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Understanding New York’s New Insurance Disclosure Requirements

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If your organization operates or could be sued in New York, there has been recent activity on the legal and regulatory risk landscape that risk professionals should be prepared for.

New York’s newly-enacted Comprehensive Insurance Disclosure Requirements legislation opens the door for defendants to request that organizations disclose the details of their commercial insurance programs that may apply to a judgment in the case. These details include policy limits and potentially even access to your claims adjusters. For those with more complex risk financing structures, the law may also lead to the misinterpretation of the organization’s coverages.

For the greatest success in complying with this new regulation, risk professionals must become their legal department’s greatest ally, stepping in to lend their expertise to prevent potential confusion and errors. Risk professionals can be integral in keeping sensitive information confidential, monitoring all disclosure requests and alerting their teams to any discrepancies in the interpretation of the shared information.

Additionally, risk professionals should proactively identify the relevant policies for counsel, mindful that the policy or program must potentially respond to the plaintiff’s claim.

What are the New York Disclosure Law’s requirements and how do they impact your insurance program?

The New York law requires that an insured defendant disclose information about any insurance policies sold or delivered in New York that could be applicable to a plaintiff’s claim. This requires careful assessment to ensure compliance while avoiding potentially unnecessary insurance disclosures.

Depending on the claimed amount and a program’s retention levels, disclosures likely include primary insurance policies and may include excess and umbrella policies as well. 

The disclosure requirements extend to various risk financing structures, including captives, self-insurance programs, risk retention groups and surplus lines insurers. Many claims may not reach the retentions, arguably rendering the insurance policies nonresponsive to the claim.

Other than in personal injury protection cases, the New York law requires that insured defendants provide proof of insurance to other parties within 90 days after answering the complaint. This could lead to the disclosure of incorrect insurance information. To address that risk, risk professionals can instruct counsel to obtain the proper COI for a particular claim and advise that it may need to fine-tune their COI process with outside vendors or brokers.

In the cases where arguments are made that COIs are not sufficient proof of insurance, insureds should be prepared to disclose redacted portions of their declaration pages. 

The New York law also requires insured defendants to identify the claims adjustor assigned to the claim, including a potentially surprising level of detail such as the adjustor’s direct email address. It is critical to keep claims adjusters informed and risk professionals should alert their adjustors before this disclosure is made. Immediately report to counsel any plaintiff communications to the adjustor.

What steps can risk managers take to ensure compliance?

If possible, a risk professional or an attorney familiar with insurance coverage should assume responsibility for an organization’s compliance with these disclosure requirements in all New York cases. This will be instrumental in ensuring responses are uniform and avoiding disclosure errors. 

Creating a checklist, as well as a readily accessible library of COIs, redacted declarations pages, and other pertinent information can help keep the organization compliant with New York’s law. Although there might be differing disclosure requirements, organizations with larger footprints should consider extending this structure across other states as well.

By taking these steps, risk professionals can minimize insurance disclosure disputes, assist with their organization’s compliance efforts, and avoid unnecessary interference with an organization’s insurance program.

Proactive Tips for Businesses Facing Hail Damage Claims

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Last week, a severe thunderstorm unleashed massive hailstones in Alberta, Canada, damaging dozens of cars and unleashing potentially record-breaking hailstones the size of grapefruits. While the stones were notable, the storm was less of a rarity—indeed, hail is becoming increasingly common and increasingly costly as a natural catastrophe peril around the world. In 2020, Aon’s Global Catastrophe Recap identified hail damage in a severe thunderstorm as the driver of one of Canada’s costliest severe weather events on record. In 2021, insurers faced multiple billion-dollar loss events resulting from severe convective storms in the United States, with the greatest damage inflicted by hail that impacted the Plains, Midwest, Southeast and Northeast.

“Public perception often assumes that tornadoes drive the bulk of annual severe convective storm (SCS) damage costs,” said Steve Bowen, managing director and head of catastrophe insight on Aon’s Impact Forecasting team. “The reality is that large hail typically accounts for a majority of thunderstorm-related losses in North America during any given year.”

Further, North America is not alone in facing this peril, as hail also caused significant recent damage events in parts of Europe last year, struck Australia yesterday, and NOAA reports China, Russia, India and Northern Italy are all prone to damaging hailstorms.

As companies assess their natural disaster preparedness, there are some proactive measures that should be taken specifically for hail to leave organizations best positioned for any resulting insurance claims. Many commercial property policies contain provisions that any lawsuit against an insurer must be filed within one year following the “inception of loss,” otherwise it is barred. In other words, the “inception of loss” date starts the one-year clock ticking. The question then becomes, when exactly is that date? The Wisconsin Supreme Court hit this issue head-on in the case of Borgen v. Economy Preferred Ins. Co. In this 1993 opinion, the court determined that the phrase “inception of loss” in the context of hail damage essentially means “the date of the specific hail storm,” not “the date I discovered the hail damage.”

In 2018, the 5th Circuit Court of Appeals took things a step further in Certain Underwriters at Lloyd’s of London v. Lowen Valley View, L.L.C. In that case, a hotel filed a lawsuit against its insurer for refusing to cover hail-related roof damage under a commercial property insurance policy. The 5th Circuit agreed with the insurer’s argument that: 1) several hail storms had struck the vicinity of the hotel in the several years preceding the claim; 2) only one of those storms fell within the relevant coverage period; and 3) the record lacked reliable evidence permitting a jury to determine which of those storms, alone or in combination, damaged the hotel. The 5th Circuit further rejected the hotel’s engineering report, which asserted the subject storm was the “most likely” cause of the damage, deeming it insufficient.

Taken together, these decisions can blindside businesses that believe their insurance policies will automatically respond in the event of hail damage.

Let’s say you operate a business in Plano, Texas, and have a commercial property policy with a renewal date of January 1, 2022. You’ve noticed some recent leaks over the past week in your 8-year-old roof. Based on this discovery, you enlist a roofing contractor to investigate further. You learn that the roof needs to be replaced due to the existence of hail damage, so you submit a claim to your insurance carrier. Now, consider Plano has had at least 11 significant hail strikes since your roof was installed, according to StormerSite: 

Storm Date                 Min. Hail Size Range (Max)
11/10/2021                         1.00”
4/23/2021                          1.00” (up to 2.00”)
5/18/2019                          1.00”
3/24/2019                          1.25” (up to 1.75”)
6/6/2018                            1.00”
4/6/2018                            1.50” (up to 2.00”)
4/21/2017                          1.75”
4/11/2016                          1.50” (up to 2.50”)
3/23/2016                          1.25” (up to 2.00”)
4/27/2014                          1.25”
4/3/2014                            1.75”

Based on the Borgen case, the relevant “inception of loss” date would be the most recent hail storm on November 10, 2021, and each specific storm prior to that. This would mean any claims potentially implicating the events on May 18, 2019, and earlier could be time-barred, assuming your prior insurance policies contain the one-year filing limitation mentioned above. Given the number of equivalent hail strikes over the course of those eight years, you will likely have an uphill battle under Lowen Valley View in attributing the recent April 2021 and November 2021 storms to a loss under your current policy.

Even if it were somehow possible to assign each item of roof damage to a particular hailstorm—and further that statute of limitations issues would not limit recovery almost entirely—the number of storms creates another problem. With 11 storms occurring over the life of your roof, the insurer could argue that would mean 11 separate occurrences, which in turn would mean having to go through 11 separate deductibles before you ever saw a single dollar of insurance proceeds. Depending on the amount of your deductible, this means recovery could be impossible as a practical matter.

Read together, these rulings put the onus on business owners in areas at risk for hail damage to proactively conduct at least annual inspections to determine the existence of any roof damage potentially attributable to a particular insurance policy. It further puts the onus on business owners to understand the insurance claim process, including seeking tolling agreements to extend the deadline for filing a lawsuit.

7 Tips to Mitigate the Risks of Summer Staff Parties

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With millions of employees continuing to work remotely part- or full-time, 2022 summer office outings may represent one of the first “all hands” get-togethers for many employers since the COVID-19 pandemic began. Indeed, 37% of respondents to spot surveys conducted by Seyfarth at Work reported that there had not been a need, opportunity and/or COVID-safe venue for everyone to be in the same space at the same time since 2019.

Two years is a long wait, and based on anecdotal reporting in the wake of June and early July events, some employees are perhaps a bit overexcited at the prospect of finally hanging out together.

Some summer outing horror stories that resulted in complaints and charges include:

• An East Coast video game development company’s festivities included ice-breaker activities of beer pong and “spin the vodka bottle,” with managers nudging uncomfortable staff to join in.
Result: two employees contacted a local enforcement agency looking to file a harassment charge.

• A West Coast tech startup’s party featured an impromptu game of “pin the tail on the interns,” involving strips of paper “tails” and tape.
Result: two interns left the organizations and several employees threatened suit.

• A Midwest pack-and-ship firm had insult rap battles that devolved into comments about aging and weight gain.
Result: a spate of internal complaints from employees, and even from a caterer who was setting up food on-site and overheard the derisive and potentially discriminatory lyrics.

Actionable Risk Management Take-Aways for Bosses:

A number of pre-event precautions can help reduce the risk of your summer outing going sideways:

• Scare your managers—just a little. Schedule pre-event “Respect Huddles” where you can remind those in supervisory roles that they all have potential professional and/or legal responsibility if things go wrong. Deputize them, so to speak, to watch out for risky conduct as the festivities unfold. Share simple scripts and responses your managers can use to “nudge” attendees back to a zone of respect.

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• Set limits for everyone on things like alcohol, how long/late the event runs, and an agenda of (appropriately) fun activities. Historically, drinking can be a gateway activity to all sorts of sordid interactions. To manage the risk, some organizations have found it very helpful to “ticket the tequilas,” meaning they provide the event food, but limit the alcohol, such as by using a drink ticket system.
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A strict event agenda helps prevent attendees from straying into murky territory with creative comments and conduct. Any planned games should focus on friendly collaboration, not physical contact.

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Assign a trusted internal party planner to carefully manage your party or outing agenda.

• Strongly encourage staff to bring significant others and kids, if interested. Having lots of little tykes in attendance tends to reduce all sorts of adult excesses and judgement errors. However, also be open to employee opt-outs. Stress the fact that no one is expected to attend—it is just as important as making sure everyone feels welcome.

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• Send a pre-event conduct memo to every employee at least once, and maybe even twice. Revisit your office respect rules, as they extend to and apply in the great outdoors as well, at least when your organization is sponsoring.

Tips for Everyone

For employees at any level, we recommend not thinking of the outing as party time, but rather as a professional event that just happens to be moving outside. These tips can help any attendee enjoy the gathering while avoiding risky situations:

• Set lower expectations for yourself on how “off-the-hook” the whole outing will be, which can help ensure that you’re not disappointed and are better able to maintain decorum.

• Stay away from casual banter that is ribald, risqué or involves sharing too much information.

• Social distance, for both COVID and conduct reasons.

Court Overturns Prop 22, California’s Gig Worker Classification Law

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On August 25, the Alameda County Superior Court in California declared that Proposition 22 (better known as Prop 22) violated the state’s constitution, overturning it and potentially putting a portion of the state’s gig work industry in peril. The controversial California ballot measure designated app-based gig workers like rideshare and food delivery drivers as independent contractors, meaning that the companies they ostensibly work for would not have to provide a minimum wage, health insurance, unemployment, sick leave or other benefits. Because the initiative was a ballot measure, the court found the law restricted the state legislature’s ability to regulate compensation rules, and said the measure also illegally prevented workers from collective bargaining and unionization. However, this ruling does not mean that gig workers will automatically be considered employees, as no previous law mandated that classification.

Before Prop 22’s passage in November 2020, California passed AB 5 in May 2019, which instituted a more rigorous test to determine whether workers were employees or independent contractors: if “the person is free from the control and direction of the hiring entity in connection with the performance of the work,” the work was outside the company’s usual business, and if the worker “customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.”

Rideshare companies like Uber and Lyft essentially ignored AB 5 and poured $224 million into fighting for Prop 22, making it “the most expensive ballot measure in California history,” according to the Los Angeles Times. The measure passed with around 59% of the vote.

In a small concession for workers, Prop 22 did provide for a health insurance stipend, but an August 2021 UC Berkeley Labor Center survey of 500 drivers showed that only around 10% of workers were receiving it, and 40% had not heard about it at all. Since work hours are only defined by the time spent driving with a passenger, others do not work the required 15 hours per week on one app to qualify for the stipend. These and other factors prompted drivers and the Service Employees International Union (SEIU) to sue the state seeking to overturn the law.

For now, the Superior Court ruling will likely not change much for gig workers in California, as Uber and other companies have announced their intention to challenge it in higher courts and may ignore any of its other legal implications, leaving everyone involved with a shaky status quo: an overturned law that is effectively still being followed.

As Risk Management wrote in May, one danger of the continuing ambiguity surrounding gig worker classification is misclassifying workers, which can lead to heavy fines or lawsuits. For example, in January 2020, D.C.-based contractor Power Design Inc. agreed to pay $2.5 million for misclassifying 500 workers as independent contractors rather than employees. In August, food delivery app company Postmates settled with the city of Seattle for nearly $1 million for violating the city’s Gig Worker Paid Sick and Safe Time (PSST) ordinance. The payment will go to cover city fines and compensate more than 1,600 workers for back wages. Additionally, withholding benefits, overtime, and meal and rest breaks (whether a result of misclassification, or in general) can result in workers filing class action lawsuits against the company, potentially resulting in significant costs, impacting productivity and damaging the organization’s reputation.

Another risk for gig work companies is insufficient safety measures for workers. Unlike with formal employees, companies often do not provide gig workers with safety training and may not offer formal ways to report safety concerns. This creates an environment where workers who are often under pressure to complete as many rides or tasks as quickly as possible may get into accidents or leave dangers unreported, creating liabilities for themselves and the company.

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Other states have their own gig work regulations either on the books or in the works and President Joe Biden has expressed support for gig worker classification as employees, but there is currently no national legislation on this issue. However, in March, the House of Representatives passed the Protect the Right to Organize Act (or PRO Act), which would reclassify gig workers as employees, affording them all the benefits included in that status.

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The Senate has not yet taken up the measure.