The highest court in New York (the Court of Appeals) issued a decision last month in Carlson v. American International Group, et al., on an issue that is of substantial importance to policyholders and insurers.         

A reading of the Court’s decision can be interpreted to broadened application of certain protections afforded to insureds when carriers disclaim coverage for personal injury lawsuits. As you may recall, New York has a unique statute called Insurance Law Section 3420.  Section 3420 imposes certain heightened obligations on liability insurers when they deny coverage. 

The 3420 rules include, among other duties, the following:    

  • The carrier has to promptly deny coverage.  In practice, this means the carrier only has a certain amount of time to issue a disclaimer after it receives notice of claim.  If the carrier waits too long, it will not be able to disclaim based upon policy exclusions and certain conditions to coverage.  The time that a carrier has to disclaim can run out very quickly.  A carrier that waits around to disclaim for a period as short as only four weeks can lose rights under 3420. 
  • The carrier has to notify the injured claimant that it is denying coverage.  As such, the carrier waives defenses to coverage if it only issues the denial of coverage letter to the insured.  The carrier must also send a denial letter to the claimant detailing the carrier’s position contemporaneous with the denial issued to the insured. 
  • The carrier must deny coverage in writing

Keep in mind, however, that 3420 only applies under a very limited set of claims:  (1) the claim has to be for bodily injury or death; (2) the accident needs to have occurred in New York; and, (3) the carrier’s insurance policy must have been “issued or delivered” in New York.  This “issued or delivered” language has been historically understood to require that the insured be domiciled in some way in New York (for example have a New York office) and the insured risk must be located in New York. 

What makes the Court of Appeals’ decision in Carlson interesting is that the Court found that “issued or delivered” means something broader.  The insured no longer needs to have an office or some other more formalized connection to New York for Section 3420 to apply.  Rather, the insured needs a “substantial business presence” in the state to trigger Section 3420.  In this case, the Court found that a company that regularly delivered packages in New York, even without offices or some kind or formalized presence, was enough to trigger Section 3420. 

This decision is very important for policyholders and insurance companies alike.  The Court’s possible expansion of Section 3420 to reach “out of state” companies doing substantial business in New York could result in coverage for liability claims where previously there would have been none.  Keep this case in mind when you receive denials for New York personal injury liability claims.

This update is courtesy of SterlingRisk.