On February 25, 2013, the New York Department of Financial Services promulgated a significant new Hurricane Sandy-related regulation that will impact nearly all insurers doing business in the State of New York. Specifically, the Department adopted the Fifteenth Amendment (entitled “Mediation) to New York’s Regulation 64 (“Mediation Amendment”).

The Fifteenth Amendment was adopted as an emergency measure, and grants any insured that disputes or contests the outcome of a Hurricane Sandy claim an opportunity to mediate that dispute with its insurer. Contrary to internet reports indicating that the Mediation Amendment is “voluntary,” as explained below, the Mediation Amendment imposes specific notice requirements upon insurers, and makes mediation mandatory if requested by an insured. A summary of the key features of the Mediation Amendment follows:

Effective Date: February 25, 2013

Applicability: Property losses (other than auto claims, claims under policies issued under the National Flood Insurance Program, and excess and surplus lines policies) if the loss occurred:

  • During the period October 26, 2012, to November 15, 2012;
  • In the counties of Bronx, Kings, Nassau, New York, Orange, Queens, Richmond, Rockland, Suffolk, and Westchester.

Notice Requirements:

  • An insurer must send written notice informing an insured of its right to mediation in the following circumstances:
    • when an insurer denies a qualifying claim, in whole or in part;
    • within ten (10) business days after the insurer receives notification that an insured disputes a settlement offer, as long as the difference between the positions is greater than $1,000; or
    • within two (2) business days of when an insurer has not offered to settle an insured’s claim within forty-five days after the insurer’s receipt of a properly executed proof of loss and all requested supporting documentation.
  • In addition to the circumstances described in paragraph one (1) of the amended regulation, on or before March 11, 2013, an insurer must send the insured written notice of its right to mediate in the following additional circumstances:
    • Where the insurer denied the claim, in whole or in part, before February 25, 2013 (the effective date of the Amendment); or
    • Where the insurer made a settlement offer that was disputed by the insured before February 25, 2013 AND where the claim “remains unresolved” (The Mediation Amendment does not define the term “unresolved” in this context); or
    • Where, before February 25, 2013, more than forty-five (45) days have elapsed after the insurer received a properly executed proof of loss “and all items, statements and forms that the insurer had requested from the claimant” AND where the claim “remains unresolved” (The Mediation Amendment does not define the term “unresolved” in this context).
  • In all other situations, including situations in which the insured was paid for the entirety of the claim, no part of the claim being denied, and in which the insured did not dispute the settlement offer, a mediation notice is not required.
  • Content of the Notice: In all situations where a mediation notice is required to be sent, the notice “shall inform that claimant of the claimant’s right to request mediation and shall provide instructions on how the claimant may request mediation.” These instructions must include the name, address, and phone and fax number of the organization designated to mediate the claim, as well as the insurer’s address and phone number. (To date, the Department of Financial Services has not released a list of approved mediators.)
  • Upon receipt of a request to mediate from an insured, an insurer must forward that request to the mediation organization within three (3) business days.

Conduct of the Mediation

  • All mediations are non-binding, and all statements made during a mediation are confidential.
  • A mediation may be conducted by face-to-face meetings, video conferences, or telephone conferences, “as determined by the designated organization in consultation with the parties.”
  • The insurer must pay the designated organization the entire fee for the mediation within five (5) days after receiving a bill for the mediation.

Exceptions: When Mediation Is Not Required

  • An insurer is not required to participate in a mediation concerning:
    • A property valuation dispute that has already been referred to appraisal (unless the insurer and insured agree otherwise);
    • Any claim that is the subject of a pending civil lawsuit (unless the insurer and insured agree otherwise);
    • Any claim “that the insurer has reason to believe is a fraudulent transaction or for which the insurer has knowledge that a fraudulent insurance transaction has taken place;” or
    • Any type of dispute that the designation mediation organization has excepted from its mediation process in accordance with its procedures approved by the Superintendent of Financial Services.

It should be noted that the Mediation Amendment is novel and has not yet been interpreted.  You should consult your own counsel for any advice regarding the interpretation of the Mediation Amendment.