New York Codes, Rules and Regulations
Title 11 - INSURANCE
Chapter III - Policy and Certificate Provisions
Subchapter B - Property and Casualty Insurance
Part 71 - Legal Defense Costs In Liability Policies
Section 71.3 - Exceptions to general prohibition

Universal Citation: 11 NY Comp Codes Rules and Regs ยง 71.3

Current through Register Vol. 46, No. 39, September 25, 2024

(a) A liability insurance policy which contains a provision that reduces the limits of liability stated in the policy by the costs of legal defense, may be issued or renewed in this State only for the types of risks or coverages, and minimum limits, specified in subdivision (d) of this section. Unless the policy provides the insured with control of the defense, as specified in subdivision (c) of this section, legal defense costs charged against the stated limits of liability shall not exceed 50 percent of such limits and, except for the offset against the deductible authorized by subdivision (b) of this section, the insurer shall assume any legal defense costs over the amount or percentage specified in the policy.

(b) A liability insurance policy which contains a provision permitting legal defense costs to be applied against the deductible may be issued or renewed in this State only for the types of risks or coverages, and minimum limits, specified in subdivision (d) of this section. Unless the policy provides the insured with control of the defense, as specified in subdivision (c) of this section, the legal defense costs assumed by or charged to the insured shall not exceed 50 percent of such deductible and, except for the offset against the policy limits authorized by subdivision (a) of this section, the insurer shall assume any legal defense costs over the amount or percentage specified in the policy in regard to such deductible.

(c) The percentage limitation specified in subdivisions (a) and (b) of this section may be omitted if the policy provides that the insured shall have the option to:

(1) select the defense attorney or to consent to the insurer's choice of defense attorney, which consent shall not be unreasonably withheld;

(2) participate in, and assist in the direction of, the defense of any claim; and

(3) consent to a settlement, which consent shall not be unreasonably withheld.

(d) A legal defense cost offset provision as specified in subdivision (a) or (b) of this section may be included in a liability policy only for the following types of risks or coverages, and only where the per occurrence liability limits for all liability risks and coverages under the policy are at least:

(1) $100,000:
(i) employee benefit liability;

(ii) fiduciary liability; and

(iii) employment practices liability.

(2) $500,000:
(i) environmental impairment and pollution liability;

(ii) directors and officers liability;

(iii) media, publishing and advertising liability;

(iv) architects and engineers liability;

(v) errors and omissions liability; and

(vi) professional liability, other than medical malpractice liability.

(3) $1 million: hospital medical malpractice liability, for renewals only, if the expiring policy contained approved legal defense cost offset provisions.

(e)

(1) A liability insurance policy containing a provision that reduces the limits of liability stated in the policy by the costs of legal defense, or permits offsets against the deductible by the costs of legal defense, and which meets the requirements of paragraph (2) of this subdivision, may be issued or renewed in this State if the policy:
(i) insures a large commercial insured;

(ii) provides primary coverage of at least $5,000,000 per occurrence;

(iii) provides umbrella or excess coverage of at least $1,000,000 per occurrence, where the underlying limits are at least $2,000,000 per occurrence; or

(iv) is written with a deductible, or over a self-insured retention, of at least $100,000 per occurrence.

(2) Any policy issued or renewed pursuant to this subdivision must comply with all the provisions of this Part except:
(i) subdivisions (a), (b), (c) and (d) of this section; and

(ii) subdivisions (b)(1)-(3), (c) and (d) of section 71.5 of this Part.

(f) Legal services insurance that is a part of a policy of liability insurance that contains a provision reducing the limits of liability by the costs of legal defense, in accordance with the provisions of this Part, may reduce the per claim or aggregate liability limits of the liability policy if the policy limits are not reduced by greater than 25 percent.

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