Senate Bill S5065

                                 BILL NUMBER:  S5065

 TITLE OF BILL :  An act to amend the insurance law, in relation to
unfair claim settlement practices

 PURPOSE : To create a private right of action to enable property and
casualty insurance policyholders to directly sue insurers for injuries
sustained as a result of insurers engaging in any unfair claims
settlement practice enumerated in the Insurance Law.

 SUMMARY OF PROVISIONS : The bill would add a new section 2601-a to
the insurance law to provide that an insurer doing business in this
state shall be liable to a property and casualty insurance
policyholder for damages if the insurer's refusal to payor
unreasonable delay in payment of such policyholder's claim was "not
substantially justified." "Not substantially justified" conduct would
be if an insurer:

1. Intentionally, recklessly or by gross negligence failed to provide
the policy holder with accurate information concerning policy
provisions relating to coverage at issue; or

2. Failed to effectuate, in good faith, a prompt, fair and equitable
settlement of a claim submitted by such policy holder in which
liability of such insurer to such policy holder was reasonably clear;
or
              

3. Failed to provide a written denial of a policy holder's claim with
a full and complete explanation of such denial, including references
to specific policy provisions wherever possible; or

4. Failed to make a final determination and notify the policy holder
in writing of its position on both the liability for, and the
insurer's valuation of, a claim within six months of the date on which
it received actual or constructive notice of the loss upon which the
claim is based; or

5. Failed to act in good faith by compelling the policy holder to
initiate a law suit to recover under the policy by offering
substantially less than the amounts ultimately recovered in the suit
by the policy holder.

Any policy holder who establishes liability shall be entitled to
recover, in addition to amounts due under the policy, interest, costs,
and disbursements, compensatory damages and reasonable attorney's
fees. There is also a provision for punitive damages if the insurer's
unjustified position was the result of intentional, reckless, grossly
negligent conduct or an express or implied company procedure for
processing claims.

The bill would establish procedural rules to ensure that the insurer
receives a fair trial on the issue of liability under the terms of the
policy before the issue of substantial justification is considered.

 JUSTIFICATION : Existing law forbids insurers from engaging in unfair
practices in the settlement of insurance claims. Current Section 2601
of the Insurance Law defines "unfair claims settlement practices" but
provides only for proceedings maintainable by the Superintendent of
Insurance, as a remedy against violations of the law. In order to
succeed in such proceedings the Superintendent must prove that an
insurer engaged in the acts prescribed by the statute "with such
frequency as to indicate a general business practice." Thus, an
individual has no remedy against an insurer's unfair practices and
unwarranted delay tactics in settling claims, which can cause extreme
financial and sometimes emotional or physical hardship to an
individual and his or her family.
Any doubt about this unfortunate state of the law was removed by the
Court of Appeals in its 1984 decision in ROCANOV A V. EQUITABLE LIFE,
83 NY2nd 603 (1984). "The law of this State does not currently
recognize a private cause of action under Insurance Law 2601... To the
extent that a variety of appellate division decisions hold otherwise,
they are not to be followed." ROCANOV A V. EQUITABLE LIFE, 83 NY2nd at
614-515.

Citizens of this state who pay insurance premiums should expect
insurers to live up to their policy obligations. Under existing
statutes and case law, an insurer can simply refuse to pay a claim or
offer an amount well below the value of the loss with impunity. SEE
E.G. LTS CONTRACTORS V. HARTFORD INS., 99AD2d 622 (4th Dept. 1984) no
remedy for unreasonable delay in payment; UNILAND DEV. V. HOME INS.,
97 AD2D 973 (4th Dept. 1983) no remedy for intentional refusal to pay.
Even if the policy holder sues and wins the full amount of the claim,
he or she loses because of the costs and counsel fees associated with
bringing the successful action. This fact gives insurers a terribly
unfair advantage in negotiating a settlement of any claim because of
the ability of the insurers to financially bear the burden of
litigation which the ordinary citizen cannot afford to do.

The proposed legislation would rectify the inadequacy in the current
law, which does not provide redress for the individual who has
actually suffered from wrongful insurer conduct. The private right of
action enables the injured policy holder to sue an insurer directly
and recover the actual damages flowing from such conduct. The bill
also eliminates the "general business practice" requirement in a
private right of action, since such settlement is wholly irrelevant in
an action seeking relief from harm suffered by an individual and is
unduly burdensome to an individual plaintiff.

The bill also empowers the court to award attorney's fees in a private
right of action to a prevailing plaintiff in an appropriate case.
This provision would enable the claimant with a relatively small but
meritorious claim to effectively enforce his or her rights.

The bill also addresses the situation where an insurer's claims
practices involve particularly outrageous and unacceptable conduct.
By authorizing an award of punitive damages in these limited
situations, the statute provides a legal mechanism for deterring such
conduct. This legislation is consistent with the statutes of many
other states which provide deterrent remedies such as punitive damages
for exceptionally aggravated wrongful conduct.

To prevent the insurers from increasing their premiums to make up for
losses in damages suits, the legislation prohibits insurers from
including such losses in determining future rates.

 LEGISLATIVE HISTORY :  2007 - S2407 Referred to Insurance 2008 -
S2407 Referred to Insurance

 FISCAL IMPLICATIONS : The state may realize some revenue by securing
a percentage from the punitive damages award.

 EFFECTIVE DATE : This act shall take effect immediately.