Cuomo’s Sex-Abuse Insurance Threats Ineffective
By: Martin Bienstock
Acting through a New York Department of Financial Services (DFS) circular, Governor Cuomo last Thursday formally threatened New York insurance companies with legal and regulatory consequences if they persist in failing to pay claims newly brought in connection with the Child Victims Act. The same day, the Diocese of Rochester announced that it had filed for bankruptcy protection as a direct result of lawsuits filed against it under the Child Victims Act.
The DFS circular was an unusual shot across the bow of insurance companies, especially given that it was issued only a month after the CVA litigation window opened. One veteran coverage lawyer and law professor, Marc Mayerson, commented that “it almost certainly reflects experience on the ground in which insurance companies are disputing all claims.”
The DFS circular seeks to address these injustices through exhortation and threat. Thus, for example, DFS advises that
“The Department expects Addressees to cooperate fully with the intent of the CVA. . . . [T]he Department encourages all Addressees with potential exposure to CVA-related legal claims to act promptly and in utmost good faith and to exercise best practices with their prior and current policyholders, and their respective claimants, including properly performing any and all duties to defend CVA-related claims.”
The circular also warns that certain bad faith claims handling practices by insurers are punishable by fines, and license suspensions or revocations, and urged insurers to do more than the minimum required by law.
“These claims run into the hundreds of millions of dollars. It isn’t surprising that insurers have embraced a strategy of not paying claims,” said Martin Bienstock, an experienced insurance coverage attorney who has tangled with insurance companies.
Just one month after the Child Victims Act went into effect, it is clear that the Act will have major repercussions on New York institutions. Governor Cuomo’s actions are likely only the first salvo in a complex battle over how to pay the victims of sexual abuse.