Nadkos, Inc. v Preferred Contrs. Ins. Co. Risk Retention Group LLCNadkos, Inc. v Preferred Contrs. Ins. Co. Risk Retention Group LLC
Argued April 30, 2019; decided June 11, 2019
Nadkos, Inc. v Preferred Contrs. Ins. Co. Risk Retention Group LLC, 162 AD3d 7, affirmed.
Rivera, J.
On this appeal, we conclude that a general business practice of failing to promptly disclose coverage within the meaning of
The genesis of this appeal is in an insurance coverage dispute between plaintiff Nadkos, Inc., the general contractor in an underlying personal injury action by an employee of Nadkos‘s subcontractor, and defendant Preferred Contractors Insurance Company Risk Retention Group LLC (PCIC), the subcontractor‘s general liability insurer. PCIC is a risk retention group (RRG) charted in Montana and doing business in New York. An RRG is an issuer of insurance owned and operated by insureds who work in the same industry and are exposed to similar liability risks (Wadsworth v Allied Professionals Ins. Co., 748 F3d 100, 102 n 1 [2d Cir 2014];
The PCIC policy named Nadkos as an additional insured, extending coverage to Nadkos for liability related to the “ongoing operations” of the subcontractor and other members of the risk retention group. After PCIC disclaimed coverage based on certain exclusions in the policy,1 Nadkos sought a declaratory judgment that the policy obligated PCIC to defend and indemnify Nadkos in the employee‘s personal injury action. Nadkos also maintained—without objection from PCIC—that the disclaimer was untimely. Thus, according to Nadkos‘s interpretation of
PCIC moved for summary judgment, arguing that
The Appellate Division affirmed, holding that an insurance coverage disclaimer is not a disclosure of coverage within the meaning of
We begin our analysis with the applicable insurance provisions of the State‘s statutory and regulatory framework.3 The legislature promulgated the Risk Retention Groups and Purchasing Groups Act, codified in
In turn,
The penalties for violations of the disclosure mandates in
Whether PCIC‘s disclaimer is regulated by the Insurance Law turns on whether the reference to an insurer‘s failure “to promptly disclose coverage” in
We reject the interpretation advocated by Nadkos, and adopted by the dissent, because the prohibition on an unfair claim settlement practice based on a failure to promptly disclose
“When presented with a question of statutory interpretation, a court‘s primary consideration ‘is to ascertain and give effect to the intention of the Legislature’ ” (Matter of Lemma v Nassau County Police Officer Indem. Bd., 31 NY3d 523, 528 [2018], quoting Riley v County of Broome, 95 NY2d 455, 463 [2000]). We have long held that “[t]he statutory text is the clearest indicator of legislative intent” and that a court “should construe unambiguous language to give effect to its plain meaning” (Matter of DaimlerChrysler Corp. v Spitzer, 7 NY3d 653, 660 [2006]). “In the absence of a statutory definition, ‘we construe words of ordinary import with their usual and commonly understood meaning, and in that connection have regarded dictionary definitions as useful guideposts in determining the meaning of a word or phrase’ ” (Yaniveth R. v LTD Realty Co., 27 NY3d 186, 192 [2016], quoting Rosner v Metropolitan Prop. & Liab. Ins. Co., 96 NY2d 475, 479-480 [2001]). It is also our well-established rule that “statutory language should be harmonized, giving effect to each component and avoiding a construction that treats a word or phrase as superfluous” (Lemma, 31 NY3d at 528).
The text of
The term “disclose” generally means “[t]o make (something) known or public; to show (something) after a period of inaccessibility or of being unknown; to reveal” (Black‘s Law Dictionary [10th ed 2014], disclose). To “disclaim,” on the other hand, is “[t]o state, usually formally, that one has no responsibility for, knowledge of, or involvement with (something); to make a disclaimer about[;] . . . [t]o renounce or disavow a legal claim to” (Black‘s Law Dictionary [10th ed 2014], disclaim).6
The dissent‘s embellished version of Nadkos‘s claim is as unpersuasive as the original. To disclose coverage is to make known the existence of a policy, which once disclosed may lead to litigation regarding whether the insured or other claimant is entitled to a payout under the terms of the policy. Indeed,
Indeed, if the legislature intended Nadkos‘s interpretation as adopted by the dissent, it would have used simpler, more direct language of this alleged more expansive construction. For example, the drafters could have described this type of unfair claim settlement practice in either of the following ways: “failing to promptly notify the insured pursuant to
Although the text and structure of these sections render it unnecessary to consider the legislative history, here it lends
The purposes of the 2008 amendments support this reading. The changes in the law were intended to permit individuals suing an insured tortfeasor to initiate a simultaneous declaratory judgment action against the tortfeasor‘s insurer to challenge the denial of coverage based on late notice, and prohibit insurers from denying coverage based on the failure to provide timely notice without demonstrating they were prejudiced by the delay (see Senate Introducer‘s Mem in Support, Bill Jacket, L 2008, ch 388 at 8, 2008 McKinney‘s Session Laws of NY at 2055, 2056). As the Introducer‘s Memorandum states,
“establish a process for a claimant to receive confirmation from an insurer that the insured had an insurance policy in effect on the alleged occurrence date, and the limits of such policy. This section of the bill also establishes a process in case insufficient information is provided to the insurer and such confirmation is not possible” (id.).
While
The statutory text, framework and legislative history establish that
Wilson, J. (dissenting). Imagine that you have purchased liability insurance, to protect you in case someone sues you for injuries allegedly caused by your negligence. When sued, you ask your insurance company the same question every policyholder asks: am I covered? New York‘s Legislature has deemed it vitally important that your insurer answer that question right away.
“If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle 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.”
Thus, when you ask your insurer whether you are covered, your insurer must answer you promptly in writing, yes or no. If your insurer does not answer “as soon as is reasonably possible,” your insurer is stripped of most of the coverage exclusion clauses in the insurance policy that could otherwise have allowed it to deny you coverage (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 68 [2003]; accord Allstate Ins. Co. v Gross, 27 NY2d 263, 270 [1970]).
New York‘s untimely disclaimer rule exists to promote fairness to policyholders and accident victims alike. Ordinary
Because insurer prevarication is unfair to both victims and policyholders, almost every jurisdiction in the United States provides by statute that an insurance company‘s regular failure promptly to affirm or deny coverage is an “unfair claims settlement practice.” I say “almost” because now New York is no longer among them. Today, the majority pulls New York out of the mainstream, and declares that contrary to the national consensus, common sense and the plain text of our insurance laws, the legislature intended to make an insurer‘s refusal to confirm or deny coverage promptly not an unfair claims practice, all by adopting an amendment the text of which did exactly that.
Accordingly, every insurer operating in this state, foreign and domestic, risk retention group and multi-line casualty insurer, from Lloyds of London to the smallest captive local insurer, will not be liable for extra-contractual damages for unfair claims handling and/or bad faith practices because of late disclaimer, and damages for late disclaimer will be limited to policy limits—in New York and no other state. That anomalous result rests on the majority‘s conclusion that when the legislature said “subsection (d)” it did not mean “subsection (d).” The majority reaches that conclusion by misreading the surrounding words based on a flimsy legislative history—causing it to undermine a 2008 law whose very purpose was to eliminate judicially-imposed pro-insurer spin on New York insurance laws.
This case should end there. However, the majority ignores the statutory text and declares that
I.
I agree with the majority‘s recitation of the relevant facts, and briefly summarize them here to place them in the proper
A risk retention group is a liability insurance company owned solely by its insureds. RRGs offer commercial liability insurance for the mutual benefit of those owner insureds, as a form of collective self-insurance. They make up a relatively small fraction of the liability insurance market overall, and are largely employed in industries with specialized risks that are not well-addressed by conventional liability insurers. The most common kind of RRG is formed by medical practitioners to provide medical malpractice liability insurance (see generally Government Accountability Office, Report No. GAO-12-16: Risk Retention Groups: Clarifications Could Facilitate States’ Implementation of the Liability Risk Retention Act [Dec. 2011], https://www.gao.gov/products/GAO-12-16). RRGs are strictly “self-insurance” groups, however; they are forbidden from insuring nonmembers (
RRGs are governed by a different regulatory structure than applies to other kinds of insurance providers. Ordinarily, each state regulates all insurers—both those chartered inside and out of the state—in the same way. The LRRA2 provides, however, that self-insurance groups meeting the federal criteria for being an RRG can, essentially, pick any state in the U.S. to be their home or “chartering” state and be subject to comprehensive regulation by that state only (here, PCIC chose Montana
Although PCIC included Nadkos as an additional insured, PCIC‘s liability policy contains many exclusions from personal injury coverage, among them an exclusion for claims arising from bodily injury incurred on ” ‘employee[s]’ . . . working directly or indirectly on the insured‘s behalf.” Mirkamel Vafaev, a Chesakl employee, was injured and sued Chesakl, Nadkos, 596 E19th Partners LLC, and Nadkos‘s principal, Oleksandr Nad, for negligence. Chesakl and Nadkos tendered the claim to PCIC on August 27, 2015. PCIC timely disclaimed Chesakl‘s coverage five days later (counting the weekend), on September 1, 2015. However, it waited a full 81 days before responding to Nadkos, disclaiming coverage on the same basis as it disclaimed to Chesakl (the two letters are almost identical), on November 16, 2015.
Under
II.
I begin with the question actually presented by this case: does
It does.
The majority has no answer to the plain text of
The majority chooses to avoid comment on the LRRA describing its decision as resting “solely on state law grounds.” In another footnote, it appears to set out what those state law grounds are: declaring the matter “straightforward,” it begins by explaining that ”
First, the conclusion that foreign RRGs are exempt as a matter of state law from all state laws particularly regulating liability insurance except those on the
The list of laws the majority implies no longer bind foreign RRGs (or might no longer bind foreign RRGs) is long indeed: the laws of New York include the
The facts of this case are useful to illustrate the confusion that will result from the majority‘s decision. The majority holds that
Second, the majority never explains why the implication in
That the legislature intended to bind foreign RRGs right to the very limits of federal law is further supported by the legislature‘s own words at the start of
Finally, the majority‘s tacit holding that the list contained in
III.
Even if foreign RRGs were subject to only those New York liability insurance laws listed in
The plain text of the statute makes it clear that the untimely disclaimer rule is an unfair claims settlement practice. When the legislature said “subsection (d)” it meant “subsection (d),” that is, both
A.
The majority holds that
Instead, the majority argues,
To understand the problem with the majority‘s analysis, consider the following example. When I return from work, my daughter asks if I have brought home any cookies. I confirm that I have brought home a dozen chocolate chip cookies. Any
The inevitable reaction of my daughter to my 81-day answer illustrates the problem with the majority‘s analysis. It is completely irrelevant to her whether the cookies exist; what matters is whether she can eat one. Likewise, an insurer who tells a policyholder (or a victim suing a policyholder) that a policy exists, with a maximum coverage limit, provides no material help to either the policyholder or the victim until the insurer discloses whether the insurer will cover the claim, and that can only happen if the insurer discloses whether it denies or accepts coverage. It does little if any good for policyholders or victims to simply be told that a policy exists; indeed, insureds have a copy of their insurance policies when they obtain them, and would not ordinarily know what insurer to notify unless they have some basis to know the identity of their insurer. The problem is that policies are unreadable by all but a subset of lawyers, most of whom work for insurance companies.5 What
The majority‘s focus on the verb “disclose” also fails as a matter of textual analysis, because it reads the conjoined word “coverage” out of the statute. I accept the majority‘s dictionary fortifications around the word “disclose;” they are irrelevant. What matters is whether
The majority rejects this commonsense interpretation of
That “disclaimer” operates as a form of “disclosure” of coverage is a function of the particular legal environment in which insurers operate. The law of every state provides that if an insurer affirms that the policyholder‘s claim is covered, then
The majority‘s second gyration is to argue that the legislative history of
Even assuming “subsection (d)” was ambiguous such that we would look to legislative history, the majority‘s use of legislative
B.
Finally, I note that even if the majority is completely correct about everything in its opinion, the majority has ignored the New York Department of Financial Services’ decision to adopt, pursuant to its powers under
IV.
Even if the majority is right to say that foreign RRGs are subject only to the laws set out in
Neither the LRRA nor
PCIC‘s coverage of Nadkos placed it outside the scope of the federal definition of an RRG. Congress defined RRGs as “any corporation or other limited liability association . . . whose activities do not include the provision of insurance other than . . . liability insurance for assuming and spreading all or any portion of the similar or related liability exposure of its group members” (
Contemplating the possibility that an RRG might find itself in breach of the LRRA‘s definitions that presumably would trigger action from the chartering state‘s insurance commissioner but leave nonchartering states with only ambiguous power over the rogue RRG, in 1986 Congress adopted the Risk Retention Amendments to limit the “exemption” scope of the law to encompass only “laws governing the insurance business pertaining to . . . liability insurance coverage provided by a risk retention group for . . . such group; or . . . any person who is a member of such group” (
Congress did not allow RRGs to evade state insurance laws while defying Congress‘s restriction that RRGs insure only their own members and not third parties:
“from its inception the scope of preemption authorized by Congress to effect the creation of risk retention groups turned upon the limited field of customers that those groups could serve. Risk retention groups were member financed and member servicing organizations only; the state‘s interest in regulating insurers dealing with the public was to remain untouched by this legislation” (Home Warranty Corp. v Caldwell, 777 F2d 1455, 1468 [11th Cir 1985]).
Congress reasoned that precisely “[b]ecause risk retention groups will be providing insurance coverage only to their members, and not to the public at large, it is believed that regulation by the chartering jurisdiction will be sufficient to provide adequate supervision of these groups” (HR Rep 865, 99th Cong, 2d Sess at 12, reprinted in 1986 US Code Cong & Admin News at 5303, 5309, quoting S Rep 97-271, 97th Cong, 1st Sess at 13 [concerning the original 1981 PLRRA]; see also
This case provides a useful illustration of the soundness of Congress’ and the New York Legislature‘s judgment that RRGs who insure nonmembers should be exposed to nonchartering state law like any other insurance provider. When the original injury claim was made, Chesakl received a thorough declination of coverage from PCIC within three business days; Chesakl was, after all, a co-owner of PCIC and PCIC‘s claims administrators had every incentive to be attentive to Chesakl‘s submissions
Neither the LRRA nor
V.
Because I would hold that
I would hold it does not, for two reasons. First, as I discussed immediately above, the LRRA (like the identically-worded provisions of
Second, the LRRA exempts, and was intended to exempt, only what federal law understood to be state unfair claims practices law and as a matter of federal law.
To determine whether
“As a result, any understanding of the scope of a pre-emption statute must rest primarily on a fair
understanding of congressional purpose. Congress’ intent, of course, primarily is discerned from the language of the pre-emption statute and the statutory framework surrounding it. Also relevant, however, is the structure and purpose of the statute as a whole, as revealed not only in the text, but through the reviewing court‘s reasoned understanding of the way in which Congress intended the statute and its surrounding regulatory scheme to affect business, consumers, and the law” (id. [citations, internal quotation marks and emphasis omitted]).
“Unfair claims settlement practices law” is not defined in the LRRA, and no federal court has yet opined on what that phrase means in the LRRA or what the term meant in 1981 or 1986. However, “claims settlement practices” was and is a well-understood term in insurance law: it refers to the process where insurers receive claims on the policy, evaluate those claims, determine whether the claim is covered, and then pay to the claimant all or part of the claimed amount with an explanation of what was covered, what was not covered, and why (see e.g. Union Labor Life Ins. Co. v Pireno, 458 US 119, 135 [1982, Rehnquist, J., dissenting] [discussing medical insurance claims settlement practices]; Pathway Bellows, Inc. v Blanchette, 630 F2d 900, 903 [2d Cir 1980] [discussing claims settlement in terms of carriers’ voluntary disposition of claims]). The legislative history of the LRRA is also instructive. When the “unfair claims settlement practices of the state” language was written into the act in 1981, the House and Senate committees each explained the purpose of the exemption (HR Rep 97-190, 97th Cong, 1st Sess at 14, reprinted in 1981 US Cong Code & Admin News at 1432, 1442-1443; S Rep 97-172, 97th Cong, 1st Sess at 12): “Subparagraph (A) is intended to provide persons injured within a State with the same rights regarding settlement practices against a risk retention group as they would otherwise have against a licensed insurer.”
The legislative history strongly suggests that all state laws regarding “settlement practices” apply with full force against RRGs, not merely a selection of those laws—otherwise “persons injured within a State” would not have “the same rights regarding settlement practices against [an RRG] as they would otherwise have against a licensed insurer.” Congress’ intent
Congress also knew at least a list of indicative examples of “unfair claims practices laws” because the National Association of Insurance Commissioners, then and now the preeminent organization of insurance regulators in the United States,10 had in 1971 adopted an amendment to the Uniform Unfair Trade Practices Act listing examples of unfair claims settlement practices. That list of “unfair claims settlement practices” included, at section 4 (9), “failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements
Congress deliberately provided that foreign RRGs would not be exempt from “the unfair claim settlement practices law of the State” (
Congress’ decision also made good policy sense. The point of RRGs is to allow the formation of entities to provide insurance coverage where conventional insurers had not offered coverage at reasonable prices, both so that coverage would be available and as a way to inject competition into markets increasingly marked by a small number of quasi-monopolistic carriers setting premiums with little relation to the underlying risk profile involved (see HR Rep 97-190, 97th Cong, 1st Sess at 22, reprinted at 1981 US Code Cong & Admin News at 1432, 1451; S Rep 97-172, 97th Cong, 1st Sess at 2-3). That purpose is defeated if an RRG refuses to pay covered claims, or delays determining coverage, or otherwise deprives the insured of the full benefit of its liability insurance coverage. Congress had no interest in policing bad insurer behavior itself, and was keenly aware that (in 1981, when the unfair claims settlement practices exemption was adopted) most RRGs were chartered in Bermuda or the Cayman Islands, which were not prepared to serve as general watchdogs for the burgeoning RRG sector Congress hoped to create (HR Rep 97-190, 97th Cong, 1st Sess at 5-6, 11, reprinted at 1981 US Code Cong & Admin News at 1432, 1433-1434, 1439-1440; S Rep 97-172, 97th Cong, 1st Sess at 9-10). Instead, Congress looked to the traditional enforcers of unfair claims practices law: the nonchartering states where claimants were based.
Once we accept that the scope of federal preemption is determined by Congress’ intent and that
VI.
In sum, then: (1)
The majority now insists the legislature (or possibly the Superintendent of Financial Services) reclarify what is already clear. This case could have been decided in a way that provided clarity and advantages to all: yes you may have a cookie, or no you may not. Instead, the majority‘s decision is confusing and damaging to policyholders and accident victims everywhere. I respectfully dissent.
Chief Judge DiFiore and Judges Stein, Fahey, Garcia and Feinman concur; Judge Wilson dissents in an opinion.
Order affirmed, with costs.
Notes
The dissent‘s view that we place undue emphasis on analyzing textual differences ignores this Court‘s role when called upon to interpret a statute. Our task is to dig into the weeds, parse minute details, and consider whether a legislative choice of a specific word or phrase evinces a particular intent. In view of the text and structural placement of the subject provisions, as well as the legislative history, discussed infra,