New York State Insurance Department Office of General Counsel Opinions -- May to August 2010

I don't know why, but it seems that the number of NYS Insurance Department Office of General Counsel opinion letters being posted to the the Department's website has decreased this year.  From the 2010 Selected Opinions of the Office of General Counsel come these two opinion letters, the first from May and the second from June, relevant to property and casualty insurers doing business in New York, both involving auto physical damage coverage.    

Appearance Allowances Prohibited
OGC Op. No. 10-05-01 (May 10, 2010)

Question Presented:

May an automobile insurer offer to a claimant an “appearance allowance” in lieu of repairing or replacing a damaged part on the claimant’s automobile?

Conclusion:

No.  To the extent that an automobile insurer offers to a claimant less than the fair and reasonable amount sufficient to return the vehicle to its condition immediately prior to the loss, the insurer stands in violation of N.Y. Ins. Law § 3411(i) (McKinney 2007) and New York Comp. Codes R. & Reg. (“NYCRR”) tit. 11, Part 216 (Regulation 64).

Facts:

The inquirer represents ABC Insurance Company (“ABC”).  He reports that ABC offers “appearance allowances” to claimants. An “appearance allowance” is a monetary amount paid by an insurer to a claimant in lieu of restoring the claimant’s automobile to its condition immediately prior to the loss. In a July 1, 2009 memorandum from ABC to the Department, in which ABC explains its use of “appearance allowances,” ABC states that its current business plan includes offering an “appearance allowance” to a claimant in instances where the claimant seeks repair or reimbursement for minor cosmetic damage to a part of the automobile. The memorandum states that ABC’s trained insurance adjusters offer claimants: 1) an “appearance allowance,” 2) repair, or 3) replacement of the damaged automobile part. Furthermore, in the memorandum, ABC claims that the offer of an “appearance allowance” is merely one option addressed with the claimant, and that ABC does not require the claimant to choose the appearance allowance as a condition of payment.

Additionally, ABC has provided the Department with a section of its handbook, which describes ABC’s policies regarding “appearance allowances.” The handbook expressly states that there is “no set amount for an appearance allowance.” Furthermore, ABC’s Handbook sets forth an example of an instance where an adjuster may offer an “appearance allowance” to a claimant:

An example of this would be a front bumper with a small dent or scrapes. In this example, the value of the bumper is $600.00. We might offer the owner an appearance allowance of $100.00 in lieu of repairing or replacing the bumper. The company may still pay to align the bumper if necessary.

Moreover, ABC’s handbook states that “[t]he appearance allowance should not exceed what [ABC] would have to pay to repair or replace the part.”

The inquirer asks whether the “appearance allowance” comports with the Insurance Law and the regulations promulgated thereunder.

Analysis:

Insurance Law § 3411(i) is relevant to the inquiry. That statute governs automobile physical damage insurance covering private passenger automobiles, and states:

Payment of a physical damage claim shall not be conditioned upon the repair of the automobile, provided, however, the insured shall replace any inflatable restraint system (airbag), as defined in subparagraph (b) of S 4.1.5.1 of standard 208 of part 571 of title 49 of the code of federal regulations, that inflated and deployed, or that was stolen, which is included in a physical damage or theft claim. The insurer may request that the automobile be made available for inspection whether or not the automobile is repaired. The results of such inspection may form a basis for determining the value of the automobile in the event of a subsequent loss. If the automobile is repaired the insurer shall request the repair invoice and shall require the insured and the automobile repairer to certify, under penalties of perjury, whether the applicable deductible has been paid to the automobile repairer, whether any repairs have been made and whether the repairs did not include all items allowed by the insurer.

Thus, an insurer may not condition its payment of a claim to a claimant upon repair of the automobile, provided that an insured must replace an airbag that was inflated and deployed, or stolen.  In other words, an insurer is obligated to repair the vehicle or pay the cost of the repair. In fact, the Memorandum in Support of Chapter 161 of the Laws of 1996, which was enacted as Insurance Law § 3411(i), states that even though the legislature mandated an insured to replace an airbag, the legislature intended to maintain “[a] consumers’ right not to have a vehicle repaired and to collect on a claim.”

In addition, 11 NYCRR § 216.6(a), which governs standards for prompt, fair, and equitable settlement, states that:

In any case where there is no dispute as to coverage, it shall be the duty of every insurer to offer claimants, or their authorized representatives, amounts which are fair and reasonable as shown by its investigation of the claim, providing the amounts so offered are within policy limits and in accordance with the policy provisions.

Furthermore, 11 NYCRR § 216.7(b) governs automobile partial loss adjustments.  11 NYCRR § 216.7(b)(13) requires an automobile insurer to detail each item of damage as to the paint, parts, and labor hours it will require to repair that particular item.  Additionally, 11 NYCRR § 216.7(b)(1) requires an insurer to commence negotiations and offer a good faith settlement, sufficient to repair the vehicle to its condition immediately prior to the loss.

Therefore, an automobile insurer is required to detail each item of damage to a claimant’s automobile, commence negotiations with the claimant, and offer a good faith settlement to the claimant that is sufficient to repair the vehicle to its condition immediately prior to the loss.  If there is no dispute as to coverage, the insurer must offer to the claimant a fair and reasonable amount as shown by its investigation, provided the amount offered is with policy limits and in accordance with the policy provisions.

By paying an “appearance allowance” in lieu of the full claim, ABC is not complying with Insurance Law § 3411(i) and Regulation 64. Instead, ABC is paying an arbitrary amount based upon the adjuster’s negotiations with the claimant.  If ABC is offering an “appearance allowance” in lieu of an amount sufficient to repair the claimant’s automobile or part, ABC is conditioning the payment of a claim upon repair, which may constitute undue economic coercion by ABC towards the claimant, inasmuch as ABC is not offering the claimant the full claim amount.  It should also be noted that 11 NYCRR § 216.7(b)(11) and (12) allows ABC to deduct from the claim amounts for betterment and/or depreciation, and for previous damage.

In sum, to the extent that an automobile insurer offers to a claimant less than the fair and reasonable amount of the full claim as found by an insurer’s adjuster, the insurer’s actions do not comply with Insurance Law § 3411(i) and Regulation 64.

For further information you may contact Senior Attorney Sapna Maloor at the New York City Office.

Deductibles for Automobile Physical Damage Insurance Policies
OGC Op. No. 10-06-08 (June 3, 2010)

Questions Presented:

1) May an authorized insurer offer a zero deductible for a policy of comprehensive or collision automobile insurance coverage?

2) Is there an exception to the deductible requirements for antique, special, or historical vehicle programs, since these are not standard automobile programs?

Conclusions:

1)  No.  N.Y. Ins. Law § 3411(k) (McKinney 2007) prohibits an authorized insurer from offering a deductible of less than $50 for fire, theft or comprehensive insurance and $100 for collision insurance coverage on private passenger automobiles registered in New York, except that window glass coverage may be sold without a deductible.

2)  No, there is no exception to the deductible requirements for antique, special, or historical vehicle programs.

Facts:

The inquiry is of a general nature, without reference to particular facts.

Analysis:

1)  Deductibles under private passenger motor vehicle insurance policies

The inquirer asks, on behalf of an insurer who is a customer of the inquirer, about whether an insurer may offer automobile physical damage insurance with a zero deductible for automobiles registered in New York.

Insurance Law § 3411 is relevant to this inquiry. It applies to private passenger automobile policies. For purposes of § 3411(k), the Department interprets a private passenger automobile policy to have the same meaning as a covered policy under Ins. Law § 3425(a)(1): “a contract of insurance... issued or issued for delivery in this state, on a risk located or resident in this state, insuring against losses or liabilities arising out of the ownership, operation, or use of a motor vehicle, predominantly used for non-business purposes, when a natural person is the named insured under the policy of automobile insurance.” See OGC Opinion No. 08-04-36 (April 29, 2008).

Section 3411(k) reads, in pertinent part, as follows:

Each insurer which offers physical damage insurance subject to the provisions of this section shall offer such insurance with a standard deductible of two hundred dollars for each occurrence. The insured shall, however, at the inception of the policy or at the annual anniversary date, or at the time of the replacement or addition of an automobile, have the option of purchasing a policy with a lesser deductible, but in no event may the insurer sell a policy with a deductible of less than fifty dollars for fire, theft or comprehensive insurance coverages (one hundred dollars for assigned risk policies. . .) and one hundred dollars for collision insurance coverage except that window glass coverage may be sold without a deductible. . . .

 A zero deductible on either comprehensive or collision insurance coverage is not permissible under automobile physical damage insurance policies covering New York State registered private passenger automobiles under Ins. Law § 3411(k). The minimum deductible for fire, theft or comprehensive insurance coverage is $50 and, if the policy is issued through the New York Automobile Insurance Plan (“NYAIP”) as an assigned risk policy, the minimum deductible for comprehensive coverage is $100. The minimum deductible for collision insurance coverage is $100. Only window glass coverage may be sold without a deductible.

2)  Deductibles under antique, special, or historical private passenger motor vehicle insurance policies

The inquirer also asks whether there is an exception for antique, special, or historical vehicles to the limitations on deductibles set forth in Ins. Law § 3411(k). The statute makes no exception for such vehicles. The same prohibition against deductibles below the statutory limitations apply to antique, special, or historical vehicles that are private passenger automobiles.

For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.