BILL NUMBER: S1604

SPONSOR: BRESLIN
 
TITLE OF BILL:

An act to amend the insurance law, in relation to permitting certain
liability policies to provide coverage for punitive damages and civil
penalties

 
PURPOSE:

To allow insurance coverage for punitive damages. SUMMARY OF PROVISIONS:

Section one creates a new Section 3421 of Title 34 of the Insurance law
establishing punitive damages and civil penalties coverage.

Section two is the effective date.

 
JUSTIFICATION:

New York is one of only two states that completely bars insurance for
              

any punitive damages assessed. The vast majority of states permit insur-
ers to provide coverage for punitive, exemplary damages and civil penal-
ties.

In New York, in 1979 the Court of Appeals determined that punitive
damages were not insurable because they are designed to punish the
wrongdoer and deter further misbehavior. See Hartford v. Village of
Hempstead (48 N.Y. 2d 218). All subsequent New York cases on the issue
have largely been constrained to follow the Hartford case.  While the
Hartford case remains New York's leading statement on this issue of
public policy, it is a difficult one to enforce and administrate in the
face of interstate commerce.

The Department of Financial Services continues to enforce that public
policy, however, in recognition of the issues involving interstate
commerce, it acknowledged in an Office of General Counsel opinion dated
December 21, 2005 that a New York licensed reinsurer is permitted to
reinsure an insurer not licensed in New York for policies with punitive
damage coverage under most circumstances.

This policy set by the judiciary over thirty-five years ago has not been
reconsidered despite the national trend. This legislation seeks to fix
an antiquated policy and align New York State with the rest of the
nation.

Today, insurance producers and insurers sell punitive damage insurance
on a regular yet selective basis in almost every state. They do so
because insureds desire to protect themselves from the adverse financial
and business consequences of punitive damages awards, particularly when
those awards arise out of strict liability or vicarious liability.

Insurers sell such coverage believing they can determine appropriate
rates based on an estimable range of loss costs.

New York insureds cannot buy coverage for punitive damages from New York
licensed insurers or from eligible excess line insurers. New York
insureds who desire this coverage are forced to purchase such insurance
from insurers not regulated by New York, including off shore insurers in
Bermuda and other countries beyond the jurisdiction of New York courts
and beyond state regulators and regulation. While punitive damages
coverage is not available for purchase within the state, the Supreme
Court of the United States has held that it is legal for insureds to
purchase coverage beyond the borders of the state. See State Board of
Insurance v. Todd Ship Yards Corp. (370 U.S. 451). New York consumers
would benefit if they could acquire such coverage through the New York
regulated market where consumer protection is a paramount goal.

Any concern that coverage for punitive damages will result in insurance
for intentional or criminal acts can be addressed by the way policies
are written in the states that permit coverage for punitive damages. In
the states that permit the insurance of punitive damages, insurance
policies are written to exclude coverage for intentional acts of the
named insured. Disallowing punitive damages coverage for personal lines
insurance and commercial automobile liability insurance further limits
the scope of permissible coverage to the most vital for commercial
insureds. Specifying that coverage for punitive damages can only apply
when expressly provided for by the insurance policy ensures that insur-
ers and brokers are not required to offer such coverage, and courts will
not find coverage without the insurance policy expressly providing for
it.

The result of any large punitive damage judgment awarded in New York
today is often an uncollected, hollow judgment without benefit to the
aggrieved party and without punishment to a judgment debtor which files
bankruptcy or otherwise ceases to do business without satisfying the
punitive damage award. This proposal seeks to foster the collection of
court awarded damages by the plaintiffs who received these awards.

 
LEGISLATIVE HISTORY:

S.423b of 2018

S.6909 of 2016.

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
Immediately.