Tuesday, January 27, 2009

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

Posted recently to the NYS Insurance Department's website are the Office of General Counsel Opinions from December 2008. Two of the 9 posted opinions merit mention here.

Settlement of No-Fault cases (December 26, 2008)

Questions Presented:

1. Does an insurer violate any provision of the Insurance Law or regulations promulgated thereunder by settling a group of no-fault claims with an attorney (“Attorney A”) for a lower settlement amount and no interest, in order to avoid settling the same claims with another attorney (“Attorney B”), who is the attorney of record and who demands a higher settlement amount including interest?

2. If the insurer has violated the Insurance Law, what are the legal consequences to the insurer, Attorney A, and Attorney B:
a. Must the cases be “unsettled?”
b. Must Attorney B “discontinue the cases?”
c. Must the insurer pay attorney’s fees and interest?

1. Nothing in the Insurance Law or regulations promulgated thereunder addresses whether an insurer may settle no-fault cases with one attorney when the insurer is specifically aware that another attorney is the attorney of record.

2. Because, under the circumstances described, there is no per se violation of the Insurance Law or regulations promulgated thereunder, the Insurance Department will not comment on the legal consequences of the insurer’s actions.


Attorney A and an insurer were negotiating the settlement of a group of no-fault claims on behalf of a single client who is a no-fault provider. Both parties agreed to settle the claims for a percentage of the principal without interest. At the same time, the insurer was engaged in negotiations with Attorney B to settle the same group of claims. Attorney B had demanded a higher percentage of the principal plus interest. The inquirer states that during negotiations with Attorney B, the insurer announced its intention to settle with Attorney A a group of claims from one particular provider. Attorney B contested the settlement, contending that Attorney A did not file those claims with the court, did not have copies of those claimants’ files, and did not file a change of attorney form with the court so as to allow him to settle the claims. However, the inquirer states that Attorney B concedes that Attorney A may settle any claims from that specific provider over which Attorney A has control, but may not settle any claims over which Attorney B has control, unless Attorney A files a change of attorney form.

Further, the inquirer reports that the insurer requested from Attorney B a list of the claims that Attorney B filed in court. That list comprised of 30 to 40 claims. After reviewing those claims, along with the settlement amount that Attorney B demanded, the insurer discontinued negotiations with Attorney B, asserting that the insurer did not pay interest on “bulk settlements,” and that the percentage of the principal that Attorney B demanded was “too high.” A few weeks later, Attorney B was informed that Attorney A had settled all of Attorney B’s claims. Subsequently, the insurer sent to Attorney B a $65 filing fee for all of attorney B’s cases that were filed in court and requested discontinuance on all the “settled” cases. However, Attorney B did not receive any attorney’s fees.

Finally, the inquirer states that as part of the settlement agreement between the insurer and Attorney A, Attorney A would have to settle all the claims, including those of Attorney B. In this regard, the client, who desired settlement of the claims, granted Attorney A written permission to negotiate with the insurer the settlements of all the claims (including those of Attorney B). Attorney B received a copy of this written permission after Attorney B refused to discontinue the claims.


Nothing in the “no-fault law”, which is codified in Article 51 of the Insurance Law, or the regulations promulgated thereunder, addresses the issues presented by the inquiry. Indeed, inasmuch as the client apparently unilaterally consented to the settlement, it is unclear whether any wrongdoing in fact occurred.

The inquiry seemingly involves legal issues beyond the purview of the Insurance Department, and which may be appropriately resolved by a court of competent jurisdiction. If a court clearly determines that the insurer’s conduct as described above is unlawful or unethical, the Department at some later date may take appropriate action.

Editor's Note: Over at No-Fault Paradise, Dave Gottlieb asks "[Is the New York State] Insurance Department unaware of its own regulations?" Dave draws comparison between this OGC opinion letter and Circular Letter No. 14 (2008), in which the Department reminded New York no-fault 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" and that "the obligations set forth in 11 NYCRR § 65-3.9 fully apply regardless of whether a claim is in litigation or arbitration[.]" Perhaps the distinction Dave and his commenters are looking for is the difference between saying "we do not pay interest on bulk settlements" and "we will not settle these bulk claims unless you agree to waive interest". To some, that may seem like the archetypal distinction without a difference, but there is analogous support in both statute and case law relating to prohibited "steering" under Insurance Law §2610. That statute similarly forbids "recommend[ing] or suggest[ing]" that an insured have physical damage repairs to an insured vehicle made at a particular shop "unless expressly requested by the insured", and yet the New York courts have upheld insurers from advising insureds of their preferred shop programs and asking them whether they would like more information about such programs. Is an offer to pay only a percentage of principal on a set of disputed claims, i.e., ones the insurer contends and believes are not "due", any different than any other offer which the other party is free to accept or reject? Surely the New York State Insurance Department did not intend by Circular Letter No. 14 (2008) to prohibit insurers from negotiating, or to limit such negotiations on disputed claims to principal only, requiring the addition of interest to all agreed principal amounts. Did it?

New York State Health Care Reform Act (HCRA) Surcharges (December 30, 2008)

Question Presented:

Are New York State HCRA surcharges recoverable or reimbursable under Insurance Law § 5105?


No. New York State HCRA surcharges are not considered first-party benefits and therefore are not recoverable or reimbursable under Insurance Law § 5105.


The New York State HCRA set forth in Public Health Law § 2807-c and related provisions establish the requirement that no-fault insurers and self-insurers pay a surcharge on payments made for services rendered in general hospitals, diagnostic and treatment centers, and freestanding clinical laboratories to the Public Goods Pool.

Insurance Law § 5105 is relevant to the inquiry. That statute authorizes, under specified circumstances, for the recovery of no-fault payments between insurers to the extent that covered parties would have been liable to pay damages in an action at law. * * *

Thus, insurers may recover first-party benefits under the no-fault law from one another under limited circumstances. Insurance Law§ 5102(b) defines “first party benefits” as “payments to reimburse a person for basic economic loss on account of personal injury arising out of the use or operation of a motor vehicle…” (Emphasis added.) “Basic economic loss,” in turn, is defined in Insurance Law § 5102(a)[.] * * *

Basic economic loss does not include HCRA surcharges to insurers. Accordingly, first-party benefits do not encompass those surcharges, either. Therefore, although Insurance Law § 5105 permits the recovery of first-party benefits between no-fault insurers under certain limited circumstances, HCRA surcharges are not recoverable or reimbursable under Insurance Law § 5105, as they do not come within the definition of “first party benefits” set forth in Insurance Law § 5102.

Notice of Rights Letter and Collision Coverage (December 31, 2008)

Questions Presented:

1. Must an insurer directly negotiate with an insured prior to issuing a notice of rights letter when, subsequent to the insurer’s negotiation with a motor vehicle repair facility, the insurer was unable to reach a settlement with the facility?

2. Must an insurer issue a notice of rights letter to an insured when choice of repair facility was not a part of the insurer’s negotiation with the motor vehicle repair facility?

3. Is an insurer required to alter its initial negotiating position on labor rates, or any other negotiable issue, before issuing a notice of rights letter?


1. Yes. An insurer must negotiate directly with an insured prior to issuing a notice of rights letter when the insurer has negotiated with a repair facility that has not been designated by the insured, and was unable to reach a settlement with that facility.

2. Yes. Pursuant to Section 216.7(b)(14)(i) of the New York Comp Codes R. & Regs. (“NYCRR”) Tit. 11, Part 216 (Regulation 64), an insurer must issue a notice of rights letter to an insured if “after negotiations an agreed price cannot be reached.” Thus, the insurer’s letter must be issued when choice of repair facility was not explicitly a subject of negotiation with the motor vehicle repair facility.

3. No. An insurer in a negotiation is not required to shift from its initial negotiating position on labor rates, or any other negotiable issue, so long as its initial position is taken in good faith.

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