Friday, August 22, 2008

NYS Insurance Department Office of General Counsel July 2008 Opinions

Just posted to the NYS Insurance Department's website are the Office of General Counsel Opinions from July. Lots of stuff relevant to P&C insurers from last month.

Property Damage Release (July 1, 2008)

11 NYCRR § 216.6(g) sets forth standards for prompt, fair, and equitable settlements, and reads as follows:

Checks or drafts in payment of claims; releases. No insurer shall issue a check or draft in payment of a first-party claim or any element thereof, arising under any policy subject to this Part, that contains any language or provision that expressly or impliedly states that acceptance of such check or draft shall constitute a final settlement or release of any or all future obligations arising out of the loss. No insurer shall require execution of a release on a first- or third-party claim that is broader than the scope of the settlement. (Emphasis added.)

The OGC opines that the following "Property Damage Only Release" complies with this section:

Property Damage Only Release

Policy Number: ________________ Claim Number: ____________________
Claimant: ____________________

RELEASE IN CONSIDERATION OF THE SUM OF $_________________________ DOLLARS ($__________________) to me paid, receipt of which is hereby acknowledged, I hereby release and discharge_______________________________, his or her heirs, executors, administrators, agents and assigns, and all other persons, ABC Insurance Company, its subsidiaries, affiliates, agents, assigned, firms or corporations for property damage including_______________________ which represents the total damages asserted, reduced by______, for known property damage sustained arising from a vehicle collision which occurred on or about the _____ day of __________, 200_, at or near ____________________________________________________________.

Recovery under an automobile insurance policy for loss of fetus (July 1, 2008)

The inquirer represented a woman who was involved in an automobile accident when she was approximately seven months pregnant. The client seeks recovery for bodily injury under an automobile liability insurance policy, which has liability limits of $25,000/$50,000 per person/per occurrence – the minimum liability coverage required in New York State. The inquirer asks whether the “loss of fetus” will serve to “double the policy” – that is, whether the loss of the fetus triggers recovery on behalf of two people under the policy. The inquirer also asks whether the policy will “double” if the baby is born alive then subsequently dies at the hospital.
Questions Presented:

1. May a woman seek damages in excess of $25,000 under a $25,000/$50,000 per person/per occurrence automobile liability insurance policy for injuries that she sustained in an automobile accident caused by the insured, in addition to the loss of a fetus for which the insurer already has agreed to pay the maximum under the policy limits?

2. If the woman gives birth prematurely as a result of an automobile accident caused by the insured and the baby dies shortly thereafter as a proximate cause of the accident, may a duly appointed representative of the decedent bring an action to seek damages against the policy on behalf of the decedent who is survived by distributees who suffered pecuniary loss as a result of the infant’s death?


1. No. Any damages for all serious injuries that the woman seeks under the liability policy are subject to the $25,000 policy limit, including the loss of the fetus.

2. Yes. If the baby was born “alive,” as that term is defined in New York Public Health Law § 4130(1), and then died shortly thereafter, the baby is a “covered person” under the liability policy. Thus, an appointed representative of the decedent may bring an action on behalf of the decedent who is survived by distributees, thereby triggering the $50,000 liability limits for death.

Insurer Payment Obligation Under Collision Coverage (July 16, 2008)

The inquirer reported that insurers are using, and courts relying on, an opinion dated April 16, 2002 from the Department’s Office of General Counsel (“O.G.C.”) to argue that an insurer may recommend to an insured a specified facility for physical damage repair without a request from the insured. The inquirer asks whether the Department continues to adhere to the April 16, 2002 opinion.

The inquirer also asked what constitutes a good faith negotiation and what elements such a negotiation must include.

The inquirer further asked whether the Department adheres to the view that an insurer is not financially responsible for repair costs in excess of those at an insurer-recommended repair facility should an insured use a facility not recommended by the insurer.

Questions Presented:

1. May an insurer recommend or suggest a particular facility for motor vehicle repairs if not expressly requested by the insured?

2. Must an insurer, as part of a good faith negotiation, negotiate labor rates?

3. If an insured elects to have a vehicle repaired at a facility other than that recommended by the insurer, is the insurer financially responsible for any excess repair cost over the cost that the recommended facility would have charged?


1. No. Insurance Law § 2610(b) prohibits an insurer from recommending or suggesting a particular facility for repairs in the absence of an express request from the insured. Any previous opinions issued by the Insurance Department to the contrary should no longer be followed.

2. Yes. A good faith negotiation, like a good faith settlement offer, should be inclusive of all elements of the cost of the repair, including labor rates.

3. The Department has opined that if an insurer makes a good faith offer to the insured to pay for the cost of repair, and, after providing the insured with the prescribed notice of rights letter (known as the NYS APD 1), identifies a facility that will repair the damage at the cost estimated by the insurer, the insurer is not obligated to pay for any repair cost that exceeds the amount of the good faith offer required by regulation. However, at least one court has held that an insured may be awarded the balance of the repair costs if the insured establishes that the excess cost was necessary to restore the vehicle.

The April 16, 2002 opinion letter mentioned in and disavowed by this opinion letter is not available on the Department's website. It followed Circular Letter No. 16 (2000), which was withdrawn and replaced with Circular Letter No. 14 (2003). If you would like a copy of the April 16, 2002 for comparison purposes, email me at roy.mura[at] and I'll send it to you.

It is important for auto insurers not to overread this opinion. It does not really represent anything new. The anti-steering law (Insurance Law § 2610) remains in place, and no New York court since the federal and state courts in Allstate Ins. Co. v. Serio has interpreted or applied it in any reported decision.

Restoration company’s payment of referral fees to insurance agent or broker (July 17, 2008)

The inquirer, marketing director for a New York restoration company, stated that the restoration company did not represent public adjusters and that the company is an approved vendor for most insurance companies. The inquirer asked whether it is lawful to offer to pay an insurance agent or broker, or an employee of the agent or broker who handles claims, a referral fee for “leads.” The inquirer indicates that in order to secure business for the restoration company, the inquirer would like to pursue the business of paying fees to agents and brokers for referring work, specifically, with respect to fire, flood, or “puffback” damage.

The inquirer also asked whether the legality of the proposed business would depend on whether the inquirer describes the fee as a “commission” or a “referral fee,” and whether the size of the monetary value of the “gift” to the agent or broker is relevant.

Questions Presented:

1. May a restoration company pay referral fees to an insurance agent or broker for referring projects, such as fire, flood, or “puffback” damage?

2. Would the legality of the fee depend on whether it is described as a “commission” rather than “referral fee,” or depend on its monetary value?


1. No. A restoration company that pays an insurance agent or broker fees for referring projects may run afoul of the commercial bribing and commercial bribe receiving statutes of the N.Y. Penal Law §§ 180.00-180.08. Also, an agent or broker who receives a referral fee from a restoration company without the consent of the insurer or the insured may violate his/her fiduciary obligations to the principal.

2. No. Under the scenario described below, such fees would not fall within the purview of commissions. It is the payment of the fee to the broker that may be unlawful or that may present a conflict of interest; the amount of the fee or how the fee is identified is immaterial.

Commercial Auto Liability Exclusion (July 28, 2008)

A business wanted to request that its insurer exclude specific persons, namely, the owner and/or officer of the business who will not be driving the insured vehicle, from a commercial automobile liability insurance policy. The inquirer asks whether the insurer must, as a matter of law, honor the request.
Question: May an owner or officer of a business be excluded from coverage on a commercial liability automobile insurance policy if that person is not going to drive the insured vehicle?

Answer: No. Section 60-1.1 of NYCRR Title 11, Part 60 (Regulation 35-A) sets forth minimum required provisions in an automobile liability insurance policy, and does not allow for an exclusion of an owner or officer of a business that has coverage under a commercial automobile liability insurance policy.

No-Fault Medical Fees After Exhaustion of Benefits (July 30, 2008)

Questions Presented:

1. May a health care provider, which has accepted a no-fault assignment of benefits from a patient, bill that patient directly when his or her no-fault benefits have been exhausted?

2. When the patient has exhausted all available no-fault benefits for reimbursement, must the health care provider continue to bill at no-fault fee schedule rates?


1. When a patient’s available no-fault benefits are exhausted, the assignment of those benefits for health services rendered is no longer effective, as there are no other benefits available under the applicable policy. Whether the health care provider is thereafter able to bill the patient is dependent upon whether any other health services coverage is available and, if so, the contractual arrangement that the provider has with the patient and/or the insurer providing the other health services coverage. In the absence of any other available coverage after exhaustion of the no-fault benefits, there is no impediment to the health care provider’s ability to bill the patient directly.

2. Payment of fees for services rendered after the exhaustion of no-fault benefits are still subject to the fee schedule limitations established pursuant to N.Y. Ins. Law § 5108.

No-Fault Deductible (July 30, 2008)

The inquirer represented a client who was injured in an accident while traveling in the bus of a common carrier. The injured person was covered by his father’s no-fault insurance policy, which was written with a $200 deductible. Pursuant to that policy, the insurer deducted from reimbursement due the injured person payment for the first $200 of no-fault medical expenses. The injured person now seeks payment of the $200 deductible from the common carrier, which is self-insured.

Questions Presented: May an injured person, who has no-fault insurance coverage written with a $200 family deductible, seek compensation for that deductible from the insurer of the bus in which he was riding when injured?

Conclusion: No. An injured person covered by no-fault insurance that was written with a deductible cannot seek compensation for the deductible from the insurer of the bus in which he was injured.

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