New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on April 6, 2001, representing the position of the New York State Insurance Department.

Re: Inclusion of bad faith and punitive damage awards or settlements against insurers in private passenger automobile insurance rate base

Question Presented

Does the New York State Insurance Law ("Insurance Law") or regulations promulgated thereunder contain a provision similar to Fla. Stat. § 627.0651 (12) (2000) which provides:

(12) Any portion of a judgment entered as a result of a statutory or common-law bad faith action and any portion of a judgment entered which awards punitive damages against an insurer shall not be included in the insurer's rate base, and shall not be used to justify a rate or rate change. Any portion of a settlement entered as a result of a statutory or common-law bad faith action identified as such and any portion of a settlement wherein an insurer agrees to pay specific punitive damages shall not be used to justify a rate or rate change. The portion of the taxable costs and attorney's fees which is identified as being related to the bad faith and punitive damages in these judgments and settlements shall not be included in the insurer's rate base and shall not be utilized to justify a rate or rate change. (Emphasis added).

Conclusion

The Insurance Law and regulations promulgated thereunder do not contain a provision similar to Fla. Stat. § 627.0651 (12) (2000).

Facts

You inquired whether or not New York State has a statutory or regulatory provision similar to Fla. Stat. § 627.0651 (12) (2000) which provides:

(12) Any portion of a judgment entered as a result of a statutory or common-law bad faith action and any portion of a judgment entered which awards punitive damages against an insurer shall not be included in the insurer's rate base, and shall not be used to justify a rate or rate change. Any portion of a settlement entered as a result of a statutory or common-law bad faith action identified as such and any portion of a settlement wherein an insurer agrees to pay specific punitive damages shall not be used to justify a rate or rate change. The portion of the taxable costs and attorney's fees which is identified as being related to the bad faith and punitive damages in these judgments and settlements shall not be included in the insurer's rate base and shall not be utilized to justify a rate or rate change. (emphasis added).

Anasysis

Fla. Stat. § 627.0651 (12) (2000), on its face, prohibits the inclusion of bad faith and punitive damage awards or settlements "against an insurer" in its rate base to establish premiums for private passenger automobile insurance. (emphasis added). Your letter was not clear concerning whether your question referred to an insurer's liability for its own actions or to awards and settlements arising from an insured's act.

Neither the Insurance Law nor the Insurance Department's regulations address the subject.

For informational purpose, examine N.Y. Ins. Law Article 23 (McKinney 2000) ("Property/Casualty Insurance Rates") and N.Y. Comp. Codes R. & Regs. tit. 11 §§ 160.0-160.6 (1996) (Regulation 57) ("Responsibilities in Construction and Application of Rates").

This response does not assess New York State statutes and regulations other than the Insurance Law and Insurance Department regulations promulgated thereunder. Moreover, this response does not assess New York State case law on the subject of an insurer's bad faith and punitive damage awards against an insurer.

For further information you may contact Senior Attorney, Robert Freedman at the New York City Office.