Bill S7746-2011

Permits an insurer to rescind or retroactively cancel a policy in circumstance involving an accident staged to defraud an insurer

Permits an insurer to rescind or retroactively cancel a policy in circumstance involving an accident staged to defraud an insurer.

Details

Actions

  • Jun 20, 2012: referred to insurance
  • Jun 20, 2012: DELIVERED TO ASSEMBLY
  • Jun 20, 2012: PASSED SENATE
  • Jun 20, 2012: ORDERED TO THIRD READING CAL.1403
  • Jun 17, 2012: REFERRED TO RULES

Votes

Memo

BILL NUMBER:S7746

TITLE OF BILL: An act to amend the insurance law and the vehicle and traffic law, in relation to permitting an insurer to rescind or retroactively cancel a policy in certain circumstances

PURPOSE OR GENERAL IDEA OF BILL: 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: Section 1- Adds a new section 3455 to the insurance law that: provides insurance companies the ability, within the first 30 days, to rescind a policy to its inception due to 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.

Section 2-Amends Subsection (d) of section 3420 of the insurance law to provides insurers the ability to rescind coverage pursuant to section 3455 for death or bodily injury arising from an uninsured motorist endorsement by any occupant of a motor vehicle involved in a staged accident who is without knowledge of the staging or arranging of the staged or arranged accident.

Section 3-Paragraph 1 of subsection (f) of Section 3420 of the insurance law, as amended by chapter 305 of the laws of 1995, is amended to add rescinded policies to the list of scenarios that a driver would be insured against in the event of bodily injury or death.

Section 4-Subparagraph A subsection (f) of section 3420 of the insurance law is amended to deal with supplementary uninsured/underinsured coverage.

Section 5-Section 5103 of the insurance law is amended to address individuals who are involved in a staged accident who is without knowledge of the staging or arranging of the staged or arranged accident.

Section 6-subsection (2) of section 5103 of the insurance law is amended to account for vehicles whose coverage has been rescinded or cancelled.

Section 7-Paragraph (a) of subdivision 1 of section 313 of the vehicle and traffic law is amended to exempt section 3455 of the insurance law from the 20 day mailing notice to cancel an insurance policy.

Section 8-sets forth in the Motor Vehicle Insurance Indemnification Law coverage for innocent victims of staged accidents.

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 thirty 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.

FISCAL IMPLICATIONS: None.

EFFECTIVE DATE: Two hundred seventy days after it shall have become a law


Text

STATE OF NEW YORK ________________________________________________________________________ 7746 IN SENATE June 17, 2012 ___________
Introduced by Sen. GOLDEN -- read twice and ordered printed, and when printed to be committed to the Committee on Rules AN ACT to amend the insurance law and the vehicle and traffic 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) AN INSURER MAY, WITHIN THE FIRST THIRTY DAYS, RESCIND OR RETROACTIVELY CANCEL TO THE INCEPTION A NEWLY ISSUED AUTOMOBILE INSURANCE POLICY SUBJECT TO PARAGRAPH (1) OF SUBSECTION (A) OF SECTION THREE THOUSAND FOUR HUNDRED TWENTY-FIVE OF THIS ARTICLE, A NEWLY ISSUED COMMERCIAL AUTOMOBILE INSURANCE POLICY SUBJECT TO SECTION THREE THOUSAND FOUR HUNDRED TWENTY-SIX OF THIS ARTI- CLE, OR A POLICY ISSUED PURSUANT TO ANY PLAN ESTABLISHED UNDER ARTICLE FIFTY-THREE OF THIS CHAPTER, IF THE INITIAL PREMIUM PAYMENT IS NOT HONORED BY A FINANCIAL INSTITUTION DUE TO THE NONEXISTENCE OR THE UNAU- THORIZED USE OF A BANK ACCOUNT OR THE INITIAL PREMIUM PAYMENT IS DENIED BY A CREDIT CARD COMPANY DUE TO THE UNAUTHORIZED USE OF A CREDIT CARD ACCOUNT. THIS SECTION SHALL NOT APPLY TO POLICIES REQUIRED UNDER ARTICLE EIGHT OF THE VEHICLE AND TRAFFIC LAW. (B) A PERSON WHO IS INJURED DURING THIS PERIOD AND WHO WOULD ORDINAR- ILY BE COVERED UNDER THE INSURED'S POLICY HAD IT NOT BEEN CANCELED PURSUANT TO SUBSECTION (A) OF THIS SECTION, SHALL BE ENTITLED TO RECOVER UNDER HIS OR HER OWN POLICY SUBJECT TO THE TERMS AND CONDITIONS OF THE CONTRACT, OR IF THE INJURED PERSON IS UNINSURED, THEY SHALL BE ENTITLED TO RECOVER UNDER THE MOTOR VEHICLE ACCIDENT INDEMNIFICATION CORPORATION, PROVIDED SUCH PERSON DID NOT PARTICIPATE IN ANY FRAUDULENT ACTIVITY, INCLUDING, BUT NOT LIMITED TO, AN ACCIDENT STAGED TO DEFRAUD AN INSURER. THE MOTOR VEHICLE ACCIDENT INDEMNIFICATION CORPORATION MAY NOT SUBROGATE ITS CLAIM AGAINST THE RESCINDING INSURER.
S 2. Paragraph 2 of subsection (d) of section 3420 of the insurance law, as amended by chapter 388 of the laws of 2008, is amended to read as follows: (2) If under a liability policy issued or delivered in this state, an insurer shall disclaim liability [or], deny coverage, OR RESCIND COVER- AGE PURSUANT TO SECTION THREE THOUSAND FOUR HUNDRED FIFTY-FIVE OF THIS ARTICLE, for death or bodily injury arising out of a motor vehicle acci- dent, INCLUDING ANY CLAIM FOR PERSONAL INJURIES UNDER AN UNINSURED MOTORIST ENDORSEMENT BY ANY OCCUPANT OF A MOTOR VEHICLE OR OTHER PERSON INVOLVED IN AN ACCIDENT WHICH WAS STAGED TO DEFRAUD AN INSURER WHO IS WITHOUT KNOWLEDGE OF THE STAGING OR FRAUDULENT INTENT OF THE ACCIDENT, or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant. S 3. Paragraph 1 of subsection (f) of section 3420 of the insurance law, as amended by chapter 305 of the laws of 1995, is amended to read as follows: (1) No policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any natural person arising out of the ownership, maintenance and use of a motor vehicle by the insured shall be issued or delivered by any authorized insurer upon any motor vehicle then principally garaged or principally used in this state unless it contains a provision whereby the insurer agrees that it will pay to the insured, as defined in such provision, subject to the terms and conditions set forth therein to be prescribed by the board of direc- tors of the Motor Vehicle Accident Indemnification Corporation and approved by the superintendent, all sums, not exceeding a maximum amount or limit of twenty-five thousand dollars exclusive of interest and costs, on account of injury to and all sums, not exceeding a maximum amount or limit of fifty thousand dollars exclusive of interest and costs, on account of death of one person, in any one accident, and the maximum amount or limit, subject to such limit for any one person so injured of fifty thousand dollars or so killed of one hundred thousand dollars, exclusive of interest and costs, on account of injury to, or death of, more than one person in any one accident, which the insured or his legal representative shall be entitled to recover as damages from an owner or operator of an uninsured motor vehicle, unidentified motor vehicle which leaves the scene of an accident, a motor vehicle regis- tered in this state as to which at the time of the accident there was not in effect a policy of liability insurance, A MOTOR VEHICLE FOR WHICH THE POLICY OF INSURANCE HAS BEEN RESCINDED OR CANCELLED PURSUANT TO SECTION THREE THOUSAND FOUR HUNDRED FIFTY-FIVE OF THIS ARTICLE, a stolen vehicle, A MOTOR VEHICLE INVOLVED IN AN ACCIDENT WHICH WAS STAGED TO DEFRAUD AN INSURER, EXCEPT SUCH VEHICLE OWNED AND OPERATED BY THE PERPE- TRATOR OR PERPETRATORS OF SUCH ACCIDENT, a motor vehicle operated with- out permission of the owner, an insured motor vehicle where the insurer disclaims liability or denies coverage or an unregistered vehicle because of bodily injury, sickness or disease, including death resulting therefrom, sustained by the insured, caused by accident occurring in this state and arising out of the ownership, maintenance or use of such motor vehicle. No payment for non-economic loss shall be made under such policy provision to a covered person unless such person has incurred a serious injury, as such terms are defined in section five thousand one hundred two of this chapter. Such policy shall not duplicate any element of basic economic loss provided for under article fifty-one of this
chapter. No payments of first party benefits for basic economic loss made pursuant to such article shall diminish the obligations of the insurer under this policy provision for the payment of non-economic loss and economic loss in excess of basic economic loss. Notwithstanding any inconsistent provisions of section three thousand four hundred twenty- five of this article, any such policy which does not contain the afore- said provisions shall be construed as if such provisions were embodied therein. S 4. Subparagraph (A) of paragraph 2 of subsection (f) of section 3420 of the insurance law, as separately amended by chapters 547 and 568 of the laws of 1997, is amended to read as follows: (A) Any such policy shall, at the option of the insured, also provide supplementary uninsured/underinsured motorists insurance for bodily injury, in an amount up to the bodily injury liability insurance limits of coverage provided under such policy, subject to a maximum of two hundred fifty thousand dollars because of bodily injury to or death of one person in any one accident and, subject to such limit for one person, up to five hundred thousand dollars because of bodily injury to or death of two or more persons in any one accident, or a combined single limit policy of five hundred thousand dollars because of bodily injury to or death of one or more persons in any one accident. Provided however, an insurer issuing such policy, in lieu of offering to the insured the coverages stated above, may provide supplementary uninsured/underinsured motorists insurance for bodily injury, in an amount up to the bodily injury liability insurance limits of coverage provided under such policy, subject to a maximum of one hundred thousand dollars because of bodily injury to or death of one person in any one accident and, subject to such limit for one person, up to three hundred thousand dollars because of bodily injury to or death of two or more persons in any one accident, or a combined single limit policy of three hundred thousand dollars because of bodily injury to or death of one or more persons in any one accident, if such insurer also makes available a personal umbrella policy with liability coverage limits up to at least five hundred thousand dollars which also provides coverage for supple- mentary uninsured/underinsured motorists claims. Supplementary uninsured/underinsured motorists insurance shall provide coverage, in any state or Canadian province, if the limits of liability under all bodily injury liability bonds and insurance policies of another motor vehicle liable for damages INCLUDING BUT NOT LIMITED TO A VEHICLE FOR WHICH THE POLICY OF INSURANCE HAS BEEN RESCINDED OR CANCELLED PURSUANT TO SECTION THREE THOUSAND FOUR HUNDRED FIFTY-FIVE OF THIS ARTICLE, A MOTOR VEHICLE INVOLVED IN AN ACCIDENT WHICH WAS STAGED TO DEFRAUD AN INSURER, EXCEPT SUCH VEHICLE OWNED AND OPERATED BY THE PERPETRATOR OR PERPETRATORS OF SUCH ACCIDENT, are in a lesser amount than the bodily injury liability insurance limits of coverage provided by such policy. Upon written request by any insured covered by supplemental uninsured/underinsured motorists insurance or his duly authorized repre- sentative and upon disclosure by the insured of the insured's bodily injury and supplemental uninsured/underinsured motorists insurance coverage limits, the insurer of any other owner or operator of another motor vehicle against which a claim has been made for damages to the insured shall disclose, within forty-five days of the request, the bodi- ly injury liability insurance limits of its coverage provided under the policy or all bodily injury liability bonds. The time of the insured to make any supplementary uninsured/underinsured motorist claim, shall be tolled during the period the insurer of any other owner or operator of
another motor vehicle that may be liable for damages to the insured, fails to so disclose its coverage. As a condition precedent to the obli- gation of the insurer to pay under the supplementary uninsured/underinsured motorists insurance coverage, the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be exhausted by payment of judgments or settlements. S 5. Paragraph 1 of subsection (b) of section 5103 of the insurance law is amended to read as follows: (1) Intentionally causes his own injury, EXCEPT ANY OCCUPANT OF A MOTOR VEHICLE OR OTHER PERSON INVOLVED IN AN ACCIDENT STAGED TO DEFRAUD AN INSURER WHO IS WITHOUT KNOWLEDGE OF THE STAGING OR FRAUDULENT INTENT OF SUCH ACCIDENT. S 6. Paragraph 2 of subsection (a) of section 5103 of the insurance law is amended to read as follows: (2) The named insured and members of his household, other than occu- pants of a motorcycle, for loss arising out of the use or operation of (i) an uninsured motor vehicle or motorcycle, OR A VEHICLE WHOSE COVER- AGE IS RESCINDED OR CANCELLED PURSUANT TO SECTION THREE THOUSAND FOUR HUNDRED FIFTY-FIVE OF THIS CHAPTER, within the United States, its terri- tories or possessions, or Canada; and (ii) an insured motor vehicle or motorcycle outside of this state and within the United States, its territories or possessions, or Canada. S 7. Paragraph (a) of subdivision 1 of section 313 of the vehicle and traffic law, as amended by chapter 569 of the laws of 1981, is amended to read as follows: (a) [No] EXCEPT AS PROVIDED FOR IN SECTION THREE THOUSAND FOUR HUNDRED FIFTY-FIVE OF THE INSURANCE LAW, NO contract of insurance for which a certificate of insurance has been filed with the commissioner shall be terminated by cancellation by the insurer until at least twenty days after mailing to the named insured at the address shown on the policy a notice of termination by regular mail, with a certificate of mailing, properly endorsed by the postal service to be obtained, except where the cancellation is for non-payment of premium in which case fifteen days notice of cancellation by the insurer shall be sufficient, provided, however, if another insurance contract has been procured, such other insurance contract shall, as of its effective date and hour, terminate the insurance previously in effect with respect to any motor vehicles designated in both contracts. No contract of insurance for which a certificate of insurance has been filed with the commissioner in which a natural person is the named insured and the motor vehicle is used predominantly for non-business purposes shall be non-renewed by an insurer unless at least forty-five, but not more than sixty days in advance of the renewal date the insurer mails or delivers to the named insured at the address shown on the policy a written notice of its intention not to renew. No such contract of insurance in which the named insured is not a natural person or the motor vehicle is used predomi- nantly for business purposes shall be non-renewed by an insurer unless at least twenty days in advance of the renewal date the insurer mails or delivers to the named insured at the address shown on the policy a writ- ten notice of its intention not to renew. All notices of non-renewal shall be sent by regular mail with a certificate of mailing, properly endorsed by the postal service to be obtained. Time of the effective date and hour of termination stated in the notice shall become the end of the policy period. Every notice or acknowledgement of termination for any cause whatsoever sent to the insured shall include in type of which
the face shall not be smaller than twelve point a statement that proof of financial security is required to be maintained continuously through- out the registration period and a notice prescribed by the commissioner indicating the punitive effects of failure to maintain continuous proof of financial security and actions which may be taken by the insured to avoid such punitive effects. S 8. Paragraphs 6 and 7 of subsection (b) of section 5201 of the insurance law are amended and a new paragraph 8 is added to read as follows: (6) insured motor vehicles where the insurer disclaims liability or denies coverage, [and] (7) unregistered motor vehicles[.], AND (8) AN ACCIDENT STAGED TO DEFRAUD AN INSURER. S 9. This act shall take effect two hundred seventy days after it shall have become a law.

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