The damage and dislocation caused by Superstorm Sandy have triggered the recent passage of numerous bills by the New York Legislature. One of the most controversial governmental responses is embodied in two similar bills — one passed by the state Assembly (A07455A) and one still pending in the Senate (S05581) — relating to the prohibition of anti-concurrent causation language contained in insurance policies.
The two bills, if adopted by both the Assembly and Senate, would prevent an insurer from denying an otherwise covered claim if a noncovered or otherwise excluded peril “was a contributing factor in such loss” or the peril “occurred simultaneously with the event or peril that was covered.”
In other words, it appears that New York is considering a legislative attempt to write anti-concurrent causation provisions out of property insurance policies. It is worth noting in this regard that while the bills appear to have been prompted by homeowners’ claims, the text of the bills is not so limited.
When initially proposed, both the Assembly and Senate bills were identical. The original bills succinctly stated that an insurer could not deny or exclude coverage “for any claim” by applying anti-concurrent causation language. In addition, the proposed laws would "apply to claims made on or after such effective date."
However, the Assembly significantly revised its version of the bill, while the Senate’s companion bill, which has not been voted on yet, still contains the same language as the original.
The amended Assembly bill now makes it clear that is applies to policies issued or renewed after the effective date of the bill. Further, the bar against using an anti-concurrent causation provision only appears to relate to a “flood event,” rather than the ban against its use with respect to any claims as in the original. Finally, the new Assembly bill also adds a disclosure provision in which an insurer must disclose to its insured the fact that a policy contains an anti-concurrent causation provision.
New York courts have traditionally enforced anti-concurrent causation provisions and have ruled that losses which involve both covered and noncovered perils are excluded when anti-concurrent causation language applies. E.g., Casey v. General Acc. Ins. Co., 178 A.D.2d 1001 (4th Dep’t 1991); see also Kula v. State Farm, 212 A.D.2d 16 (4th Dep’t 1995). Until the New York Assembly and Senate conference to reconcile the competing bills, the final form of the law remains the subject of debate, and it is unclear what arguments will be made regarding its application.
However, if the Senate’s version of the bill is accepted, one issue that may arise is whether the bill can be applied retroactively to either claims or policies that predate the bill’s passage. Based on the current text of the Senate bill and existing case law, arguments in favor of retroactive application face an uphill battle in New York.
Under New York law, “It is a fundamental canon of statutory construction that retroactive operation is not favored by courts and statutes will not be given such construction unless the language expressly or by necessary implication requires it.” Majewski v. Broadalbin-Perth Cent. Sch. Dist., 696 N.E.2d 978, 980 (N.Y. 1998). An exception to this rule is that “remedial” legislation or statutes governing procedural matters should be applied retroactively. Id.
However, classifying a statute as “remedial” does not automatically overcome the strong presumption of prospectivity since the term may broadly encompass any attempt to “supply some defect or abridge some superfluity in the former law.” Id.
Here, both the language of the proposed Senate bill itself and the legislative intent behind that bill indicate that the scope of the bill is forward-looking in nature. Most notably, the Senate bill clearly states, “This act shall take effect immediately and shall apply to claims made on or after such effective date.” Thus, by its terms, it would not apply to Sandy claims made before the legislation was enacted.
Further, by replacing the word “claims” with “policies,” the Assembly’s bill expressly changed this portion of the statute to only apply to policies issued or renewed after the effective date of the bill.
In addition, certain comments made at a Feb. 26, 2013, public hearing held by the New York State Assembly Standing Committee on Insurance regarding insurance coverage issues arising from Sandy point to the future application of anti-concurrent causation legislation. At the outset of this hearing, New York Assemblyman Kevin Cahill noted that the purpose of the hearing was “to deal with future disasters.”
During a discussion of the application of anti-concurrent causation clauses to Sandy claims, Benjamin Lawsky, the superintendent of New York’s Department of Financial Services, testified, “If they get litigated, it’s a little unclear how things will shake out in New York, but it is, I think, for the future, something worth exploring about what we can do preemptively so at the very least people know what they’re signing up for when they have such clauses or possibly taking other action.”
In responding to whether the Department of Financial Services could “by regulation, eliminate [the anti-concurrent causation clause] from future policies,” Lawsky stated, “My guess is we probably could, but let me check and be sure.”
However, the text of the proposed Senate bill and its legislative history do not necessarily address the situation of a claim being made for a Superstorm Sandy loss after the bill is passed under a policy, which was in force and effect prior to the bill’s effective date.
In these circumstances, a policyholder may argue that the legislation should apply to the claim “made on or after such effective date.” (One can also imagine insureds withdrawing existing claims, submitting new claims and seeking the benefit of the statute.) In such a situation, the question becomes whether the statute can be applied retroactively to alter pre-existing contract rights.
New York’s highest court, the Court of Appeals, has held that newly enacted statutes or amendments to statutes “are, generally, not to be applied retroactively to policies already in force on the effective date of the statutory amendment.” Char-Mo Investors Inc. v. Mkt. Ins. Co., 377 N.E.2d 478, 479 (N.Y. 1978) (amendment to standard fire policy suit limitation period).
In addition, the Court of Appeals refused to retroactively apply certain amendments to labor law statutes because “[t]o reach a contrary result … would serve to impose new conditions upon and impair the obligations of a contract already existing, under which the parties had fully entered into the performance of their work.” Deutsch v. Catherwood, 294 N.E.2d 193, 195 (N.Y. 1973).
Some New York courts have even gone so far to hold, “Even express indication that retrospective application is intended cannot effectuate such application if the result be to impair the obligation of contracts.” Phillips v. Agway Inc., 389 N.Y.S.2d 977, 979 (Sup. Ct. 1976). The concern regarding the retroactive application of a statute which modifies existing contract rights arises directly from the United States Constitution, which provides, “No State shall ... pass any ... Law impairing the Obligation of Contracts.” Article I, §10.
Although prompted by a single storm (Sandy), and apparently prompted by a single (albeit critical) line of coverage (homeowners), the anti-concurrent causation bills have the potential to be far-ranging in their consequences. Both insurers and insureds would be well-advised to stay abreast of the progress of this bill through the legislature and consider carefully both the scope and reach of any legislation which is ultimately passed by the New York Assembly and Senate.
Originally published in Insurance Law360 on July 2, 2013