senate Bill S7746

2011-2012 Legislative Session

Permits an insurer to rescind or retroactively cancel a policy in circumstance involving an accident staged to defraud an insurer

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Archive: Last Bill Status - Passed Senate


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor

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Actions

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Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Jun 20, 2012 referred to insurance
delivered to assembly
passed senate
ordered to third reading cal.1403
Jun 17, 2012 referred to rules

Votes

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S7746 - Bill Details

Current Committee:
Law Section:
Insurance Law
Laws Affected:
Add §3455, amd §§3420, 5103, 5101 & 5201, Ins L; amd §313, V & T L

S7746 - Bill Texts

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Permits an insurer to rescind or retroactively cancel a policy in circumstance involving an accident staged to defraud an insurer.

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BILL NUMBER:S7746

TITLE OF BILL:
An act
to amend the insurance law and the vehicle and traffic law,
in relation to permitting an insurer to
rescind or retroactively cancel a policy in certain circumstances

PURPOSE OR GENERAL IDEA OF BILL:
Remove incentive for staged and caused automobile insurance accidents,
by allowing for retroactive cancellation of newly issued insurance
private passenger and automobile insurance policies.

SUMMARY OF SPECIFIC PROVISIONS:
Section 1- Adds a new section 3455 to the insurance law that: provides
insurance companies the ability, within the first 30 days, to rescind
a policy to its inception due to nonexistence of a bank account, or
the unauthorized use of the account.

Subsection B provides that a person injured during this period may
have recourse to his or her own policy or the motor vehicle accident
indemnification corporation, provided they were not participating
in any fraudulent activity.

Section 2-Amends Subsection (d) of section 3420 of the insurance law
to provides insurers the ability to rescind coverage pursuant to
section
3455 for death or bodily injury arising from an uninsured motorist
endorsement by any occupant of a motor vehicle involved in a staged
accident who is without knowledge of the staging or arranging of the
staged or arranged accident.

Section 3-Paragraph 1 of subsection (f) of Section 3420 of the
insurance law, as amended by chapter 305 of the laws of 1995, is
amended to add rescinded policies to the list of scenarios that a
driver would be insured against in the event of bodily injury or death.

Section 4-Subparagraph A subsection (f) of section 3420 of the
insurance law is amended to deal with supplementary
uninsured/underinsured coverage.

Section 5-Section 5103 of the insurance law is amended to address
individuals who are involved in a staged accident who is without
knowledge of the staging or arranging of the staged or arranged
accident.

Section 6-subsection (2) of section 5103 of the insurance law is
amended to account for vehicles whose coverage has been rescinded or
cancelled.

Section 7-Paragraph (a) of subdivision 1 of section 313 of the vehicle
and traffic law is amended to exempt section 3455 of the insurance
law from the 20 day mailing notice to cancel an insurance policy.

Section 8-sets forth in the Motor Vehicle Insurance Indemnification
Law coverage for innocent victims of staged accidents.


JUSTIFICATION:
Automobile no-fault states have higher average premiums than tort
states. One of the reasons for this is that fraud tends to be more
prevalent in no-fault systems, as the rules under which they are
implemented make it relatively easy for bad actors to submit
fraudulent claims. Additionally, an accident can create a
multiplicity of lawsuits, since providers and collection attorneys
may initiate a lawsuit for each and every bill. New York's generous
no-fault benefits, with minimal oversight, provide huge incentives
for unbundling of services and supplies.

Staged accidents are one type of fraudulent claim that is becoming
more and more prevalent in New York. Staged accidents begin with bad
actors procuring an automobile insurance policy with the intent of
submitting a fraudulent claim. In many cases, they procure a policy
by submitting a bad payment (either using a nonexistent bank account
or stolen credit card information). Most states allow the retroactive
cancellation of a policy in the case of a reversed payment to prevent
this type of activity. New York, however, does not permit
retroactive cancellations; rather cancellations are currently only
prospective in nature. That turns into a gold mine where no-fault is
involved. The time between the policy is "purchased" to the time it
is cancelled provides ample opportunity for no-fault fraud.

This bill allows for retroactive cancellation in New York of newly
issued automobile insurance policies to prevent this type of fraud.
This would bring New York in line with the other large no-fault states.
In fact, only seven other states (AZ, CO, KS, ME, MD, NC and SD) do
not allow for retroactive cancellation. Innocent victims of uninsured
drivers (i.e. mandatory uninsured motorist coverage), would be
covered under their own policy or the Motor Vehicle Accident
Indemnification Corporation.

The proposal would allow retroactive cancellation of the automobile
policy, in the first thirty days, where the payment is made with
insufficient funds or the identity used to procure the policy turns
out to be fraudulent. The automobile insurer would be allowed to
cancel a policy retroactively in these cases.

By permitting retroactive cancellations, New York would join the great
majority of other states, and would remove many of the incentives for
staged accidents.

FISCAL IMPLICATIONS:
None.

EFFECTIVE DATE:
Two hundred seventy days after it shall have become a law

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  7746

                            I N  S E N A T E

                              June 17, 2012
                               ___________

Introduced  by  Sen.  GOLDEN -- read twice and ordered printed, and when
  printed to be committed to the Committee on Rules

AN ACT to amend the insurance law and the vehicle and  traffic  law,  in
  relation to permitting an insurer to rescind or retroactively cancel a
  policy in certain circumstances

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. The insurance law is amended by adding a new  section  3455
to read as follows:
  S  3455.  CANCELLATION OF POLICY. (A) AN INSURER MAY, WITHIN THE FIRST
THIRTY DAYS, RESCIND OR RETROACTIVELY CANCEL TO THE  INCEPTION  A  NEWLY
ISSUED   AUTOMOBILE   INSURANCE  POLICY  SUBJECT  TO  PARAGRAPH  (1)  OF
SUBSECTION (A) OF SECTION THREE THOUSAND  FOUR  HUNDRED  TWENTY-FIVE  OF
THIS  ARTICLE,  A  NEWLY  ISSUED  COMMERCIAL AUTOMOBILE INSURANCE POLICY
SUBJECT TO SECTION THREE THOUSAND FOUR HUNDRED TWENTY-SIX OF THIS  ARTI-
CLE,  OR  A POLICY ISSUED PURSUANT TO ANY PLAN ESTABLISHED UNDER ARTICLE
FIFTY-THREE OF THIS CHAPTER, IF  THE  INITIAL  PREMIUM  PAYMENT  IS  NOT
HONORED  BY A FINANCIAL INSTITUTION DUE TO THE NONEXISTENCE OR THE UNAU-
THORIZED USE OF A BANK ACCOUNT OR THE INITIAL PREMIUM PAYMENT IS  DENIED
BY  A  CREDIT  CARD COMPANY DUE TO THE UNAUTHORIZED USE OF A CREDIT CARD
ACCOUNT. THIS SECTION SHALL NOT APPLY TO POLICIES REQUIRED UNDER ARTICLE
EIGHT OF THE VEHICLE AND TRAFFIC LAW.
  (B) A PERSON WHO IS INJURED DURING THIS PERIOD AND WHO WOULD  ORDINAR-
ILY  BE  COVERED  UNDER  THE  INSURED'S  POLICY HAD IT NOT BEEN CANCELED
PURSUANT TO SUBSECTION (A) OF THIS SECTION, SHALL BE ENTITLED TO RECOVER
UNDER HIS OR HER OWN POLICY SUBJECT TO THE TERMS AND CONDITIONS  OF  THE
CONTRACT,  OR IF THE INJURED PERSON IS UNINSURED, THEY SHALL BE ENTITLED
TO RECOVER UNDER THE MOTOR VEHICLE ACCIDENT INDEMNIFICATION CORPORATION,
PROVIDED SUCH PERSON DID NOT PARTICIPATE  IN  ANY  FRAUDULENT  ACTIVITY,
INCLUDING, BUT NOT LIMITED TO, AN ACCIDENT STAGED TO DEFRAUD AN INSURER.
THE MOTOR VEHICLE ACCIDENT INDEMNIFICATION CORPORATION MAY NOT SUBROGATE
ITS CLAIM AGAINST THE RESCINDING INSURER.

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD16309-01-2

S. 7746                             2

  S  2.  Paragraph  2 of subsection (d) of section 3420 of the insurance
law, as amended by chapter 388 of the laws of 2008, is amended  to  read
as follows:
  (2)  If under a liability policy issued or delivered in this state, an
insurer shall disclaim liability [or], deny coverage, OR RESCIND  COVER-
AGE  PURSUANT  TO SECTION THREE THOUSAND FOUR HUNDRED FIFTY-FIVE OF THIS
ARTICLE, for death or bodily injury arising out of a motor vehicle acci-
dent, INCLUDING ANY CLAIM  FOR  PERSONAL  INJURIES  UNDER  AN  UNINSURED
MOTORIST  ENDORSEMENT BY ANY OCCUPANT OF A MOTOR VEHICLE OR OTHER PERSON
INVOLVED IN AN ACCIDENT WHICH WAS STAGED TO DEFRAUD AN  INSURER  WHO  IS
WITHOUT  KNOWLEDGE  OF THE STAGING OR FRAUDULENT INTENT OF THE ACCIDENT,
or any other type of accident occurring within this state, it shall give
written notice as soon as is reasonably possible of such  disclaimer  of
liability or denial of coverage to the insured and the injured person or
any other claimant.
  S  3.  Paragraph  1 of subsection (f) of section 3420 of the insurance
law, as amended by chapter 305 of the laws of 1995, is amended  to  read
as follows:
  (1)  No  policy insuring against loss resulting from liability imposed
by law for bodily injury or death suffered by any natural person arising
out of the ownership, maintenance and use of  a  motor  vehicle  by  the
insured  shall be issued or delivered by any authorized insurer upon any
motor vehicle then principally garaged or principally used in this state
unless it contains a provision whereby the insurer agrees that  it  will
pay  to  the insured, as defined in such provision, subject to the terms
and conditions set forth therein to be prescribed by the board of direc-
tors of the  Motor  Vehicle  Accident  Indemnification  Corporation  and
approved by the superintendent, all sums, not exceeding a maximum amount
or  limit  of  twenty-five  thousand  dollars  exclusive of interest and
costs, on account of injury to and all sums,  not  exceeding  a  maximum
amount  or  limit  of  fifty  thousand dollars exclusive of interest and
costs, on account of death of one person, in any one accident,  and  the
maximum  amount  or  limit,  subject to such limit for any one person so
injured of fifty thousand dollars or so killed of one  hundred  thousand
dollars,  exclusive  of  interest and costs, on account of injury to, or
death of, more than one person in any one accident, which the insured or
his legal representative shall be entitled to recover as damages from an
owner or operator of an  uninsured  motor  vehicle,  unidentified  motor
vehicle  which  leaves  the scene of an accident, a motor vehicle regis-
tered in this state as to which at the time of the  accident  there  was
not in effect a policy of liability insurance, A MOTOR VEHICLE FOR WHICH
THE  POLICY  OF  INSURANCE  HAS  BEEN RESCINDED OR CANCELLED PURSUANT TO
SECTION THREE THOUSAND FOUR HUNDRED FIFTY-FIVE OF THIS ARTICLE, a stolen
vehicle, A MOTOR VEHICLE INVOLVED IN AN ACCIDENT  WHICH  WAS  STAGED  TO
DEFRAUD AN INSURER, EXCEPT SUCH VEHICLE OWNED AND OPERATED BY THE PERPE-
TRATOR  OR PERPETRATORS OF SUCH ACCIDENT, a motor vehicle operated with-
out permission of the owner, an insured motor vehicle where the  insurer
disclaims  liability  or  denies  coverage  or  an  unregistered vehicle
because of bodily injury, sickness or disease, including death resulting
therefrom, sustained by the insured, caused  by  accident  occurring  in
this  state and arising out of the ownership, maintenance or use of such
motor vehicle. No payment for non-economic loss shall be made under such
policy provision to a covered person unless such person has  incurred  a
serious  injury,  as such terms are defined in section five thousand one
hundred two of this chapter. Such policy shall not duplicate any element
of basic economic loss provided for  under  article  fifty-one  of  this

S. 7746                             3

chapter.  No  payments  of  first party benefits for basic economic loss
made pursuant to such article shall  diminish  the  obligations  of  the
insurer under this policy provision for the payment of non-economic loss
and  economic loss in excess of basic economic loss. Notwithstanding any
inconsistent provisions of section three thousand four  hundred  twenty-
five  of this article, any such policy which does not contain the afore-
said provisions shall be construed as if such provisions  were  embodied
therein.
  S 4. Subparagraph (A) of paragraph 2 of subsection (f) of section 3420
of  the  insurance law, as separately amended by chapters 547 and 568 of
the laws of 1997, is amended to read as follows:
  (A) Any such policy shall, at the option of the insured, also  provide
supplementary  uninsured/underinsured  motorists  insurance  for  bodily
injury, in an amount up to the bodily injury liability insurance  limits
of  coverage  provided  under  such  policy, subject to a maximum of two
hundred fifty thousand dollars because of bodily injury to or  death  of
one  person  in  any  one  accident  and,  subject to such limit for one
person, up to five hundred thousand dollars because of bodily injury  to
or  death  of  two  or  more  persons in any one accident, or a combined
single limit policy of five hundred thousand dollars because  of  bodily
injury  to or death of one or more persons in any one accident. Provided
however, an insurer issuing such policy, in  lieu  of  offering  to  the
insured   the   coverages   stated   above,  may  provide  supplementary
uninsured/underinsured motorists insurance  for  bodily  injury,  in  an
amount  up  to  the bodily injury liability insurance limits of coverage
provided under such policy, subject to a maximum of one hundred thousand
dollars because of bodily injury to or death of one person  in  any  one
accident  and, subject to such limit for one person, up to three hundred
thousand dollars because of bodily injury to or death  of  two  or  more
persons  in any one accident, or a combined single limit policy of three
hundred thousand dollars because of bodily injury to or death of one  or
more persons in any one accident, if such insurer also makes available a
personal  umbrella  policy with liability coverage limits up to at least
five hundred thousand dollars which also provides coverage  for  supple-
mentary    uninsured/underinsured    motorists   claims.   Supplementary
uninsured/underinsured motorists insurance shall  provide  coverage,  in
any  state  or  Canadian  province, if the limits of liability under all
bodily injury liability bonds and insurance policies  of  another  motor
vehicle  liable  for  damages INCLUDING BUT NOT LIMITED TO A VEHICLE FOR
WHICH THE POLICY OF INSURANCE HAS BEEN RESCINDED OR  CANCELLED  PURSUANT
TO  SECTION  THREE  THOUSAND  FOUR HUNDRED FIFTY-FIVE OF THIS ARTICLE, A
MOTOR VEHICLE INVOLVED IN AN ACCIDENT WHICH WAS  STAGED  TO  DEFRAUD  AN
INSURER,  EXCEPT  SUCH  VEHICLE OWNED AND OPERATED BY THE PERPETRATOR OR
PERPETRATORS OF SUCH ACCIDENT, are in a lesser amount  than  the  bodily
injury  liability  insurance limits of coverage provided by such policy.
Upon  written  request  by   any   insured   covered   by   supplemental
uninsured/underinsured motorists insurance or his duly authorized repre-
sentative  and  upon  disclosure  by the insured of the insured's bodily
injury  and  supplemental  uninsured/underinsured  motorists   insurance
coverage  limits,  the insurer of any other owner or operator of another
motor vehicle against which a claim has been made  for  damages  to  the
insured shall disclose, within forty-five days of the request, the bodi-
ly  injury liability insurance limits of its coverage provided under the
policy or all bodily injury liability bonds. The time of the insured  to
make  any  supplementary uninsured/underinsured motorist claim, shall be
tolled during the period the insurer of any other owner or  operator  of

S. 7746                             4

another  motor  vehicle  that  may be liable for damages to the insured,
fails to so disclose its coverage. As a condition precedent to the obli-
gation   of   the   insurer   to    pay    under    the    supplementary
uninsured/underinsured  motorists  insurance  coverage,  the  limits  of
liability of all bodily injury liability  bonds  or  insurance  policies
applicable  at the time of the accident shall be exhausted by payment of
judgments or settlements.
  S 5. Paragraph 1 of subsection (b) of section 5103  of  the  insurance
law is amended to read as follows:
  (1)  Intentionally  causes  his  own  injury, EXCEPT ANY OCCUPANT OF A
MOTOR VEHICLE OR OTHER PERSON INVOLVED IN AN ACCIDENT STAGED TO  DEFRAUD
AN  INSURER WHO IS WITHOUT KNOWLEDGE OF THE STAGING OR FRAUDULENT INTENT
OF SUCH ACCIDENT.
  S 6. Paragraph 2 of subsection (a) of section 5103  of  the  insurance
law is amended to read as follows:
  (2)  The  named insured and members of his household, other than occu-
pants of a motorcycle, for loss arising out of the use or  operation  of
(i)  an uninsured motor vehicle or motorcycle, OR A VEHICLE WHOSE COVER-
AGE IS RESCINDED OR CANCELLED PURSUANT TO SECTION  THREE  THOUSAND  FOUR
HUNDRED FIFTY-FIVE OF THIS CHAPTER, within the United States, its terri-
tories  or  possessions, or Canada; and (ii) an insured motor vehicle or
motorcycle outside of this state  and  within  the  United  States,  its
territories or possessions, or Canada.
  S  7. Paragraph (a) of subdivision 1 of section 313 of the vehicle and
traffic law, as amended by chapter 569 of the laws of 1981,  is  amended
to read as follows:
  (a) [No] EXCEPT AS PROVIDED FOR IN SECTION THREE THOUSAND FOUR HUNDRED
FIFTY-FIVE  OF  THE  INSURANCE LAW, NO contract of insurance for which a
certificate of insurance has been filed with the commissioner  shall  be
terminated  by  cancellation  by  the insurer until at least twenty days
after mailing to the named insured at the address shown on the policy  a
notice  of  termination  by regular mail, with a certificate of mailing,
properly endorsed by the postal service to be obtained, except where the
cancellation is for non-payment of premium in which  case  fifteen  days
notice  of  cancellation  by  the insurer shall be sufficient, provided,
however, if another insurance contract has  been  procured,  such  other
insurance  contract  shall, as of its effective date and hour, terminate
the insurance previously in effect with respect to  any  motor  vehicles
designated  in  both  contracts.  No  contract  of insurance for which a
certificate of insurance has been filed with the commissioner in which a
natural person is the named  insured  and  the  motor  vehicle  is  used
predominantly  for  non-business  purposes  shall  be  non-renewed by an
insurer unless at least forty-five, but not  more  than  sixty  days  in
advance  of  the renewal date the insurer mails or delivers to the named
insured at the address shown on the  policy  a  written  notice  of  its
intention not to renew. No such contract of insurance in which the named
insured  is  not  a natural person or the motor vehicle is used predomi-
nantly for business purposes shall be non-renewed by an  insurer  unless
at least twenty days in advance of the renewal date the insurer mails or
delivers to the named insured at the address shown on the policy a writ-
ten  notice  of  its  intention not to renew. All notices of non-renewal
shall be sent by regular mail with a certificate  of  mailing,  properly
endorsed  by  the  postal  service to be obtained. Time of the effective
date and hour of termination stated in the notice shall become  the  end
of the policy period. Every notice or acknowledgement of termination for
any  cause whatsoever sent to the insured shall include in type of which

S. 7746                             5

the face shall not be smaller than twelve point a statement  that  proof
of financial security is required to be maintained continuously through-
out  the registration period and a notice prescribed by the commissioner
indicating  the punitive effects of failure to maintain continuous proof
of financial security and actions which may be taken by the  insured  to
avoid such punitive effects.
  S  8.  Paragraphs  6  and  7  of subsection (b) of section 5201 of the
insurance law are amended and a new paragraph 8  is  added  to  read  as
follows:
  (6)  insured  motor  vehicles where the insurer disclaims liability or
denies coverage, [and]
  (7) unregistered motor vehicles[.], AND
  (8) AN ACCIDENT STAGED TO DEFRAUD AN INSURER.
  S 9. This act shall take effect two  hundred  seventy  days  after  it
shall have become a law.

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