New York State Insurance Department Office of General Counsel Opinions for August 2008

Just posted to the NYS Insurance Department's website are the Office of General Counsel Opinions from August. Of the 10 opinions posted, four are relevant to P&C insurers.

Application of Ground Rule 8 of the New York State Workers' Compensation Radiology Fee Schedule to the Reproduction Cost of a Magnetic Resonance Imaging ("MRI") Film Necessary to Determine Whether a "Serious Injury" Exists (August 25, 2008)

In addition to smashing the record for the longest title, this OGC opinion distinguishes between MRI films requested in connection with the verification of a first-party no-fault claim, and MRI films requested in connection with the determination of a third-party "serious injury" tort claim. The $5/$3 fee mandated by Rule 8 of the NYS Workers' Compensation Radiology Fee Schedule only applies to the former, not the latter.

An SIU supervisor asked whether Ground Rule 8 of the NYS Workers’ Compensation Radiology Fee Schedule applies when an insurer seeks a reproduction of an MRI film to determine whether a person has sustained a “serious injury” under Article 51 of the NYS Insurance Law. In answering this question in the negative, the OGC stated:

In the situation presented here, the covered person received no-fault insurance benefits for his or her basic economic loss from the adverse insurer, and is now suing the XYZ insured for non-economic losses by asserting that he or she sustained a serious injury. Pursuant to Insurance Law § 5108(a), the Workers’ Compensation Board’s fee schedules only apply to health service charges for, and in excess of, basic economic loss. Therefore, since ABC seeks a reproduction of the MRI film to determine whether the covered party is entitled to non-economic losses, not basic economic losses, Ground Rule 8 of the Workers’ Compensation Radiology Fee Schedule does not apply, and the MRI facility is not bound by OGC Opinion 08-04-08.

As the Insurance Law and regulations promulgated thereunder are silent as to the permissible fee for a reproduction of an MRI film in the situation presented here, it was suggested that the inquirer may wish to contact the New York State Department of Health for further guidance. It was also suggested that the inquirer may wish to investigate whether the reproduction that he seeks is discoverable under the New York Civil Practice Law and Rules.

Watch for more developments as auto liability insurers foil with radiology facilities over the costs of reproducing MRIs for personal injury (non-economic loss) claims.

Commercial motor vehicle liability policies issued to out-of-state residents (August 26, 2008)

Question presented:

May a New York authorized property/casualty insurer issue a commercial motor vehicle liability insurance policy in New York to an independently owned and operated livery cab owner that operates in New York, when the cab owner resides in New Jersey or Connecticut?

Conclusion:

Yes. The New York Insurance Law does not prohibit a New York authorized property/casualty insurer from issuing a commercial motor vehicle liability insurance policy in New York to an independently owned and operated livery cab owner that resides in New Jersey or Connecticut. However, the Insurance Department’s Office of General Counsel (“OGC”) will not opine on New Jersey or Connecticut law.

Public adjuster communicating with insurer represented by counsel (August 26, 2008)

The Insurance Department has opined on several occasions that an insurer may not communicate directly with a third party claimant represented by counsel. See, OGC Opinion 11/21/06. In this instance, a public adjuster inquired whether there is any prohibition against the public adjuster communicating directly with an insurer represented by counsel, even after a claim is in litigation. The OGC says no, there is no such prohibition.

New York Insurance Law § 2101(g)(2) defines a “public adjuster” as follows:

“Public adjuster” means any person, firm, association or corporation who, or which, for money, commission or any other 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 caused by, or resulting from, any of the risks as enumerated in paragraphs four, five, six, seven, eight, nine and ten and subparagraphs (B) and (C) of paragraph twenty of subsection (a) of section one thousand one hundred thirteen of this chapter, not including loss or damage to persons under subparagraph (B) of paragraph twenty of subsection (a) of such section or who, or which, advertises for, or solicits employment as an adjuster of such claims, and shall also include any person who, for money, commission or any other thing of value, solicits, investigates, or adjusts such claims on behalf of any such public adjuster[.]

This inquiry related to a court-ordered appraisal and resulting award of tenants' "improvements and betterments" and lost rents. The insured's PA made several demands of the insurer to pay the appraisal award, accusing the insurer at one point of “bad faith practices” for failing to pay the award that had been confirmed into a judgment. An attorney for the insurer then sent a letter to the PA, informing the PA that since he was representing the insurer, “contact with [his] client is forbidden under New York State Law.”

The PA asserted that the insured had requested that the PA make demands to the insurer to settle the claim, although the insured was being represented by counsel in this matter. The inquirer stated that rather than the insured pay an attorney to make written settlement demands to the insurer, the PA had undertaken to do so because such services were already included in the PA's fees, and that the PA routinely makes demands for payment on behalf of his clients. Further, the PA believed that it was his “legal duty” to notify insurers of their violation of the insurance regulations or breach of insuring agreements.

In writing for an OGC opinion, the PA asked whether a public adjuster may make demands for payment after litigation on the matter commences; whether an adjuster may advise an insurer of its breach of a contract and/or violation of the insurance regulations; and whether there are any laws or regulations that would prohibit a public adjuster from engaging in such activities when the claim is in litigation and the insurer is represented by counsel.

The OGC opined that "Insurance Law § 2101 neither authorizes nor prohibits the activities that the inquirer has undertaken as a public adjuster. Further, the Insurance Department’s Office of General Counsel (“OGC”) is unaware of any insurance law or regulation that prohibits a public adjuster from communicating with an insurer once it is represented by counsel."

Questions Presented:

1. May a public adjuster make demands, on behalf of an insured, for payments from an insurer pursuant to a court-ordered award for “improvement and betterment fees” and lost rents?

2. May a public adjuster advise his client’s insurers of any breach of contract or violation of the Insurance Law?

3. Are there any specific laws or regulations that would prohibit a public adjuster from communicating directly with an insurer regarding a claim in litigation when the insurer is represented by counsel?

4. Are there any provisions in the Insurance Law or regulations promulgated thereunder that would prohibit a public adjuster from performing the duties described in Questions 1 and 2 once a claim is being litigated?

Conclusions:

1. Yes. Pursuant to N.Y. Insurance Law § 2101(g)(2) (McKinney 2006), a public adjuster may act or aid in any manner on behalf of the insured to negotiate or effectuate a settlement of a claim for loss or damage to property.

2. Yes. Nothing in the Insurance Law prohibits a public adjuster from informing an insurer that it is in breach of contract or violation of the Insurance Law.

3. The Insurance Department is unaware of any law or regulation that would prohibit a public adjuster from communicating directly with an insurer regarding a claim for which the insurer is being represented by counsel.

4. Nothing in the Insurance Law or regulations promulgated thereunder prohibits a public adjuster from attempting to settle a claim on his client’s behalf, or to inform the insurer that it is in breach of contract or violation of the Insurance Law.

The line between acting as an adjuster and practicing law is sometimes difficult to discern.

Placement of Punitive Damages Insurance Coverage in the Excess Line Market (August 27, 2008)

Punitive damages are uninsurable in New York. Hartford Accid. & Indem. Co. v. Village of Hempstead, 48 N.Y.2d 218 (1979); Home Ins. Co. v. American Home Prods. Corp., 75 N.Y.2d 196 (1990).

In this matter, the inquirer reported that it had noticed materials from Bermuda marketed to New York-licensed brokers that were advertising the availability of insurance intended to cover punitive damages on risks located in New York State. The inquirer stated that excess line insurers were writing the policies, and asked whether such contracts were enforceable in New York State.

Questions Presented:

1. May a New York-licensed insurance broker place insurance coverage in the excess line market on risks located in New York State that would cover punitive damages?

2. May a licensed insurance broker employ a third party outside New York to place the coverage?

Conclusions:

1. No, a New York-licensed broker may not lawfully place insurance coverage in the excess line market on risks located in New York State that would cover punitive damages.

2. No, a New York-licensed broker may not lawfully hire a third party to place insurance coverage in the excess line market on risks located in New York State that would cover punitive damages.