New York Insurance Law section 3420, which applies to policies issued on or after January 17, 2009, contains a number of provisions and requirements that have a significant impact on liability claims handling. For example, insurers may not deny coverage based on late notice unless there has been prejudice; insurers must timely deny coverage based on policy exclusions; injured plaintiffs must receive notice of any such disclaimer; and judgment creditors may maintain a direct action against an insurer. Several of these provisions are “deemed” to be incorporated into every liability policy, and an insurer risks waiving coverage defenses for failing to comply. Section 3420 applies only to policies that are “issued or delivered” in New York. Recently New York’s highest court, the Court of Appeals, extended the plain meaning of this language to include liability policies that cover insureds and risks located in New York, regardless of where the policies are issued or delivered.
In Carlson v. American International Group, __ N.E.3d __, 2017 WL 5557948, No. 2017 Slip Op 08163 (Nov. 20, 2017), a truck owned by a DHL contractor hit another vehicle, killing the driver. The driver’s husband obtained a $20 million verdict and sought to collect the judgment from DHL’s insurer, American Alternative Insurance Company (AAIC) under the direct action provision of Insurance Law 3420. AAIC argued that Section 3420 did not apply because the policy at issue was not issued or delivered in New York. AAIC was a New Jersey company, and the policy was originally issued to Airborne, Inc., headquartered in Washington and then acquired by DHL, a Florida corporation with offices around the globe. Although the AAIC policy was neither issued nor delivered in New York, the majority held that “issued or delivered” encompasses situations where both insureds and risks are located in the state. Because DHL had a substantial business presence in New York and created risks in the state, that was sufficient to deem the policy subject to the New York rules set forth in section 3420. The dissenting opinion characterized the decision as a “misinterpretation” that “enacts sweeping change across the Insurance Law, generating substantial implications, both known and unknown.”
The Carlson case adds a new level of concern for out-of-state insurers that insure corporations that do business in New York, where the corporation is not a resident of New York but has “a substantial business presence” in the state. Because section 3420 contains so many traps for the unwary, such as strict time deadlines for disclaimers, close attention must be paid to the statute even for out-of-state insurers. New York courts have adopted very strict interpretations of these requirements. See Endurance American Specialty Insurance v. Utica First Insurance Company, 132 A.D.3d 434, 17 N.Y.S.3d 401 (1st Dep’t 2015) for an example of this strict interpretation in an additional insured context.