Section 3420 of the New York Insurance Law, which sets forth requirements for liability insurance policies issued in New York State, was amended recently in two important ways that will help injury victims. Liability insurance policies, including automobile and homeowner’s insurance policies, typically require that the negligent party inform his or her insurance company of any possible claims within a particular period of time. These notice provisions are designed to ensure that the company has an opportunity to investigate claims right away, while witnesses can still be located and evidence has not been lost or destroyed.

Under the old law, an injury victim had little recourse if the negligent party did not inform his or her insurance company about the claim in the time required by the insurance policy. The insurance company could deny the claim on the ground of late notice, even if the late notice had no effect on the company’s ability to defend the claim. Further, the injury victim could not challenge the denial of claim in court until after he or she obtained a judgment against the negligent party and the insurance company refused to pay. This forced the injured party to spend a considerable amount of time and money litigating the case with no way of knowing in advance whether there would be any insurance coverage to pay the verdict and expenses if he or she won the case at trial. 

The new law

 In July of this year, Governor Patterson signed into law a bill, effective January 17, 2009, that bars a liability insurance company from denying coverage based on late notice unless the company can show that it was prejudiced by the delay. In order to show prejudice, the insurance company would have to prove that the late notice “materially impairs the ability of the insurer to investigate or defend the claim.” Insurance Law §3420(c)(2)(C). This relaxation of the notice rules is not absolute. The law includes a rebuttable presumption that the company has been prejudiced if notice of the claim is given more than two years after the time required by the policy. In addition, prejudice is presumed if the insurance company is not notified until after the claim has already been settled or tried in court. Insurance Law §3420(c)(2)(B). 

The new law also gives an injury victim the right to challenge the insurance company’s denial of coverage at the beginning of his or her personal injury case rather than at the end. An injured party can now bring what is known as a declaratory judgment action to determine whether the insurance company can prove that it was prejudiced in any real way by the late notice of claim. Insurance Law §3420 (a)(6). 

All in all, the revisions to Insurance Law §3420 are beneficial and will help level the playing field between injury victims and the insurance industry in New York State.