expressed frustration at the rejection of business interruption claims in the wake of the COVID-19 pandemic.

“Due to the denials of COVID-19 claims, many victims have not even made a settlement offer in the absence of a threat of litigation and many small businesses are threatening to close after insurers refused to pay for losses from mandatory shutdowns,” the text of the statement reads. New York Senate Bill S6813, proposed last month by New York State sponsor and Senator Jessica Ramos. The bill is currently awaiting a vote in the New York Senate Insurance Committee.

The bill aims to amend the current state insurance law to allow policyholders to recover damages when an insurance company's refusal to pay or undue delay in paying a claim is not materially justified. If passed, it would amend New York's insurance law under Section 2601 to grant insurance policy claimants a private right to compensation in these cases.

Currently, Section 2601 of the New York Insurance Act governs the conduct of insurers and prohibits actions that constitute unfair claims practices, although only the New York Department of Financial Services (DFS) superintendent can enforce these provisions.

According to the bill, this does not go far enough in regulating the kinds of unfair claims practices that occur in the aftermath of disaster, such as the current global pandemic. However, opponents of the bill say it would hurt the insurance industry because it would spark a wave of lawsuits and ultimately negatively impact policyholders by increasing costs in a state where premiums for many lines of coverage are already among the highest in the world. belong to the nation.

"It's clear that the bill's proponents are engaged in magical thinking," said Scott Hobson, assistant vice president of Government Relations in New York and Connecticut for Big I New York. "You can't add billions of dollars in litigation costs, payments and settlements without affecting premiums."

As for the ongoing problem of business interruption, which has been at the center of discussions with the insurance industry since the start of the pandemic, Hobson says he doesn't see this bill as a solution to claims denial and coverage frustrations.

“As advocates for our customers, we feel their frustration, but the fact is, all coverage has limits,” he says. “Regulators approved these coverage exclusions and the courts have overwhelmingly affirmed. We're advocating a real, workable coverage solution for pandemic risks, and the private market doesn't feel like writing it."

Instead, Hobson advocates a federally-backed solution so that businesses can gain protection from future pandemics. In addition to COVID-19, Hobson says he believes the bill would create challenges for New York drivers as well.

“It would be a brutal giveaway for personal injury lawyers at the expense of policyholders,” he says.

The bill defines unfair claims practices in part as an insurer's failure to provide a claimant with accurate information about policy terms or to take into account the interests of its insured and his own, exposing the insured to judgment exceeding policy limits. . Failure to timely reject claims in writing or refuse to pay a claim without conducting a reasonable investigation beforehand would also constitute unfair claims practices under the bill.

"Insurance companies have an overwhelming advantage in handling a claim, with the power and financial incentive to deny or defer coverage and otherwise avoid fair payment of legitimate claims," ​​says the bill's text, adding that this is partially This is because insurers are able to bear the legal costs, while “most ordinary New Yorkers cannot afford that”.

If passed, the bill will enter into force on January 1, following the date on which it comes into force. The bill says New Yorkers who pay insurance premiums can expect insurers to fulfill their obligations in good faith regarding claims practices.

"If insurers fail to comply with this obligation, it is important that consumers have a viable and effective means of redress," the bill reads. "This bill gives consumers the legal means to achieve this goal."

However, Hobson says the challenges it could create for both insurers and policyholders are too great. With the New York Legislative Assembly ending this week, the bill is likely to be voted on.

“Anything can happen here, especially in the waning days of the session,” he says. "Our view is that it should not move forward."

Ramos did not respond to requests for comment at press time. DFS does not comment on current legislation.

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