Recent New York Court Decision Poses Peril for Out-of-State Liability Insurers
New York-domiciled insurers have long been aware of N.Y. Ins. Law Section 3420, which prescribes requirements for liability insurance policies that are “issued for delivery” in New York. These requirements include specific time frames within which an insurer must respond to a claim of bodily injury and death.
Previous cases limited “issued for delivery” only to policies issued and/or delivered in New York. However, a November decision by the New York Court of Appeals has expanded “issued for delivery” to include policies issued by out-of-state insurers to policyholders whose primary places of businesses are also outside of New York, as long as the policy covers both policyholders and risks located in New York State. As a result, out-of-state insurers could now find themselves subjected to Section 3420, which provides for direct actions and includes a strict 30-day deadline to issue a coverage denial in case involving bodily injury or death.
In Carlson v. American Int. Group, Inc.1 New York’s highest court overturned a lower-court decision that applied Section 3420 only to policies actually issued or delivered in New York, irrespective of the loss location or the policyholder on the risk. Reasoning that a prior 2008 statutory change from “issued or delivered” to “issued for delivery” represented a “stylistic change with no intended import,” the Appeals court held that interpreting “issued or delivered” to include policies that cover both insureds and risks located in New York “[i]s consistent with [prior case law] and the legislative history of section 3420.” That legislative history, according to the court, conveyed an “overall legislative intent…to protect tort victims of New York State, and the subsequent amendments…were designed to expand the remedy, not contract it.”
Why does Carlson matter?
At this point, the full impact of Carlson is unclear. However, all insurers that have issued liability policies to insureds with operations and risks in New York should tread carefully. That’s because Section 3420 and all its requirements may well apply to New York accidents, regardless of whether the policy was actually “issued or delivered” in New York.
Given this significant change, we recommend that upon receipt of a claim for bodily injury or death in New York, clients respond promptly and appropriately to ensure compliance with Section 3420.
In doing so, the following should be considered:
- Is the insured “located in New York?"
- Are New York risks covered by your policy terms?
If the answer to both questions is “yes” or “maybe,” Section 3420 could apply. Additionally, we recommend that clients consult coverage counsel in any circumstance that may trigger Section 3420.
- Carlson v. American Intl. Group, Inc., 2017 N.Y. LEXIS 3280, 2017 NY Slip Op 08163, 2017 WL 5557948.