BILL NUMBER: S5052
SPONSOR: BAILEY
 
TITLE OF BILL:
An act to amend the insurance law and the vehicle and traffic law, in
relation to permitting an insurer to rescind or retroactively cancel a
policy in certain circumstances
 
PURPOSE OR GENERAL IDEA OF BILL:
This bill removes the incentive for staged automobile accidents, by
allowing for retroactive cancellation of newly issued private passenger
automobile insurance policies.
 
SUMMARY OF PROVISIONS:
Section 1 adds new section 3457 to the Insurance Law. Subsection A
provides insurance companies the ability, within the first sixty days of
an automobile, commercial automobile or assigned risk plan policy being
issued, to retroactively rescind the policy if the initial premium
payment is dishonored due to (1) the nonexistence of a bank account, (2)
the unauthorized use of the account, or (3) the unauthorized use of a
credit card account.
Subsection B provides that a person injured during this sixty-day period
and could have recovered under an insurance policy that was cancelled
pursuant to subsection (a) may recover under his or her own policy or,
if he or she is uninsured, the motor vehicle accident indemnification
corporation. Such recovery is available only if the injured party did
not participate in any fraudulent activity, such as staging the accident
to defraud the insurer. Additionally, the vehicle accident indemnifica-
tion corporation may not subrogate its claim against the rescinding
insurance company.
Section 2 amends Subsection (d) of section 3420 of the Insurance Law
requires insurers that deny a claim for death or bodily injury because
the policy was rescinded pursuant to new section 3455 to provide notice
of the disclaimer or denial to the claimant under the uninsured motorist
endorsement by any occupant of a motor vehicle involved in a staged
accident who is without knowledge of the staging or arranging of the
staged or arranged accident.
Section 3 amends paragraph 1 of subsection (f) of Section 3420 of the
insurance law, as amended by chapter 305 of the laws of 1995, is amended
to add rescinded policies to the list of scenarios that a driver would
be insured against in the event of bodily injury or death.
Section 4 amends subparagraph A subsection (f) of section 3420 of the
insurance law is amended to deal with supplementary
uninsured/underinsured coverage.
Section 5 amends section 5103 of the insurance law is amended to address
individuals who are involved in a staged accident without knowledge of
the staging or arranging of the staged or arranged accident.
Section 6 amends subsection (2) of section 5103 of the insurance law is
amended to account for vehicles whose coverage has been rescinded or
cancelled.
Section 7 amends paragraph (a) of subdivision 1 of section 313 of the
vehicle and traffic law is amended to exempt section 3455 of the insur-
ance law from the 20-day mailing notice to cancel an insurance policy.
Section 8 sets forth in the Motor Vehicle Insurance Indemnification Law
coverage for innocent victims of staged accidents.
 
EXISTING LAW:
Currently, automobile insurers are not permitted to retroactively cancel
policies for nonpayment of premiums.
 
JUSTIFICATION:
Automobile no-fault states have higher average premiums than tort
states. One of the reasons for this is that fraud tends to be more
prevalent in no-fault systems, as the rules under which they are imple-
mented make it relatively easy for bad actors to submit fraudulent
claims. Additionally, an accident can create a multiplicity of lawsuits,
since providers and collection attorneys may initiate a lawsuit for each
and every bill. New York's generous no-fault benefits, with minimal
oversight, provide huge incentives for unbundling of services and
supplies.
Staged accidents are one type of fraudulent claim that is becoming more
and more prevalent in New York. Staged accidents begin with bad actors
procuring an automobile insurance policy with the intent of submitting a
fraudulent claim. In many cases, they procure a policy by submitting a
bad payment (either using a nonexistent bank account or stolen credit
card information). Most states allow the retroactive cancellation of a
policy in the case of a reversed payment to prevent this type of activ-
ity. New York, however, does not permit retroactive cancellations; rath-
er cancellations are currently only prospective in nature. That turns
into a gold mine where no-fault is involved. The time between the policy
is "purchased" to the time it is cancelled provides ample opportunity
for no-fault fraud.
This bill allows for retroactive cancellation in New York of newly
issued automobile insurance policies to prevent this type of fraud.
This would bring New York in line with the other large no-fault states.
In fact, only seven other states (AZ, CO, KS, ME, MD, NC and SD) do not
allow for retroactive cancellation. Innocent victims of uninsured driv-
ers (i.e., mandatory uninsured motorist coverage) would be covered under
their own policy or the Motor Vehicle Accident Indemnification Corpo-
ration.
The proposal would allow retroactive cancellation, of the automobile
policy, in the first thirty days, where the payment is made with insuf-
ficient funds or the identity used to procure the policy turns out to be
fraudulent. The automobile insurer would be allowed to cancel a policy
retroactively in these cases. By permitting retroactive cancellations,
New York would join the great majority of other states and would remove
many of the incentives for staged accidents.
 
PRIOR LEGISLATIVE HISTORY:
2023-24:S1471 - Passed Senate
2021-22:S502 - Passed Senate
2019-20:S643 - Passed Senate
2017-18:S4420a - Passed Senate
2016:S.1471 - Passed Senate
2015:S1471 - Passed Senate
2014:S1959 - Passed Senate
2013:S1959 - Passed Senate
2012:S7746 - Passed Senate
 
FISCAL IMPLICATIONS:
None to the State
 
EFFECTIVE DATE:
This act shall take effect two hundred seventy days after it shall have
become a law.

Statutes affected:
S5052: 3420 insurance law, 3420(d) insurance law, 3420(f) insurance law, 5103 insurance law, 5103(b) insurance law, 5103(a) insurance law, 313 vehicle and traffic law, 313(1) vehicle and traffic law