The federal Liability Risk Retention Act allows for the creation of industry groups–Risk Retention Groups (“RRG”) or Purchasing Groups–that are exempt from certain state insurance regulation requirements outside the RRG’s state of charter. Most states, if not all, have unfair claims practices acts and those statutes are expressly applicable to RRGs. Many states also have statutes requiring timely disclaimers by insurance companies for liability policies covering personal injuries. Do the requirements for timely disclaimers (or the penalties for untimely disclaimers) apply to a non-domiciliary RRG? The New York Court of Appeals, with one dissent, has answered that question.
In Nadkos, Inc. v. Preferred Contractors Insurance Co., No. 37 (N.Y. Ct of App. Jun. 11, 2019), a general contractor covered by a construction industry RRG sought coverage for an underlying personal injury action. The RRG disclaimed coverage based on certain exclusions. The general contractor commenced a declaratory judgment action that the insurance policy obligated the RRG to defend and indemnify it and that the RRG’s disclaimer was untimely. Under New York Insurance Law § 3420(d)(2), an untimely disclaimer is void.
Both the motion court and the appellate division accepted the RRG’s argument that § 3420(d)(2) was inapplicable to a non-domiciliary RRG and RRG obtained summary judgment dismissing the complaint. The appellate division affirmed.
In also affirming, the Court of Appeals concluded that § 3420(d)(2) did not fall within New York’s unfair claims practices act because an untimely disclaimer was not a general business practice of failing to promptly to disclose coverage within the meaning of New York Insurance Law § 2601(a)(6). The court explained that while § 3420(d)(1) comes within § 2601 (a)(6), because it requires insurers to respond to requests for information about the policy, (d)(2) does not. The court goes through a detailed analysis distinguishing (d)(1) from (d)(2) and their applicability to a non-domiciliary RRG. The court concluded that the “statutory text, framework and legislative history establish that section 2601(a)(6) does not encompass the liability disclaimer requirement of section 3420(d)(2).
There was a lively dissent that argued the majority had taken New York law out on its own and away from what every other state would hold and claimed that untimely disclaimer is an integral part of unfair claims practices. The majority rejected the dissent’s claims in affirming.