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Time Limitations (Or Lack Thereof) in Direct Actions Against Insurers Under Insurance Law § 3240(b)
By: Charles W. Benton, Esq.

Insurance Law § 3420(b) provides that a direct action may be maintained against an insurer by any person or that person's personal representative who has obtained a judgment against an insured or his personal representative for injuries sustained or loss or damaged occasioned during the life of the policy. Insurance Law § 3420(a) provides that such an action can be brought when the judgment against the insured remains unsatisfied at the expiration of 30 days from serving notice of entry of the judgment upon the attorney for the insured or upon the insured, and upon the insurer.

Given these statutory provisions, the question has arisen as to exactly how long an insured or judgment creditor has to bring a direct action against an insurance company under Insurance Law § 3420. The answer is: way too long from the prospective of an insurer.

In Gewirtz v. State Farm, 170 Misc.2d 600, 651 N.Y.S.2d 267 (Sup. Ct., Nassau Ct. 1996), a judgment was entered by an injured plaintiff against an insured on November 26, 1986. On July 6, 1995, over eight years later, a copy of the judgment was mailed to the insured's attorney and presumably the insurer. Thereafter, approximately 40 days after mailing of the notice of entry of judgment, a direct action against the insurer was commenced on August 17, 1995. The court was presented with the question of what statute of limitations applies to a direct action under Insurance Law § 3420 against an insurer. The Gewirtz court determined that an Insurance Law § 3420 direct action was one that exists only by statutory authority. Thus, in the court's view, under CPLR § 214(2), such an action must be commenced in three years.

A three-year statute of limitations would seem to bar a direct action brought over eight years after the entry of judgment, as was done in the Gewirtz case. However, the Gewirtz court declared that it was bound by the statutory language of Insurance Law § 3420(a)(2). A statute of limitations does not begin to run until a cause of action accrues, i.e., when all the facts necessary to establishing a cause of action have occurred so that the party would be entitled to obtain relief in court. Under Insurance Law § 3420, the cause of action does not accrue until 30 days after service of the judgment with notice of entry upon the insured or the insured's attorney and the insurer. In the court's view, the cause of action accrued on July 6, 1995, when a copy of the judgment with notice of entry was served upon the insured's attorney and the insurer. Thus, the action was timely because it was commenced on August 17, 1995, some 40 days later.

The Gewirtz court found that the defendant's contrary argument, from a practical point of view, made sense. The plaintiff, in essence, could wait almost 20 years under CPLR § 211(b) and then serve a copy of the judgment with notice of entry upon the insured and the insurer. Then, as long as the judgment remained unsatisfied for 30 days, the plaintiff could commence a lawsuit pursuant to Insurance Law § 3420(b) against the insurer. The Gewirtz court, noting the inequity inherent in the statutory language of Insurance Law § 3420, invited the New York State Legislature to review the matter. So far, the Legislature has not done so.

Unless the New York Legislature amends Insurance Law § 3420, it is likely that the construction of that statute as stated in the Gewirtz opinion will prevail, and an insurer may be liable on a judgment entered against its insured for nearly 23 years after the judgment is entered. The defense bar should take note of this inequitable situation and insist that the statute be changed to limit direct actions against insurers to a three-year period after entry of judgment against an insured.

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