OGC Op. No. 10-01-09

The Office of General Counsel issued the following opinion on January 28, 2010, representing the position of the New York State Insurance Department.

Re: Clarification of the term “personal injury” as used in the amendments to N.Y. Ins. Law § 3420

Question:

Does the use of the term “personal injury” in N.Y. Ins. Law § 3420(a)(6) (McKinney Supp. 2009) include injury arising out of professional liability?

Answer:

Yes. The term “personal injury” encompasses any injury contemplated as “personal injury liability” under Insurance Law § 1113(a)(13), including injury arising out of professional liability.

Facts:

It is reported that a question has arisen as to whether the term “personal injury” in the 2008 amendments to Insurance Law § 3420 includes injury arising out of professional liability. XYZ Insurance (“XYZ”) submitted a proposed policy endorsement for approval to the Insurance Department for a lawyers professional liability policy. The proposed endorsement does not contain the “notice” and “prejudice” requirements set forth in the 2008 amendments. ¹ XYZ believes that Insurance Law § 3420(a) does not encompass professional liability insurance within the definition of “personal injury.” The inquirer asks if XYZ is correct.

Analysis:

Chapter 388 of the Laws of 2008, which amended Insurance Law § 3420, is relevant to the inquiry. Insurance Law § 3420(a)(6) establishes the right to bring a direct action against the insurer under certain circumstances, including a “claim arising out of death or personal injury to any person.” The statute provides that each insurance policy must include:

A provision that, with respect to a claim arising out of death or personal injury of any person, if the insurer disclaims liability or denies coverage based upon the failure to provide timely notice, then the injured person or other claimant may maintain an action directly against such insurer, in which the sole question is the insurer’s disclaimer or denial based on the failure to provide timely notice, unless within sixty days following such disclaimer or denial, the insured or the insurer: (A) initiates an action to declare the rights of the parties under the insurance policy; and (B) names the injured person or other claimant as a party to the action.

Chapter 388 also amended N.Y. Civil Practice Laws and Rules (“CPLR”) § 3001 (McKinney Supp 2009) along similar lines.

The term “personal injury” did not appear in Insurance Law § 3420 before the 2008 amendments, save for the reference in Insurance Law § 3420(e) to “personal injury liability insurance.” However, both prior to and after the 2008 amendments, Insurance Law § 3420(a) has used the term “liability for injury to person” to establish the minimum provisions applicable to liability policies generally. The Department’s Office of General Counsel construes that phrase in tandem with Insurance Law § 1113(a)(13), which defines “personal injury liability insurance” as follows:

[I]nsurance against legal liability of the insured, and against loss, damage or expense incident to a claim of such liability (including the insurer’s obligation to pay medical, hospital, surgical and disability benefits to injured persons, and funeral and death benefits to dependents, beneficiaries or personal representatives of persons who are killed, irrespective of legal liability of the insured), arising out of death or injury of any person, or arising out of injury to the economic interests of any person, as the result of negligence in rendering expert, fiduciary or professional service, but excluding any kind of insurance specified in paragraph fifteen except insurance to protect an insured against liability for indemnification or contribution to a third party held responsible for injury to the insured’s employee arising out of and in the course of employment when such insurance is written pursuant to this paragraph and not written pursuant to paragraph fifteen of this subsection.

Thus, by its very terms, Insurance Law § 1113(a)(13) “personal injury” encompasses injury arising out of economic interests of any person “as a result of negligence in rendering expert, fiduciary or professional insurance...” It defies logic for the insurer to claim that the terms “personal injury” and “injury to person” are not embodied in the definition of “personal injury liability insurance” contained in Insurance Law § 1113(a)(13).

XYZ’s assertion that the terms “personal injury” and “injury to person” should be read narrowly to include only bodily injury is belied by the legislative intent behind the use of those terms. When the Legislature intends a narrower scope than “personal injury,” it clearly says so. For example, the term “bodily injury” is used in Insurance Law § 3420 as follows:

(d) If under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability of denial of coverage to the insured and the injured person or any other claimant.

(f)(1) No policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any natural person arising out of the ownership, maintenance and use of a motor vehicle by the insured…

The use of the term “bodily injury” in both of these sections of Insurance Law § 3420 refers exclusively to physical injury arising out of a motor vehicle accident, and not anything more, like psychological injury or loss of consortium. Thus, the Legislature has recognized a distinction between “bodily injury” and “personal injury” with the former being a sub-category of the latter. See also Gaouette v. Aetna Life Ins. Co. Of Hartford, Conn., 253 A.D. 388 (2nd Dept. 1938) (holding that an automobile liability policy’s use of the term “personal injury” has a broader application than the term “bodily injury” contained in the same policy).

For further information, you may contact Associate Counsel Alexander Tisch at the New York City Office.

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¹ The 2008 amendments to Insurance Law § 3420 require property/casualty insurers to include a provision in policies that late notice of claim, with certain exceptions, will not invalidate a claim unless late notice has prejudiced the insurer.