Opinion ID: 2667783
Heading Depth: 2
Heading Rank: 2

Heading: New York Insurance Law

Text: New York Insurance Law, as it pertains to risk retention groups, largely mirrors the structure of federal law. Article 59 of the New York Insurance Law expressly recognizes the limits imposed by the LRRA, noting that its purpose is “to regulate the formation and/or operation . . . of risk retention groups . . . formed pursuant to the provisions of the federal Liability Risk Retention Act of 1986, to the extent permitted by such law.” N.Y. Ins. Law § 5901 (internal citation omitted). In keeping with those limits, New York cleanly distinguishes between the broad regulatory authority it exercises over those risk retention groups that seek to be chartered in New York, and the more limited regulations it is permitted to adopt with respect to nondomiciliary risk retention groups. Section 5903, entitled “Domestic risk retention groups,” commands that such groups “shall comply with all of the laws, regulations and orders applicable to property/casualty insurers organized and licensed in this state,” id. § 5903(a) (emphasis added). In contrast, § 5904, applicable to “[r]isk retention groups not chartered in [New York],” requires that such groups “comply with the laws of [New York]” set out in ten subsequent subsections, largely tracking the powers 10 reserved to nondomiciliary states by 15 U.S.C. § 3902(a)(1)(A)-(I). Those ten subsections do not include the provisions of New York law that are at issue in this case, N.Y. Ins. Law §§ 3420(a)(2) & (b)(1), or indeed any part of § 3420.
Section 3420(a)(2), in its current form, was codified in 1918 and has remained unchanged ever since. See Richards v. Select Ins. Co., 40 F. Supp. 2d 163, 168 (S.D.N.Y. 1999).6 In derogation of the common law, § 3420 vests a substantive right in an injured party against a tortfeasor’s insurer. See State Trading Corp. of India Ltd. v. Assuranceforeningen Skuld, 921 F.2d 409, 416 (2d Cir. 1990) (noting that a direct action statute is substantive); accord Lang v. Hanover Ins. Co., 3 N.Y.3d 350, 354 (2004) (noting that § 3420(a)(2) remedied “inequity” of common law “by creating a limited statutory cause of action on behalf of injured parties directly against insurers”). Section 3420 requires that every insurance policy issued in New York contain, among other required provisions, a provision “that the insolvency or bankruptcy of the person insured, or the insolvency of the insured’s estate, shall 6 A previous version of the direct action statute permitted the injured party to sue the insurer before obtaining a judgment against the insured. See Richards, 40 F. Supp. 2d at 168, citing 1917 N.Y. Laws ch. 524. 11 not release the insurer from the payment of damages for injury sustained or loss occasioned during the life of and within the coverage of such policy or contract.” N.Y. Ins. Law § 3420(a)(1). It further authorizes “any person who . . . has obtained a judgment against the insured . . . for damages for injury sustained or loss or damage occasioned during the life of the policy or contract” to maintain an action against the insurer “[s]ubject to the limitations and conditions of paragraph two of subsection (a) of this section.” Id. § 3420(b)(1). Subsection (a)(2) states: “in case judgment against the insured . . . shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured, or upon the insured, and upon the insurer, then an action may . . . be maintained against the insurer.” Id. § 3420(a)(2). In short, § 3420 grants an injured party a right to sue the tortfeasor’s insurer, but only under limited circumstances – the injured party must first obtain a judgment against the tortfeasor, serve the insurance company with a copy of the judgment, and await payment for 30 days. Compliance with those requirements is a condition precedent to a direct action against the insurance company. Lang, 3 N.Y.3d at 355. 12 Given the foregoing, there is a strong argument that as a matter of New York law, § 3420 simply does not apply to foreign risk retention groups. Section 5904 lists the specific laws and requirements with which foreign risk retention groups must comply; that list does not include any portion of § 3420. Section 5904, moreover, largely mirrors 15 U.S.C § 3902(a), which explicitly reserves specific regulatory authority of the states over nondomiciliary risk retention groups; those sections themselves do not require the inclusion of a direct action provision in such insurance contracts or expressly authorize nonchartering states to do so. Because the declared intention of New York is to regulate risk retention groups to the extent permitted by federal law, N.Y. Ins. Law § 5901, we are inclined to believe that New York did not intend § 3420 to apply to risk retention groups chartered in another state. We are unaware, however, of any decision of a New York court so holding, and we refrain from relying unnecessarily on that ground. The question presented by this appeal, and to which we now turn, is whether the LRRA preempts application of § 3420(a)(2) to foreign risk retention groups. We hold that any construction of New York law that would impose § 3420's direct action requirements on foreign risk retention groups is preempted by § 3902(a)(1) of the LRRA. 13