Friday, December 12, 2008

Do Interest & Attorneys' Fees on No-Fault Settlements or Awards Reduce PIP Limits?

Those of you who read The Rogak Report know that Larry posted yesterday about whether attorneys' fees and statutory interest on no-fault awards may be applied to reduce the remaining PIP or APIP limits. Larry reads a June 9, 2003 OGC opinion letter to permit such a reduction. I do not, and emailed Larry a reply for posting on his report. Although Larry pointed out in a later post what I had pointed out to him (and a piscator is a fishmerman or angler, btw), I thought I'd post my reply to Larry's intitial post, so everyone interested in this issue can have as much take on this subject as possible:
Gotta disagree with you on this, Larry.
Circular Letter No. 17 (2006), entitled "Fair claims settlement practices: interest on overdue No-fault claims and claim settlement structure", reminds that 11 NYCRR § 65-3.9(e) and 11 NYCRR § 65-3.9(f) require the separate identification of any interest payment from the principal, and that interest payments are not to be included in ratemaking calculations.

That circular letter also states that "insurers are prohibited from taking credit for interest payments in calculating whether the maximum aggregate policy limits have been reached." Other than its use of the passive voice, this proscription could not be more clear.

Interest on overdue claims is intended to encourage prompt payment of claims and has been characterized as a penalty on recalcitrant insurers. If insurers were permitted to pass along interest penalties to insureds by reducing their PIP or APIP limits, the legislative purpose of the interest penalty would be nullified. Don't like your insured? Is she criticizing your claims handling? Complaining to your supervisor? Get her back. Don't pay her claim, wait to be sued, drag out the litigation, have principal, interest and attorneys' fees eventually awarded against you, and then finally pay, but reduce the remaining PIP limit by the total paid amount. Ha. That'll fix her.

Can't possibly work that way.

The opinion letter does not state that attorneys' fees are compensable "by" no-fault, as in BEL benefits, but from a no-fault insurer "based upon the issuance of an award of benefits to the applicant." Big difference.
Larry and I read the 2003 OGC opinion letter differently. I do not believe that letter can be read to permit the reduction of even attorneys' fees awarded from PIP limits. In my opinion, it speaks only to whether court filing and process server fees are recoverable under Regulation 68 from an no-fault insurer as part of a no-fault award, answering that question in the negative, and pointing out that only attorney fees, and not associated court costs, are recoverable from a no-fault insurer as part of an award. The 2003 OGC opinion letter says nothing about reducing remaining PIP limits by any type of fees or payments.

In the heirarchy of missives that come from the New York State Insurance Department, circular letters are generally regarded as having greater weight than OGC opinion letters. Circular Letter No. 17's statement that "insurers are prohibited from taking credit for interest payments in calculating whether the maximum aggregate policy limits have been reached" seems crystal clear and is not, in my opinion, limited to no-fault settlements, as Larry suggests in his later commentary. But I understand that reasonable minds -- especially ones with considerable knowledge and experience on a subject -- can and do sometimes disagree. I prefer to be neither the Donald nor the Rosie on this.

In yesterday's later post, Larry indicates that he fired off a letter to the Department's OGC for clarification of what Larry thinks is a contradiction between the Department's 2003 OGC opinion letter and 2006 circular letter. I look forward to hearing more from Larry on this interesting and important question. And thanks, as always, for generating thought.

Update ~~ Larry has posted the OGC's unofficial response to his question/opinion. Read it here.

1 comment:

Larry Rogak said...

Roy: I've gotten quite a few comments from readers about this issue, and one of the recurring comments is that the claimant would be penalized if interest were to reduce policy limits. I beg to differ. Interest on no-fault claims accrues at 24% per year, and that interest is paid to the claimant (or his assignee). And while interest is paid on every overdue claim, policy limits get exhausted on relatively few claims. So when the claimant gets interest, he is getting quite a bonus, because there is no safe investment in the world today paying anywhere near 24% interest. Only in exceptional cases, involving long courses of treatment over long periods of time, would the interest reduction have any palpable negative effect on the claimant.

However, regardless of whether interest reduces PIP limits or not, the insurer gets no benefit either way. If the insurer winds up paying out the $50,000 limit, then they have paid $50,000, regardless of how it is allocated.