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Do Lawyers Professional Liability Policies fall within the "no prejudice" amendments to New York's Insurance Law for late notice?

The New York State Insurance Department has issued an ambiguous opinion taking the position that the amendment to Insurance Law §3420(a)(5), changing the "no prejudice" rule, applies to all liability policies, which arguably would include Lawyer Professional Liability ("LPL") Policies. See Circular Letter No. 26 (2008) and Office of General Counsel Opinion No. 09-01-05 (2009). The new subdivision (5) changing the "no prejudice" rule applies to all policies insuring against "injury to person" or "injury to property."

The Insurance Department letter and opinion offer no explanation, and there also is no explanation in the limited statutory history. (While the Circular Letter is addressed to "property/casualty" insurers (typically general and excess liability insurers), it notes that the statute addresses claims-made policies also (typically the province of professional liability policies). The applicability of the amendment to claims-made policies is specifically confirmed in the General Counsel Opinion.)

The explanation may be that LPL policies contain "personal injury" coverage and/or that they constitute "personal injury liability insurance policies" under Insurance Law §1113(a)(13). "Personal injury" is defined in New York General Construction Law §37-a to "include[] libel, slander and malicious prosecution," which is generally covered under such policies." "Personal injury liability insurance" is defined in section 1113(a)(13) as "insurance against legal liability of the insured . . . incident to a claim of such liability . . . arising out of injury to the economic interests of any person, as the result of negligence in rendering expert, fiduciary or professional service."

However, "personal injury" arguably is a different term from "injury to person." LPL policies also generally exclude coverage for "bodily injury" and "property damage," which seem more like the "injury to person" and "injury to property" referenced in the statute and what one would expect that the legislature intended.

In McCabe v. St. Paul Fire & Marine Ins. Co., 25 Misc.3d 726 (Sup. Ct. Erie Co. 2009), the court addressed whether the statute applied to an LPL policy in a pre-amendment case in the context of an injured party's right to give notice to an insured's LPL carrier under Insurance Law §3420 (a)(3). The court held that it did because the LPL policy covered "personal injury," notwithstanding its exclusion for "bodily injury," and the policy's definition of "personal injury" tracked the statutory definition of "personal injury" in General Construction Law §37-a. The court granted granting summary judgment to the injured party against the insurer, and the Fourth Department affirmed without adding anything to the analysis. 79 A.D.3d 1612 (2010).

The Court of Appeals has not addressed the issue and insurers appear to have generally followed the Insurance Department's guidance by including the language required by subdivision (5), thus acknowledging the need to show prejudice in order to deny coverage based on late notice.

For the reasons noted above, however, where an LPL policy does not contain the statutory language, an argument can be made that the amendments do not, in fact, apply to LPL policies.

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