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Starting in mid-January 2009, New York will abandon its rule allowing a personal injury or wrongful death insurer to disclaim coverage due to a late notice of claim regardless of whether or not the insurer suffered harm by the delay. The bill signed into law by Gov. David A. Paterson also allows injured parties, where coverage is disclaimed for late notice, to seek declaratory judgments in personal injury or wrongful death cases to determine the extent of defendants’ insurance coverage and whether suits are worth pursuing. Proponents of the insurance legislation, A11541/S8610, said it will somewhat level the playing field between insurers and consumers when insureds fail to file claims for injuries deemed late for coverage. The new law will bar insurers from disclaiming coverage for late claims unless they can demonstrate they were “materially prejudiced” by the delay. According to the New York State Trial Lawyers Association, which supported the measure, only New York, Georgia, Arkansas, Colorado, Idaho, Illinois, Mississippi and Nevada have “no prejudice” rules disclaiming coverage for late claims. “It was anomalous for so long that New York would allow denial of coverage for claims considered late by insurance companies,” said attorney Marshall Gilinsky of Anderson Kill & Olick. “We always thought of it here as a trap door, as a ‘gotcha’ defense.” State Sen. John DeFrancisco, R-Syracuse, the Senate Judiciary Committee chairman who sponsored the bill, said disclaiming coverage based on a late filing was inherently unfair where insurers did not have to demonstrate prejudice. “That was out of whack,” he said. “It was unfair to the policyholder.” Policies typically require notice of claims to be filed as soon as “reasonably practicable.” Gilinsky said courts have interpreted that in different ways, depending on the circumstances of various claims. The new law will create an alternating burden of proof under which the onus is on insurers to demonstrate how they were prejudiced by claims filed within two years of an accident. After two years, the onus shifts to insureds to show that insurers were not prejudiced by the delay. The other major provision of the insurance legislation is designed to reduce the number of times injured parties, who generally have limited resources, have to pursue what may ultimately be empty claims against insurers, said DeFrancisco. By allowing injured parties to seek declaratory judgments where coverage was disclaimed for late notice, the new law should reduce litigation in cases involving defendants who do not have resources worth pursuing, DeFrancisco said. Daniel W. Gerber of Goldberg Segalla in Buffalo, N.Y., said Monday the ability to disclaim coverage for late notice is important so insurers can balance liabilities and premiums in an orderly way. “Insurance companies have to set premiums and risks on a large scale across a large region and nationally,” said Gerber, whose firm often represents insurers. “In doing so, you count on a certain amount of claims on so many underwritten losses. When you have claims coming in a year or two after losses occurred and you didn’t count on those, it affects premiums and how you are going to set the policies’ premiums going forward.” Gerber is chairman of the New York State Bar Association’s torts, insurance and compensation law section. The legislation, signed by the governor on July 21, will take effect on Jan. 19, 2009. Gerber said that effectively means polices written through Jan. 18, 2010, will still be subject to the old no-prejudice rules since policies typically last for one year. The new law applies to personal injury or wrongful death coverage and not other kinds of insurance, such as property or health policies. Nicholas Papain, president of the state Trial Lawyers Association, called the no-prejudice rule “archaic and unfair.” Coupled with the declaratory judgment provisions, the new law “will provide for a far more equitable and expeditious determination as to the extent of insurance coverage available where an insurer seeks to disclaim on the ground of alleged untimely notice,” Papain, of Sullivan, Papain, Block, McGrath & Cannavo, said in a statement. While it had a long tradition of stringently upholding the disclaiming of coverage for late notice, the New York Court of Appeals signaled a relaxation of the “no prejudice” rule in a pair of 2005 rulings, Argo Corporation v. Greater New York Mutual Insurance Co., 4 NY3d 332, and Rekemeyer v. State Farm Mutual Automobile Co., 4 NY3d 468. While not doing away with the rule, as the plaintiffs had urged in those cases, the court said it found “persuasive” arguments for relaxing it. The court ruled in one of the cases that an insurer that denied coverage because of late notice had to show how it was prejudiced by the delay. That recognition by the court that late notice should not necessarily be a “hard-and-fast” justification for declination of coverage may have contributed to acceptance of the concept in the Legislature, Gilinsky said. “I think of it as being two fronts in the evolution of this area,” he said. The bill approved by Paterson is a somewhat narrower version of a measure vetoed by then-Gov. Eliot Spitzer in 2007. That bill also would have prohibited disclaiming coverage based on late notice unless insurers could show they suffered “material prejudice” due to the delay, but it would have permitted injured parties in all cases to commence a declaratory judgment action to determine defendants’ insurance coverage. Spitzer made note of the uncertainty in the business and legal communities over whether the declaratory judgments provisions would create more litigation or result in less because injured parties would not pursue claims against defendants able to pay little or nothing. He also noted that last year’s bill was filed late in the regular 2007 session, leading opponents to complain there had not been enough time to consider its implications. The legislation was rewritten this year to limit those seeking declaratory judgments to insureds facing denial of coverage for late notice.

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