Commercial Division Blog

Posted: January 7, 2018 / Categories Commercial, Insurance

Insurance Law Section 3420 Applies Only to Policies Covering Both Insureds and Risks in New York

On November 20, 2017, the Court of Appeals issued a decision in Carlson v. American International Group, Inc., 2017 NY Slip Op. 08163, holding that Insurance Law Section 3420 applies to policies that both cover insureds and risks located in New York, explaining:

Insurance Law § 3420 allows a limited cause of action on behalf of injured parties directly against insurers. Section 3420 applies to policies and contracts issued or delivered in this state. Insurance Law § 3420 does not define the term "issued or delivered in this state," but other provisions of the Insurance Law are instructive: The proper interpretation of the term issued or delivered in this state refers both to a policy issued for delivery in New York, and a policy issued for delivery outside of New York. In Preserver, we interpreted section 3420(d), which then required insurers to provide written notice when disclaiming coverage under policies issued for delivery in New York. We held that a policy is issued for delivery in New York if it covers both insureds and risks located in this state. Thus, under Preserver, issued for delivery was interpreted to mean where the risk to be insured was located — not where the policy document itself was actually handed over or mailed to the insured. We interpreted section 3420 to provide a benefit — deliberately in derogation of the common law — to New Yorkers whenever a policy covers insureds and risks located in this state. Applying the Preserver standard to the facts of this case, it is clear that DHL is located in New York because it has a substantial business presence and creates risks in New York. It is even clearer that DHL purchased liability insurance covering vehicle-related risks arising from vehicles delivering its packages in New York, because its insurance agreements say so.

This interpretation of issued or delivered is consistent with the reasoning behind the legislature's enactment of Insurance Law § 3420. In 1917, the legislature created this statutory cause of action to remedy the inequity of the common law rule that an injured person had no cause of action against the insurer of a tortfeasor and to protect the tort victims of New York. Generally, statutes designed to promote the public good will receive a liberal construction and be expounded in such a manner that they may, as far as possible, attain the end in view. The overall legislative intent of Insurance Law § 3420 is to protect the tort victims of New York State, and the subsequent amendments to section 3420 were designed to expand the remedy, not to contract it.

In 2008, the legislature amended Insurance Law § 3420 to expand its reach in several respects. The 2008 amendments were made to restore fairness to the process and protect individuals who suffer personal injuries and families whose loved ones have died as a result of the tortious conduct of another.

The 2008 amendments also changed the issued for delivery language in subsection (d) to match the issued or delivered language elsewhere in the statute. Nothing in the bill jacket or other legislative history mentions that change, so that it appears to have been a stylistic change with no intended import. If anything, issued or delivered is facially broader than issued for delivery. Moreover, there is certainly no indication that the legislature's minor amendment to subsection (d) was intended to overturn this Court's holding in Preserver.

Interpreting issued or delivered in this state to apply exclusively to policies issued by an insurer located in New York or by an out-of-state insurer who mails a policy to a New York address would undermine the legislative intent of Insurance Law § 3420. It would require an assumption that the legislature intended to remove coverage benefitting injured New York residents if the policy was mailed from another state, but to increase coverage for foreign victims injured elsewhere so long as the policy was mailed to New York or underwritten by a New York-based insurer — hardly plausible in light of the express purposes of section 3420 and the 2008 Amendments.

. . .

In light of the above, we conclude that the term issued or delivered does not alter our conclusion in Preserver, and that section 3420 (a) encompasses situations where both insureds and risks are located in this state. In so holding, we further conclude that the policies here fall within the purview of Insurance Law § 3420, and Mr. Carlson may maintain his Insurance Law § 3420 cause of action against AAIC, subject, of course, to his ability to prove coverage.

(Internal quotations and citations omitted).

We have a great deal of experience advising clients regarding insurance coverage issues.  If you or a client have a questions regarding the terms of an insurance policy, contact Schlam Stone Partner Brad Nash.