On June 20, 2007, the New York Senate passed a Bill that will eliminate New York's "no-prejudice rule." After passing the Bill, the Senate referred Bill No. 06306 (access Bill here) to the New York Assembly, which in turn, referred the Bill to its Judiciary Committee. As of July 20. 2007, the Bill has been placed before Governor Spitzer (see Bill's status here).
New York's no-prejudice rule sets forth a standard that presumes prejudice regarding late notice of claim to a primary insurer. An insured's failure to satisfy the condition precedent of proffering a timely notice of claim, absent a valid excuse for the late notice under New York's current no-prejudice rule, vitiates the insurance policy. The New York "no prejudice" rule for primary insurers is a limited exception to two established rules of contract law: (1) that ordinarily one seeking to escape the obligation to perform under a contract must demonstrate a material breach or prejudice * * *; (2) that a contractual duty ordinarily will not be construed as a condition precedent absent clear language showing that the parties intended to make it a condition.
A mere two years ago, the State's highest Court, the New York Court of Appeals, discussed in Argo v. Greater New York Mut. Co., 4 N.Y.3d 332, 794 N.Y.S.2d 704, 827 N.E.2d
762 (2005), the benefits of the no-prejudice rule under a liability insurance policy. The Court stated:
A liability insurer, which has a duty to indemnify and often also to defend, requires timely notice of lawsuit in order to be able take an active, early role in the litigation process and in any settlement discussions and to set adequate reserves. Late notice of lawsuit in the liability insurance context is so likely to be prejudicial to these concerns as to justify the application of the no prejudice rule.
We'll keep you apprised as to whether Governor Spitzer signs the Bill.