Governor Spitzer Vetos Anti-Insurer Bill
New York Governor Eliot Spitzer vetoed legislation that would have imposed a “material prejudice” standard on insurers who deny coverage based on late notice. The bill would also have given claimants a right to bring a direct action against insurers. The bill, if signed, would have imposed dramatic change in New York insurance law.
The bill presented to Governor Spitzer would have made two significant changes in the existing law. First, it would have created a “material prejudice” standard with regard to late notice. In this regard, the bill provided that an insurer “shall not deny coverage for a claim based on the failure of an insured to give timely notice of claim unless [the insurer is] able to demonstrate that it has suffered material prejudice as a result of the delayed notice.” The governor noted that “there are some drafting issues with these provisions.” Of particular concern to the Governor was the burden of proof imposed under the bill. The Governor indicated that if the bill were modified to preclude a defense of late notice where there was no prejudice to the insurer, he would sign it.
Second, the bill sought to amend New York’s declaratory judgment statute by permitting a party who has interposed a claim against a policyholder to bring a declaratory judgment action against that party’s insurers. Governor Spitzer expressed concern that this provision would increase litigation and he urged that his concern be reviewed. Governor Spitzer stated: “this bill’s dual goals – streamlining litigation and prohibiting the denial of coverage for mere technicalities – are sound, and hopefully we can enact a new bill that accomplishes these important goals in a manner that protects the interests of claimants, policyholders and insurers alike.” The Governor’s staff and the Superintendent of Insurance will meet with the legislature and interested parties to further consider these issues.
Indications are that the legislation will be reintroduced in 2008.