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

A proposed bill in New York relating to unfair claims settlement practices would provide policyholders with a private right of action against insurers who refuse or delay payment of a claim. The bill comes as many policyholders have expressed frustration over business interruption claim denials in the wake of the COVID-19 pandemic.

“COVID-19 claims denials have left many victims without even a settlement offer in the absence of the threat of a trial and many small businesses in danger of shuttering after insurers refused to pay for losses due to mandated closures,” says the text of New York Senate Bill S6813, proposed last month by sponsor and New York State Senator Jessica Ramos. The bill is currently awaiting a vote in the New York Senate’s Insurance Committee.

The bill aims to amend current state insurance law to allow insurance policyholders to recover damages when an insurance company’s refusal to pay or unreasonable delay in paying a claim is not substantially justified. If passed, it would amend New York insurance law under section 2601 to grant insurance policy claimants a private right of action to seek damages in these cases.

Currently, section 2601 of New York insurance law regulates the conduct of insurers and prohibits actions constituting unfair claims practices, although only the superintendent of the New York Department of Financial Services (DFS) can enforce these provisions.

The bill says this does not go far enough in regulating the type of unfair claims practices that come in the wake of a disaster, such as the current global pandemic. However, opponents of the bill say it would be a detriment to the insurance industry by spurring a wave of litigation, and ultimately, negatively impacting policyholders by increasing costs in a state where premiums for many lines of coverage are already among the highest in the nation.

“Clearly, the bill’s proponents are engaged in magical thinking,” says Scott Hobson, assistant vice president of Government Relations in New York and Connecticut for Big I New York. “You cannot add billions of dollars of in litigation costs, payments, and settlements, without impacting premiums.”

As for the ongoing business interruption issue, which has been central to insurance industry conversation since the pandemic’s onset, Hobson says he doesn’t see this bill as a solution for claim denials and coverage frustrations.

“As advocates for our customers, we feel their frustration, but the fact is all coverage has limits,” he says. “Regulators approved and the courts have overwhelmingly upheld these coverage exclusions. We advocate for a real, workable coverage solution for pandemic related risks, and the private market has no appetite to write it.”

Instead, Hobson is advocating for a federally backed solution so that businesses can obtain protection for future pandemics. Beyond COVID-19, Hobson says he believes the bill would create challenges for New York drivers as well.

“It would be a brazen giveaway to 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 regarding policy provisions or to take its insured’s interests into consideration as well as its own, exposing the insured to judgment in excess of policy limits. A failure to provide timely written denials of claims or refusal to pay a claim without conducting a prior reasonable investigation would constitute unfair claims practices under the bill as well.

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

If passed, the bill would go into effect on January 1st following the date in which it becomes law. The bill says New Yorkers who pay insurance premiums should expect insurers to live up to their good faith obligations regarding claims practices.

“When insurers do not meet this obligation, it is important that the consumer has a viable and effective means of seeking redress,” the bill says. “This bill gives consumers the legal means to achieve this goal.”

However, Hobson says the challenges it could create for insurers and policyholders alike would be too great. With the New York legislative session wrapping up this week, the bill will likely see a vote.

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

Ramos did not respond to requests for comment by press time. DFS does not comment on pending legislation.