Thursday, June 12, 2008

Thou Shall Not Suggest or Require

Circular Letter No. 14 (2008)
June 10, 2008

Yesterday the New York State Insurance Department issued the following circular letter:

TO: All Authorized Insurers Writing Motor Vehicle Insurance in New York State Motor Vehicle Self-insurers, and the Motor Vehicle Accident Indemnification Corporation (MVAIC)

RE: Unfair Claims Settlement Practices: Interest on Overdue No-Fault Claims and Claim Settlement Structure.

STATUTORY REFERENCE: Section 5106 of the Insurance Law; Section 65-3.9 of Regulation 68-C (11 NYCRR 65-3)

Circular Letter No. 17 (2006), issued on September 15, 2006, reminded insurers of their obligations with respect to settling claims that are subject to Regulation 68-C.

The letter advised insurers that 11 NYCRR § 65-3.9(b) provides that an insurer "shall not suggest or require, as a condition to settlement of a claim, that the interest due be waived." This rule ensures the prompt payment of claims and resolution of disputes while preventing insurers from exercising undue influence on applicants by inducing them to waive their rights to the payment of accrued interest as a condition of obtaining settlement of their claims. Citing 11 NYCRR § 65-3.9(e) and 11 NYCRR § 65-3.9(f), the letter also stated that where the terms of a settlement include interest, the insurer should separately identify the amounts allocable to the principal and the interest.

The purpose of this letter is to advise insurers that the obligations set forth in 11 NYCRR § 65-3.9 fully apply regardless of whether a claim is in litigation or arbitration, and cannot be circumvented by having outside counsel or other representatives of insurers suggest or require, as a condition of settlement of a contested claim, waiver of any interest that is due. The Department expects insurers to take all necessary measures to ensure that the actions of its employees, legal representatives and other claim processors comply fully with all pertinent statutory and regulatory mandates.

The Department will continue to enforce compliance with the law through market conduct examinations of insurers, including targeted investigations of insurers, when warranted.

Moreover, the Department will continue to enforce requests for assistance in obtaining payment of arbitration awards, including the correct identification of applicable interest payments due, as referenced in Circular Letter No. 21 (2005).


Most parties, in both no-fault and non no-fault matters, compromise and then settle based on percentages. For example, full payment owed on a $100 bill overdue 1 year is $124. Offering 50% or $62 is not "suggest[ing] or requir[ing]" that interest be waived. It's a compromise offer that actually includes interest which, if accepted, should be separately identified on any payment check.

Although it rarely if ever happens, there is nothing in the reg or this circular letter prohibiting the applicant or applicant's attorney from offering to waive interest, provided the idea first comes from either of them, rather than from the insurer or any "employees, legal representatives and other claim processors[.]"

Lastly, note that the rule prohibiting insurers from suggesting or requiring waiver of interest applies to claims in both litigation and arbitration.


Larry Rogak said...

It's interesting that the Insurance Department is concerned about insurers and their counsel using "undue influence" on applicant who are represented by counsel. Of course, the opinion letter doesn't say you can't negotiate interest with counsel; it only mentions the applicant. Now should we read this literally, or should we read it with a bias towards plaintiffs, as some usually suggest?

Roy A. Mura said...

Would "I'm thinking of a number between X and Y..." pass muster?

Although the NYSID uses the term "applicant" in this circular letter, 65-3.9(b)does not, so to the extent that "b" follows "a" in our English alphabet, and 65-3.9(a) speaks of both "an applicant or assignee", I think insurers, so as not to become the "targets" of the NYSID CSB's investigations, should read the circular letter liberally or expansively to include assignees, as well.

Of course, I could be wrong, and this circular letter could have been meant to use and apply only the term "applicant". Perhaps someone should request clarification. What's the worst that can happen -- the NYSID saying that this proscription applies to both applicants and assignees AND their counsel? Better that than the adminstrative and/or legal sanctions that some might seek to impose from the uncertainty, I say.