v.
Preferred Contractors Insurance Company Risk Retention Group
State of New York OPINION Court of Appeals This opinion is uncorrected and subject to revision before publication in the New York Reports.
No. 37 Nadkos, Inc., Appellant, v. Preferred Contractors Insurance Company Risk Retention Group LLC, Respondent, et al., Defendant. S. Dwight Stephens, for appellant. Diane Bucci, for respondent. RIVERA, J.: On this appeal, we conclude that a general business practice of failing to promptly disclose coverage within the meaning of Insurance Law § 2601 (a) (6) does not include violations of the timely liability disclaimer requirement of Insurance Law § 3420 (d) (2).
[*1]-2- No. 37
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]; 15 USC § 3901 [a] [4]).
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 Insurance Law § 3420 (d) (2), the disclaimer was void.
PCIC moved for summary judgment, arguing that section 3420 (d) (2) is inapplicable to a nondomiciliary RRG. Nadkos then cross-moved for summary judgment, -3- No. 37
[*2]asserting that Insurance Law § 2601 (a) (6), which undisputedly applies to foreign RRGs, cross-references section 3420 (d) and therefore subjects PCIC to the timely disclaimer requirements of section 3420 (d) (2). As such, PCIC is barred from asserting all coverage defenses as applied to Nadkos. Supreme Court granted PCIC summary judgment dismissing the complaint, denied Nadkos’s cross-motion and made a declaration in favor of PCIC.
The Appellate Division affirmed, holding that an insurance coverage disclaimer is
not a disclosure of coverage within the meaning of Insurance Law § 2601 (a) (6), and therefore section 3420 (d) (2) does not apply to nondomiciliary PCIC (Nadkos, Inc. v
Preferred Contrs. Ins. Co. Risk Retention Group LLC, 162 AD3d 7, 11-12 [1st Dept 2018]).
We granted Nadkos leave to appeal (32 NY3d 905 [2018]).2
We begin our analysis with the applicable insurance provisions of the state’s statutory and regulatory framework.3 The Legislature promulgated the Risk Retention -4- No. 37
[*3]Groups and Purchasing Groups Act, codified in Article 59 of the Insurance Law, “to regulate the formation and/or operation in this state of risk retention groups” (Insurance
Law § 5901). As relevant to this appeal, Insurance Law § 5904 provides that nondomiciliary RRGs doing business in New York “shall comply with the unfair claims settlement practices provisions as set forth in [section 2601] of this chapter, and any regulations promulgated thereunder” (Insurance Law § 5904 [d]).4
In turn, Insurance Law § 2601 (a) lists acts by insurers that, “if committed without
just cause and performed with such frequency as to indicate a general business practice, shall constitute unfair settlement practices.” Insurance Law § 2601 (a) (6) includes, “failing to promptly disclose coverage pursuant to” Insurance Law §§ 3420 (d) or (f) (2)
(A) (Insurance Law § 2601 [a] [6]).
Insurance Law § 3420 (d) contains two paragraphs. The first, paragraph (d) (1), requires insurers to respond to requests for information by insureds or injured individuals.
Specifically, it mandates that insurers inform the requesting party, within firm statutory
deadlines, whether the insured has a particular policy, the coverage limits of that policy, and whether additional information is needed to identify the policy (see Insurance Law
§ 3420 [d] [1]). The second, paragraph (d) (2), provides that if “an insurer shall disclaim liability or deny coverage . . . it shall give written notice as soon as is reasonably possible” -5- No. 37
[*4](Insurance Law § 3420 [d] [2]). Like section 3420 (d) (1), section 3420 (f) (2) (A) requires insurers to inform insureds of the limits of coverage for uninsured/underinsured motorist claims (see Insurance Law § 3420 [f] [2] [A]).
The penalties for violations of the disclosure mandates in sections 3420 (d) (1) and 3420 (f) (2) (A) differ from those imposed for violations of the disclaimer requirements in section 3420 (d) (2). While an insurer is subject to a monetary penalty for failure to timely disclose in accordance with section 3420 (d) (1) (Insurance Law § 2601 [c]), its failure to timely disclaim liability or deny coverage is considered an unduly delayed notice that results in per se prejudice to the insured and limits the defenses an insurer could raise against an insured’s claim (see KeySpan Gas E. Corp. v Munich Reins. Am., Inc., 23 NY3d
583, 590 [2014]).
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 section 2601 (a) (6) includes the timely disclaimer requirement of section 3420 (d) (2). Nadkos argues that section 2601 (a) (6) cites to section 3420 (d) without limitation, and thus encompasses both paragraphs (d) (1) and (d) (2). According to Nadkos, if the Legislature intended to limit
section 2601 (a) (6) to a specific subparagraph of section 3420 (d), it knew how to do so, as demonstrated by the cross-reference in section 2601 (a) (6) to a specific subparagraph of another provision—3420 (f) (2) (A). PCIC responds that section 2601 (a) (6) is intended to impose the disclosure requirements of sections 3420 (d) (1) and 3420 (f) (2) (A). Section -6- No. 37
[*5]3420 (d) (2) is distinguishable as it requires insurers to timely disclaim liability or deny coverage.
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 coverage encompasses the mandates of section 3420 (d) (1), not (d) (2).5
“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.
[*6]-7- No. 37 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 Insurance Law § 2601 (a) (6) plainly qualifies its reference to Insurance
Law § 3420, limiting it to an insurer’s failure “to promptly disclose coverage pursuant to” sections 3420 (d) and (f) (2) (A). In other words, section 2601 (a) (6) applies solely to those portions of subsections 3420 (d) and (f) that require a prompt disclosure of coverage- specific information. The term “disclose” is not defined in the Insurance Law, nor is it mentioned in sections 2601 and 3420 (d), but that does not render, as the dissent maintains
(dissenting op at 17-20), these two sections ambiguous or their interplay unclear.
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” -8- No. 37
[*7](Black’s Law Dictionary [10th ed 2014], disclaim).6 Section 3420 (d) (1) is comprised of three subparagraphs that outline an insurer’s requirement to disclose coverage information upon request. Section 3420 (d) (1) (A) provides that the subsequent subparagraphs apply only to certain policies (Insurance Law § 3420 [d] [1] [A]).7 In turn, subparagraph (B)
requires an insurer to confirm the existence and limits of coverage for an applicable policy, when such information is requested by an injured person or claimant (Insurance Law
§ 3420 [d] [1] [B]). In furtherance of this goal to reveal an existing policy’s coverage, subparagraph (C) requires the insurer to request additional information from the injured person, or claimant, if necessary to identify an applicable policy (Insurance Law § 3420 -9- No. 37
[*8][d] [1] [C]). By requiring insurers to confirm the existence of an applicable liability policy
and to specify the limits of its coverage, the requirement in section 3420 (d) (1) falls within the general meaning of a disclosure. Conversely, an insurer does not disclose coverage by merely notifying the insured that it is not liable or will not provide coverage—a notification required by section 3420 (d) (2).8
The dissent’s embellished version of Nadkos’s claim is as unpersuasive as the original (dissenting op at 17-20). 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, Insurance Law
§§ 3420 (d) (1) (B) and (C) respectively impose 60 and 45-day deadlines for notification, which promotes expeditious resolution of potential claims. While it is also useful for the insured and other claimant to know “as soon as reasonably possible” whether the insurer will disclaim liability or deny coverage in accordance with (d) (2), the dissent is incorrect that there is no benefit to the claimant from timely notice under (d) (1) that the insurer has
“identif[ied] a liability insurance policy that may be relevant to the claim” (Insurance Law
§ 3420 [d] [1] [C]).
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 - 10 - No. 37 settlement practice in either of the following ways: “failing to promptly notify the insured pursuant to section 3420 (d) and section 3420 (f) (2) (A),” or “violating section 3420 (d) and section 3420 (f) (2) (A).”9
[*9]The statutory structure also supports interpreting the confirmation requirements of section 3420 (d) (1) as distinct from the timely disclaimer of liability and denial of coverage mandated in section 3420 (d) (2). First, as the Appellate Division observed, if section 2601
(a) (6) both encompasses the disclosure requirement of paragraph (d) (1) and disclaimer requirement of (d) (2), then the use of the term “disclosure” in section 2601 (a) (6) would be superfluous. Such an interpretation violates the rule of construction that “words must be “harmonize[d]” and read together to avoid surplusage” (Andryeyeva v New York Health
Care, Inc., —NY3d—, —, 2019 WL 1333030 at *8 [2019]; Kimmel v State, 29 NY3d 386, 393 [2017] [“a statute should be construed to avoid rendering any of its provisions -2- No. 37 legislature has deemed it vitally important that your insurer answer that question right away. Insurance Law § 3420(d)(2) includes the following “untimely disclaimer” rule:
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 people cannot find out whether they are covered by their insurance policies without their insurer’s help, because most insurance policies are incomprehensible to nonlawyers (and some, even to lawyers). If policyholders do not know whether their insurer will provide coverage, they cannot know whether they must find their own lawyer, how much they can pay that lawyer, or how much they can offer to settle a
threatened or pending lawsuit. Victims of accidents are also stuck, because the policyholder’s entire response to a lawsuit—including whether anything beyond the assets -3- No. 37 of the defendant is available to satisfy a judgment and what lawyer will defend the suit— depends on whether the policyholder is covered.[1]
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 -4- No. 37 undermine a 2008 law whose very purpose was to eliminate judicially-imposed pro-insurer spin on New York insurance laws.
Further, the majority’s decision unsettles New York’s insurance law. Even if an insurer’s persistent failure timely to confirm or deny coverage is not an unfair claims practice, Insurance Law § 3420(d)(2) applies to every “liability policy issued or delivered in this state.” The policy in this case is a “liability policy . . . delivered in this state.” It is also uncontested—at least for our purposes—that the insurance company, PCIC, did not deny coverage to Nadkos within a reasonable time. Therefore, PCIC cannot rely on a policy exclusion to deny Nadkos coverage.
This case should end there. However, the majority ignores the statutory text and declares that Insurance Law § 3420(d)(2) does not apply to foreign risk retention groups.
The parties’ principal dispute on this appeal is that the above result is required by a federal law, the Liability Risk Retention Act (“LRRA”), which exempts foreign-chartered risk
retention groups from state laws that “make unlawful, or regulate, directly or indirectly, the operation of [such] risk retention groups” like PCIC (15 USC § 3902[a]). The majority expressly declines to consider this argument (majority op at 6 n 5) and instead finds that
Insurance Law § 3420(d)(2) does not apply here because the phrase “liability policy issued or delivered in this state” (Insurance Law § 3420[d][2]) means only “liability policies issued or delivered by insurers other than foreign RRGs.” Section 3420(d)(2) by its terms applies to all liability insurers operating in this state. To conclude that all insurers means all insurers other than foreign RRGs, the majority turns to Article 59’s list of state laws -5- No. 37 applicable to foreign RRGs, even though that list does not exempt foreign RRGs from any other state insurance laws, does not purport to be an exclusive list of New York insurance laws applicable to RRGs, and could not reasonably be interpreted as such. The majority’s
refusal to address how to determine what New York insurance laws other than those in Article 59’s list apply to RRGs threatens to undermine New York’s ability to protect policyholders and victims and seriously undermines New York’s status as the nation’s premiere insurance law jurisdiction—all because the majority admittedly avoids the federal issue presented by the parties and relied on by the Appellate Division.
I
I agree with the majority’s recitation of the relevant facts, and briefly summarize them here to place them in the proper context by taking into account the LRRA. Partners
LLC, a property developer, hired Nadkos, Inc. as a general contractor to construct a building in Brooklyn. Nadkos hired Chesakl Enterprises Inc. as a subcontractor to perform steelwork. As is common in the construction industry, Nadkos’ contract with Chesakl required Chesakl to maintain general liability insurance naming Partners LLC and Nadkos
as additional insureds. Chesakl became a member of PCIC, a “risk retention group” of other construction subcontractors, and in that capacity bought from PCIC a general liability insurance policy.
A risk retention group (“RRG”) 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 -6- No. 37 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. 12-16: Risk Retention Groups [December 2011], https://www.gao.gov/products/GAO-
12-16). RRGs are strictly “self-insurance” groups, however; they are forbidden from insuring non-members (15 USC § 3901[a][4][G]; Insurance Law § 5902[n][7]).
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 as its chartering state). Congress
exempted RRGs from certain insurance regulations issued by non-chartering states, in response to concerns that such regulations would make it impracticable for RRGs to -7- No. 37
operate across state lines.3 However, Congress then made an exception to that exemption, allowing states to impose certain categories of regulations on foreign RRGs. Most relevant
here, Congress provided that “any State may require [a foreign RRG] to comply with the unfair claims settlement practices law of the State” (15 USC § 3902[a][1][A]).
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 “employees . . . working directly or indirectly on the insureds behalf.” Mirkamel Vafaev, a Chesakl employee, was injured and sued
Chesakl, Nadkos, Partners LLC, and Nadkos’s principal, Oleksander 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 Insurance Law § 3420(d)(2), an unexcused delay of 48 days or more in disclaiming coverage is unreasonable as a matter of law (First Fin. Ins. Co. v Jetco Contr.
-8- No. 37
Corp., 1 NY3d 64, 68 [2003]), and such a delay “precludes effective disclaimer or denial”
of coverage (Hartford Ins. Co. v Nassau County, 46 NY2d 1028, 1029 [1979]). However, PCIC argued that even if its disclaimer was untimely, the LRRA preempted Insurance Law
§ 3420(d)(2) as applied to it because it was an RRG. PCIC’s preemption argument depended on the further conclusion that New York’s untimely disclaimer rules are not part of the “unfair claims settlement practices law of the State,” which are expressly exempt from preemption (15 USC § 3902[a][1][A]). The courts below held that the LRRA preempted Insurance Law § 3420(d)(2) as applied to PCIC, and we granted leave.
II
I begin with the question actually presented by this case: does Insurance Law §
3420(d)(2)—the untimely disclaimer rule—apply to liability insurance policies issued by
RRGs? The majority jumps to the separate question of whether violating Insurance Law §
3420(d)(2) is an unfair claims practice (majority op at 1), but that question is irrelevant if
Insurance Law § 3420(d)(2) applies to RRGs on its own terms.
It does. Insurance Law § 3420(d)(2) applies to every “liability policy issued or delivered in this state.” Note the disjunctive “or delivered,” which indicates that out-of- state insurance companies (those who “issue” the policies elsewhere) are subject to
Insurance Law § 3420(d)(2) even if they merely “deliver” the policy “in this state,” as we held just last year (see Carlson v American Intern. Group, Inc., 30 NY3d 288, 305 [2017]).
All agree PCIC is an “insurer” and the policy in question is a “liability policy . . . delivered -9- No. 37 in this state.” Accordingly, Insurance Law § 3420(d)(2) applies to PCIC and to every insurer issuing or delivering insurance policies in New York.
The majority has no answer to the plain text of Insurance Law § 3420(d)(2), which applies to RRGs on its own terms quite apart from its inclusion or non-inclusion as an unfair claims practice on the Insurance Law § 2601(a)(6) list (cf. majority op at 10 n 9).
The Appellate Division had an answer: because PCIC is an RRG chartered in another state, the LRRA (15 USC § 3902[a][1]) exempts it from Insurance Law § 3420(d)(2) even though
non-RRGs must comply with that statute (162 AD3d 7, 12). I do not agree, as I explain later, but I acknowledge that the Appellate Division rested its holding on a ground that the majority ignores (majority op at 6 n 5). By affirming without explaining whether the Appellate Division’s preemption holding is right or wrong, the majority assumes away the plain language of Insurance Law § 3420(d)(2), as well as the federal law that until now all
parties and courts agreed was determinative of the ultimate outcome, creating a chasm of uncertainty for RRGs, their policyholders and tort victims.
The majority chooses to avoid comment on the LRRA (majority op at 6 n 5) describing its decision as resting “solely on state law grounds” (id.). In another footnote, it appears to set out what those state law grounds are: declaring the matter “straightforward,” it begins by explaining that “Insurance Law Article 59 applies to [foreign] RRGs” (majority
op at 3 n 3). Presumably, the majority’s point is this: section 5904 contains a list of substantive provisions with which foreign RRGs must comply, whereas section 5903(a) provides that New York-chartered RRGs must comply with “all of the laws, regulations - 10 - No. 37 and orders applicable to property/casualty insurers organized and licensed in this state.”
The majority’s rationale, though not made explicit, must be that as a matter of state law all other insurance laws, including Insurance Law § 3420(d)(2), do not apply to foreign RRGs unless those laws are listed in section 5904.4 That reasoning at least explains the majority’s
affirmance “solely on state law grounds” (majority op at 6 n 5). For at least two reasons, however, it cannot be the case that the list in section 5904 exempts foreign RRGs from all state insurance laws not on that list.
First, the conclusion that RRGs are exempt as a matter of state law from all state laws particularly regulating liability insurance except those on the Insurance Law § 5904
list creates tremendous uncertainty as to the applicability of a great many laws and regulations concerning liability insurance not on that list. That uncertainty is compounded by the majority’s express reservation of this question in a footnote (majority op at 4 n 4).
If Insurance Law § 5904 (or perhaps some other part of Article 59 not mentioned by the majority) exempts foreign RRGs from the otherwise-applicable Insurance Law §