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Full Disclosure

What insurers should know about New York’s Comprehensive Insurance Disclosure Act

March 21, 2022 Photo

On Dec. 31, 2021, New York’s Governor Kathy Hochul signed into law the Comprehensive Insurance Disclosure Act (Senate Bill 7052), which requires defendant litigants to disclose insurance coverage limits.

However, the new law, which amends Section (f) of New York’s Civil Practice Law and Rules (CPLR) § 3101 and adds New York CPLR § 3122-b, brought with it severe consequences.

The initial version of this new law called for retroactive enactment of the policy, requiring insurers to update coverages on every claim in litigation currently, not just new filings. That in and of itself would have been a tremendous burden for the defense, and with the penalties for non-disclosure not fully defined, a recipe for disaster seemed already baked. 

The severity was of such a nature that just two weeks after its enactment, the New York State Senate introduced an amendment, Senate Bill 7882, which reduced but did not eliminate the burden resulting from these new disclosure requirements. Governor Hochul supported this new amendment.

However, even though this new Senate bill would moderate the new onerous disclosure obligations on defendants, third-party defendants, crossclaim and counterclaim defendants, the obligation to comply is still present. The obligations remain burdensome and problematic, as will be discussed later.

Prior to the enactment of the Comprehensive Insurance Disclosure Act, parties would seek insurance information through discovery through CPLR 3101(f), which, prior to it being amended, read as follows:

A party may obtain discovery of the existence of contents of any insurance agreement under which any person carrying on an insurance business may be liable to satisfy part or all of a judgment, which may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment. Information concerning the insurance agreement is not by reason of disclosure admissible in evidence at trial. For purpose of this subdivision, an application for insurance shall not be treated as part of an insurance agreement.                   

Senate Bill 7052 amended CPLR § 3101(f) to require defendants to disclose information. Under this amendment, defendants must do as follows:

1.    Provide proof of insurance to the plaintiff and any other party in a New York State case within 60 days after service of an answer.

2.    Disclose the insurance information for the policies and programs, sold, or delivered within New York State in place at the time of the loss.

3.    Disclose the contract information, including the telephone number and email address, of the assigned claims adjuster and third-party administrators, including the person at the insurer to whom the third-party administrator reports.

4.    Disclose any lawsuits that may erode or reduce the policy and any lawsuit and attorneys’ fees that have eroded or reduced the policy.

5.    Ensure the accuracy of the disclosure due to an “ongoing obligation to make reasonable efforts to ensure that the policy information remains accurate and complete,” and to update information within 30 days of receipt—the obligation continues until 60 days after the entry of final judgment after all appeals.

Senate Bill 7052 also amended the CPLR § 3101(f), by deeming an insurance application be part of the insurance policy, which had previously not been a requirement. This amendment is immediate and retroactive, applying to all pending suits, with compliance requirements to be made within 60 days.

As previously stated, Senate Bill 7882 moderates some of the drastic changes to CPLR § 3101(f). The moderations are as follows: 

1.    Giving defendants 90 days rather than 60 days from filing an answer to provide the insurance information, and permitting the production of the declaration page only if the plaintiff consents.

2.    Adding the phrase “in so far as such documents relate to the claim being litigated.”

3.    Requiring disclosure of only the name and email address of the assigned claims adjuster.

4.   Eliminating the required disclosure of any lawsuits and attorney’s fees that may or have eroded or reduced the policy.

5.    Requiring defendants to disclose any updated insurance information when “filing the Note of Issue,” at the commencement of court ordered settlement negotiations, at voluntary mediation, at trial, and for 60 days after entry of final judgment or settlement after all appeals.

6.    Exempting personal injury protection cases from these disclosure requirements.

7.    Returning to the former § 3101(f) language, recognizing that an application is not part of the insurance agreement.

8.    Making these new requirements prospective not retrospective from the effective date of Senate Bill 7052. (This would eliminate the severe administrative burden of imposing the requirement on existing cases).

Ensuring Compliance

Counsel, in-house legal staff, risk managers, and claims directors should all implement a coordinated strategy to ensure compliance with these disclosure requirements. We recommend taking the following steps:

 1.   Coordinate with agents and brokers to ensure that you have responsive documents prepared and ready.

2.    Centralize the disclosure process through in-house counsel or retained counsel firms to ensure consistent responses.

3.    Require confidentiality agreements or protective orders before disclosing any insurance information.

4.    When disclosing redacted confidential information, please note these redactions can be challenged.

5.    Identify only potentially responsive policies and programs.

Only time will tell following litigation and further clarifying legislative action on what is meant by “sold” or “delivered” in New York. Therefore, the depth of the disclosure and its requirements remain unclear at the present time.

Disclosing those policies that are applicable to the action and loss that emanate from New York State would be a safe harbor-type disclosure. We would anticipate litigation over this issue of what is meant by “sold” and “delivered” in New York and what exactly needs to be disclosed. Keep in mind, that the broad language of the amended § 3101(f) requires disclosure of “proof of the existence and contents of any insurance agreement under which any person or entity may be liable to satisfy a part or all of a judgment.”

If the disclosure is limited to policies “sold” or “delivered” in New York State, then there could still be issues that occur when organizations writing the policies use brokers located within the state and must disclose their insurance information.

We would also suggest that a determination be made as to whether the insurance information is relevant to the legal dispute. We would recommend providing only insurance information that would provide coverage for the claim at issue. Again, this could be an area where we anticipate litigation and, in fact, if Senate Bill 7882 does not become law, then this limitation would not be available.

We would also anticipate litigation over the wording “under which any person or entity may be liable.” The amount of potential liability determines the scope of the mandatory disclosure.

There could be policies that may not be applicable to the claim or may not respond to the claim, such as primary policies with high deductibles, and insurance programs with high self-insured retentions, umbrella, or excess policies may not respond depending upon the amount of the potential liability. This is an area of concern, and we anticipate litigation over this issue.

We further suggest beginning the disclosure by supplying the declaration pages only for automobiles subject to New York insurance law, and consider complying with New York’s financial responsibility laws by means other than through insurance policies. Monitor legislative developments and urge legislatures and Governor Hochul to further limit these overreaching disclosure requirements. Finally, consult with coverage counsel for compliance as it relates to this law.

The implications for insurers are clear. For one, it means that getting information on any applicable additional insurance coverage is paramount early in the life of the claim. It requires the handling adjuster and any other entity involved in the investigation of the claim to track down the drivers and any other information that would be relevant.

In many instances for small- to mid-size businesses, the burden on self-insured companies and compliance staff will be dramatically increased. Complex claims that have layers of coverage (driver, owner, lessor, lessee, and cargo, for example) will have to have robust procedures in place to track all coverages and ensure that they are updated regularly.

Drive to Disclose

The law as it currently exists is extremely harsh and requires disclosure unprecedented in prior New York law. While compliance is required, doing so in a coordinated fashion with advice from counsel is suggested.

Even if this is done with fidelity, there is ample opportunity for mistakes to be made, coverages to be overlooked, and non-compliance (willful or otherwise) to be raised. Whatever the intention of this law, the implementation is haphazard and clumsy. There will probably be a lot more changes before this is ultimately settled.

With that in mind, keep an eye out for Senate Bill 7882, which moderates the current law. A key important takeaway is to develop compliance procedures that would be acceptable as proper disclosure under the law. 

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About The Authors
Multiple Contributors
Dwight Geddes

Dwight Geddes is the head of Metro Claims Mgmt NYC Inc.dwight@metroclaimsnyc.com

Vincent F. Gerbino

Vincent F. Gerbino is managing partner at Bruno, Gerbino, Soriano & Aitken, LLP.  vgerbino@bgslaw-ny.com

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