Permits an insurer to rescind or retroactively cancel a policy in certain circumstances involving a staged or fraudulent accident.
TITLE OF BILL: An act to amend the insurance law, in relation to permitting an insurer to rescind or retroactively cancel a policy in certain circumstances
PURPOSE: Remove incentive for staged and caused automobile insurance accidents, by allowing for retroactive cancellation of newly issued insurance private passenger and automobile insurance policies.
SUMMARY OF SPECIFIC PROVISIONS: Adds a new section 3455 to the insurance law.
Subsection A provides insurance companies the ability to cancel a policy to its inception due to non-sufficient funds, nonexistence of a bank account, or the unauthorized use of the account.
Subsection B provides that a person injured during this period may have recourse to his or her own policy or the motor vehicle accident indemnification corporation, provided they were not participating in any fraudulent activity.
JUSTIFICATION: Automobile no-fault states have higher average premiums than tort states. One of the reasons for this is that fraud tends to be more prevalent in no-fault systems, as the rules under which they are implemented make it relatively easy for bad actors to submit fraudulent claims. Additionally, an accident can create a multiplicity of lawsuits, since providers and collection attorneys may initiate a lawsuit for each and every bill. New York's generous no-fault benefits, with minimal oversight, provide huge incentives for unbundling of services and supplies.
Staged accidents are one type of fraudulent claim that is becoming more and more prevalent in New York. Staged accidents begin with bad actors procuring an automobile insurance policy with the intent of submitting a fraudulent claim. In many cases, they procure a policy by submitting a bad payment (either using a nonexistent bank account or stolen credit card information). Most states allow the retroactive cancellation of a policy in the case of a reversed payment to prevent this type of activity. New York, however, does not permit retroactive cancellations; rather cancellations are currently only prospective in nature. That turns into a gold mine where no-fault is involved. The time between the policy is "purchased" to the time it is cancelled provides ample opportunity for no-fault fraud.
This bill allows for retroactive cancellation in New York of newly issued automobile insurance policies to prevent this type of fraud. This would bring New York in line with the other large no-fault states. In fact, only seven other states (AZ, CO, KS, ME, MD, NC and SD) do not allow for retroactive cancellation. Innocent victims of uninsured drivers (i.e.
mandatory uninsured motorist coverage), would be covered under their own policy or the Motor Vehicle Accident Indemnification Corporation.
The proposal would allow retroactive cancellation of the automobile policy, in the first sixty days, where the payment is made with insufficient funds or the identity used to procure the policy turns out to be fraudulent. The automobile insurer would be allowed to cancel a policy retroactively in these cases.
By permitting retroactive cancellations, New York would join the great majority of other states, and would remove many of the incentives for staged accidents.
PRIOR LEGISLATIVE HISTORY: New Bill.
FISCAL IMPLICATIONS: None.
EFFECTIVE DATE: Immediately.
STATE OF NEW YORK ________________________________________________________________________ 4507 2011-2012 Regular Sessions IN SENATE April 8, 2011 ___________Introduced by Sen. GOLDEN -- read twice and ordered printed, and when printed to be committed to the Committee on Insurance AN ACT to amend the insurance law, in relation to permitting an insurer to rescind or retroactively cancel a policy in certain circumstances THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. The insurance law is amended by adding a new section 3455 to read as follows: S 3455. CANCELLATION OF POLICY. (A) NOTWITHSTANDING ANY RULE, LAW OR REGULATION TO THE CONTRARY, AN INSURER MAY RESCIND OR RETROACTIVELY CANCEL TO THE INCEPTION OF THE POLICY, A NEWLY ISSUED COVERED POLICY SUBJECT TO SUBSECTION (A) OF SECTION THREE THOUSAND FOUR HUNDRED TWEN- TY-FIVE OF THIS CHAPTER OR A NEWLY ISSUED COMMERCIAL AUTOMOBILE INSUR- ANCE POLICY SUBJECT TO SECTION THREE THOUSAND FOUR HUNDRED TWENTY-SIX OF THIS CHAPTER, IF THE INITIAL PREMIUM PAYMENT IS NOT HONORED BY A FINAN- CIAL INSTITUTION DUE TO NON-SUFFICIENT FUNDS, THE NONEXISTENCE OF A BANK ACCOUNT OR THE UNAUTHORIZED USE OF THE ACCOUNT. (B) A PERSON WHO IS INJURED DURING THIS PERIOD MAY HAVE RECOURSE TO HIS OR HER OWN POLICY, OR THE MOTOR VEHICLE ACCIDENT INDEMNIFICATION CORPORATION, PROVIDED SUCH PERSON DID NOT PARTICIPATE IN ANY FRAUDULENT ACTIVITY, INCLUDING, BUT NOT LIMITED TO, A STAGED OR CAUSED ACCIDENT. THE MOTOR VEHICLE ACCIDENT INDEMNIFICATION CORPORATION MAY NOT SUBROGATE ITS CLAIM AGAINST THE RESCINDING INSURER. S 2. This act shall take effect immediately.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD09930-04-1