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August 1, 2019

NYS Court of Appeals Issues Decision on Out-of-State Risk Retention Groups

The NYS Court of Appeals recently reiterated that out-of-state insurance companies are subject to Insurance Law § 3420(d), which requires timely disclaimers of coverage for certain liability claims if the subject insurance policy was issued or delivered in New York State (Carlson v. American Intern. Group, Inc., 30 N.Y.3d 288 (2017)).

In Nadkos, Inc. v. Preferred Contractors Insurance Company Risk Retention Group LLC (__ , N.Y.3d __, 2019 N.Y. Slip. Op. 04641 (June 11, 2019), however, the court held in a six-one decision that foreign risk retention groups (RRGs) are not governed by the timely disclaimer requirements of 3420(d). RRGs are comparable to traditional liability insurance companies, except they are owned solely by their insureds who work in the same industry and are exposed to similar, typically specialized liability risks.

The insurance coverage dispute in Nadkos involved a general contractor sued in an underlying personal injury action by an employee of its subcontractor that was insured by Preferred Contractors Insurance Company Risk Retention Group LLC (PCIC) in Montana. PCIC had named the general contractor as an additional insured in the subject insurance policy, extending coverage for liability related to the “ongoing operations” of the subcontractor and other members of the RRG.

After PCIC disclaimed coverage based on certain policy exclusions, the general contractor sought a declaratory judgment that PCIC was obligated to defend and indemnify it in the underlying personal injury action. The general contractor also maintained the disclaimer was untimely under Insurance Law § 3420(d)(2) and, therefore, void.

PCIC moved for summary judgment, arguing that section 3420(d)(2) is inapplicable to a non-domiciliary RRG because RRGs are governed by the federal Liability Risk Retention Act, which preempts section 3420. The general contractor responded that Insurance Law § 2601(a)(6)––which applies to non-domiciliary RRGs doing business in New York State––cross references section 3420(d) and, therefore, subjects PCIC to the timely disclaimer requirements of 3420(d)(2). Specifically, § 2601(a)(6) requires insurers “to promptly disclose coverage pursuant to” sections 3420(d) and (f)(2)(A).

The trial court granted PCIC summary judgment dismissing the complaint, and, on appeal, the Appellate Division, First Department affirmed. The Court of Appeals granted leave to appeal and affirmed, agreeing with the First Department that an insurance coverage disclaimer is not a disclosure of coverage within the meaning of section 2601(a)(6), and, therefore, section 3420(d)(2) did not apply to PCIC. The Court rejected the general contractor’s attempt to broaden the term “disclosure” in section 2601(a)(6) to also include section 3420(d)’s timely disclaimer requirement.

As a result of the ruling in Nadkos, the law remains that foreign RRGs need not adhere to the timely disclaimer requirements of section 3420(d)(2). In contrast, foreign traditional insurers are governed by section 3420 with respect to any policies issued or delivered in New York State.

If you have any questions regarding the content of this alert, please contact Kelsey Till Thompson, associate, at or another member of the firm’s Insurance Coverage & Regulation Practice Area.


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