NYS Insurance Department Office of General Counsel April 2008 Opinions -- Part II

Just posted to the NYS Insurance Department's website are the Office of General Counsel opinions from the second half of April.

Construction Company Acting as a Public Adjuster (April 22, 2008)

A roofing contractor that specializes in catastrophic claims arising from wind, ice, or other storm damage, estimates roof damage, offers insureds opinions as to whether the roof damage is from a storm or other incident normally covered by the insured’s homeowners’ insurance, but does not file a claim on behalf of the insured, charge any fees for meeting with and dealing the insurer's representatives, or negotiate with the insurer is not acting as a public adjuster and does not need to be licensed as such to perform those services. Under Insurance Law § 2101(g)(2), a "public adjuster" is any person, including a corporation, who or which for money, commission or thing of value "acts or aids in any manner on behalf of an insured in negotiating for, or effecting, the settlement of a claim or claims for loss or damage to property of the insured in this state."

In the scenario presented, the OGC opined that the roofing contractor "does not not appear to negotiate or effect the settlement of a claim for money, a commission, or any other thing of value pursuant to Insurance Law § 2101(g)(2), and therefore need not be licensed by the Department as a public adjuster." OGC Assistant Attorney Joana Lucashuk added, however, that "[the contractor] must limit any communications between ABC and the insurer to responding to questions posed by the insurer with regard to the damage to the home. [The contractor] may not advocate on behalf of the insured."

1033 Waiver Pursuant to 18 U.S.C. § 1033 (April 23, 2008)

The Violent Crime Control and Law Enforcement Act of 1994, 18 U.S.C. § 1033(e) prohibits a person who has been convicted of a felony involving dishonesty or breach of the trust, or of an offense under 18 U.S.C. § 1033 whose activities affect interstate commerce, from engaging in the “business of insurance” unless the person has obtained written consent from any insurance regulatory official authorized to regulate the insurer, such as the Superintendent (“1033 waiver”).

At issue here is a conviction under 18 U.S.C. § 1014, a Class B felony. Section 1014 makes it a crime to knowingly make any false statement or report, or willfully overvalue any land, property or security for the purpose of influencing the action of certain entities, such as banks and credit unions, “upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, or loan, or any change or extension of any of the same, by renewal, deferment of action or otherwise, or the acceptance, release, or substitution of security therefor . . . .”

1. A felony conviction under 18 U.S.C. § 1014 constitutes a felony involving dishonesty or breach of the trust within the meaning of 18 U.S.C. § 1033 ("a disqualifying conviction").


2. An insurer may not employ a person who has a disqualifying conviction, including as an in-house staff attorney or as a claim examiner or adjuster whose activities affect interstate commerce and the business of insurance, unless the person has obtained written consent from any insurance regulatory official authorized to regulate the insurer, such as the Superintendent of Insurance of the State of New York.


3. A person with a disqualifying felony conviction may be employed by an unaffiliated law firm that is retained by an insurer to defend its insureds in third-party lawsuits.

1033 Waiver (April 23, 2008)

The inquirer reported that he was denied employment as a service associate trainee for an insurer because he has a class E felony conviction for criminal possession of a forged instrument. He asked whether an insurer could refuse employment on that basis.

Answer: Yes, an insurer that employs a person who has been convicted of a felony involving dishonesty or breach of the trust, or of an offense under 18 U.S.C. § 1033, runs afoul of The Violent Crime Control and Law Enforcement Act of 1994, 18 U.S.C. § 1033(e), unless the person has obtained written consent from an insurance regulatory official authorized to regulate the insurer, such as the Superintendent ("a 1033 waiver").

At issue here was a felony conviction for possession of a forged instrument. Forgery clearly constitutes an act involving dishonesty because dishonesty is commonly defined to include deceiving another. It logically follows that a person who knowingly has a forged instrument in his or her possession is engaged in an act that involves dishonesty. Given this circumstance, the Department was of the view that a felony conviction for possession of a forged instrument is a criminal felony involving dishonesty within the meaning of the Act.

Hospital Balance Billing (April 25, 2008)

Question: May a hospital balance bill a psychiatric patient who is hospitalized, but stays longer than the contract between the hospital and insurer provides, and whose stay for the last few days is not deemed medically necessary by the insurer?

Answer: Broadly speaking, reimbursement rates between an insurer and a hospital that is participating in the insurer’s network are negotiated pursuant to a contract. The New York Insurance Law does not address whether a hospital may bill a patient for continued care beyond that which is covered under the provider contract. Since the Insurance Department regulates insurers—not hospitals—any steps that a hospital may take should be addressed to the appropriate regulatory authority. The New York State Department of Health regulates contracts between hospitals and managed care organizations.

Applicability of the “Two Percent Rule” to Commercial Lines Insurance (April 29, 2008)

1. The “two percent rule” set forth in NY Insurance Law § 3425(f)(1), which limits to 2% per calendar year the number of personal lines automobile insurance policies that an insurer may non-renew or conditionally renew based upon a reduction or elimination of coverage, is not applicable to commercial automobile insurance policies governed by Insurance Law § 3426. Insurance Law § 3425(f)(1) specifically applies to automobile insurance covering motor vehicles predominantly used for non-business purposes, where a natural person is the named insured. Insurance Law § 3426, which governs commercial automobile policies, nowhere limits the number of policies that an insurer may non-renew in a given year.
   
2. Private passenger automobiles used predominantly for commercial purposes and written on commercial policies are governed by Insurance Law § 3426, and are not subject to the two percent rule prescribed in Insurance Law § 3425(f)(1). The applicability of the statutes depends on the principal use of the vehicle, not the classification of the motor vehicle.

DRG Medical Implants and No-Fault Insurance Reimbursement (April 30, 2008)

Workers' Compensation Law § 13(a-1) does not alter the payment rates for medical procedures performed under the no-fault insurance system. WCL § 13(a-1) only applies to payment rates for the spinal procedures performed under the workers’ compensation system.

Because the no-fault system has adopted the workers' compensation fee schedule (Insurance Law § 5108 and 11 NYCRR § 68.1[a]), reimbursement for professional health services is customarily comparable for both systems. Inpatient services such as the spinal procedures at issue here are an exception, however, because payments to health providers for inpatient services are governed by the New York Public Health Law, which generally provides that inpatient health providers are to be reimbursed by third party payors on a Diagnostic Related Group (DGR) basis, as set by the New York State Department of Health. Public Health Law § 2807-c reads, in relevant part as follows:

(b) Payments to general hospitals for reimbursement of inpatient hospital services provided to patients eligible for payments pursuant to the comprehensive motor vehicle insurance reparations act… shall be case based payments per discharge, for each diagnosis-related group[.]

Chapter 592 of the Laws of 2006 amended Workers’ Compensation Law (“WCL”) § 13 to increase the rates of payment for implantable hardware and instrumentation in connection with certain spinal procedures performed under the workers’ compensation system. As codified at WCL § 13(a-1), Chapter 592 limits the scope of the statute to procedures performed under the workers’ compensation system; there is nothing in the statutory provision with respect to reimbursement under the no-fault system or the Public Health Law. Stated differently, Chapter 592 did not amend the Insurance Law, Public Health Law or the DRGs promulgated thereunder in any manner. Therefore, the Public Health Law, through the setting of DRG rates, remains the sole statutory mechanism for establishing permissible charges for inpatient hospital health services rendered under the no-fault system, including the spinal procedures made applicable to workers’ compensation under WCL § 13(a-1).

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