Insurance Circular Letter No. 11 (2019) -- RE: New York State Child Victims Act and Related Insurance

Yesterday the New York State Department of Financial Services issued Circular Letter No. 11 (2019) RE: New York State Child Victims Act and Related Insurance.  If you're wondering why New York's insurance regulator thought it necessary to tell insurance licensees in the state of New York what the DFS "expects" (x4) and "encourages" (x13) its licensees to do with CVA-related insurance claims, read on.  

Insurance Circular Letter No. 11 (2019)

September 12, 2019

TO:	All Authorized Property/Casualty Insurers, Licensed Insurance Producers, Adjusters, and Reinsurers
RE:	New York State Child Victims Act and Related Insurance

STATUTORY AND REGULATORY REFERENCES:   N.Y. Financial Servs. Law; N.Y. Ins. Law §§ 1303, 2110 and 2601; 11 NYCRR Parts 216 (Insurance Regulation 64) and 243 (Insurance Regulation 152); Chapter 11 of the Laws of 2019.

I. Purpose

The purpose of this circular letter is to inform all authorized property/casualty insurers, licensed insurance producers, adjusters, and reinsurers (collectively, “Addressees”) that the Department of Financial Services (“Department”) expects Addressees to cooperate fully with the intent of the Child Victims Act (“CVA”).

II. Discussion

Governor Andrew M. Cuomo signed the CVA into law on February 14, 2019 as Chapter 11 of the Laws of 2019. Among other things, the CVA extended the time for victims of sexual abuse to commence a civil action and reopened previously time-barred legal claims for a one-year window beginning August 14, 2019. Victims may sue or employ alternative dispute resolution methods to pursue legal claims against alleged perpetrators, the organizations that employed the alleged perpetrators at the time of the acts, and other persons or organizations that may have responsibility for the acts or liability for the harm done (collectively, “potential defendants”).

All of the Addressees that issued policies to potential defendants (hereinafter “Insurers”) are therefore on notice that legal claims may arise for which Insurers may have liability under those policies.  Additionally, over time, some Insurers have been acquired by, or merged into, other companies.  In such cases, the successors-in-interest to the Insurers that issued the policies with such exposures may have assumed such liabilities and are similarly on notice.  Addressees who assumed business from such Insurers similarly should assess their exposures and act in good faith to address their liabilities, as should retrocessionaires.

The Department expects Addressees to cooperate fully with the intent of the CVA.  This includes when insurance coverage applies to CVA-related claims.  The CVA highlights the importance of victims’ claims being timely reviewed by courts, alternative dispute resolution entities, or other tribunals, to reach appropriate resolutions and provide remedial benefits to victims.

Accordingly, the Department encourages all Addressees with potential exposure to CVA-related legal claims to act promptly and in utmost good faith and to exercise best practices with their prior and current policyholders, and their respective claimants, including properly performing any and all duties to defend CVA-related claims.

Further, in the case of lost policies, the Department encourages all Addressees with relevant records to act in utmost good faith to preserve and provide any relevant records to policyholders and other entitled persons, whether in connection with any lawful discovery process or otherwise. 

Certain minimum standards set by the New York State Insurance Law (“Insurance Law”) and accompanying regulations that are generally applicable to Insurers are set forth below, the violation of which may result in fines or other disciplinary actions, but this Department encourages Insurers to do more than the minimum required.  Similarly, all other addressees should be mindful of their obligations under the Insurance Law, including without limitation Insurance Law Article 21 and related regulations, and strive to do more than the minimum required.  For example, Section 2110 of the Insurance Law provides that those licensed under Article 21 may have their licenses suspended or revoked, including, without limitation, on the grounds that such licensees intentionally misrepresented the terms of an actual or proposed insurance contract or demonstrated untrustworthiness.

III. Fair Claims Practices

Pursuant to § 216.0 of 11 NYCRR Part 216 (Insurance Regulation 64), Insurers are required to comply with the following principles when handling CVA-related insurance claims:

1. Have as your basic goal the prompt and fair settlement of all claims.
2. Assist the claimant in the processing of a claim.
3. Do not demand verification of facts unless there are good reasons to do so. When verification of facts is necessary, it should be done as expeditiously as possible.
4. Clearly inform the claimant of the insurer's position regarding any disputed matter.
5. Respond promptly, when response is indicated, to all communications from insureds, claimants, attorneys, and any other interested persons.

There are also strict time limits for Insurers to respond to communications from policyholders, to commence investigations, to notify policyholders of coverage decisions, and to respond to inquiries from the Department.  See, e.g., 11 NYCRR § 216.4.

In the case of CVA-related insurance claims, the Department encourages Addressees to act in utmost good faith and to take the initiative to be cooperative so that victims may be compensated, including that Addressees should:

1. act promptly, not extending unnecessarily to the maximum time periods permissible;
2. exert diligence to seek out copies of relevant policies of current and prior policyholders that the addressee knows or has reason to know may be subject to CVA-related legal claims;
3. fairly review such policies, interpreting such contracts so as to resolve any ambiguities in the policyholders’ favor;
4. assess the applicable coverage, including any applicable exclusions or other limitations;
5. affirmatively contact the relevant policyholders with such assessments promptly (even before a claim is filed, whenever possible) to assist policyholders in considering their coverage, such that the addressee and policyholders can cooperate in addressing complaints as they are filed; and
6. perform on its duties to defend policyholders.

IV. Unfair Claims Practices

In addition to the affirmative duties set forth above, Insurance Law § 2601 and Insurance Regulation 64 both prohibit Insurers from engaging in unfair claims settlement practices; the Department may subject an Insurer to disciplinary action if it engages in such actions without just cause and with such frequency as to indicate a general business practice.  See, e.g., Insurance Law § 2601(a); 11 NYCRR Part 216.  Examples of unfair claims practices include, but are not limited to:

1. knowingly misrepresenting to insurance claimants pertinent facts or policy provisions relating to the coverage at issue; and
2. not attempting in good faith to effectuate prompt, fair and equitable settlements of insurance claims submitted in which liability has become reasonably clear.

V. Records

The Department reminds Addressees of their legal obligation to maintain records relevant to policies and related legal claims.  For CVA-related legal claims that were previously time-barred, the Department encourages Addressees and any other parties with potentially relevant records to maintain ALL such records until the full resolution of such legal claims.  Certain minimum records retention requirements are noted below.

Insurance Regulation 152 provides, among other things, that except as otherwise required by law or regulation, each Insurer shall maintain a policy record (the details to reconstruct any policy it issued or an actual copy) until the later of:  (a) six calendar years after the date the policy is no longer in force; or (b) until after the filing of the report on examination in which the record was subject to review.  11 NYCRR § 243.2(b).  For producer Addressees, the Department has previously issued guidance that they should maintain records at least until the expiration of the applicable statute(s) of limitations, and where an action or claim is pending, for such period of time until the matter is resolved.  Office of General Counsel Opinion No. 07-05-13 (May 23, 2007).  For CVA-related claims, the CVA revised the applicable statute of limitations, which has the effect of extending the applicable records retention requirements for producer Addressees.

For potential pending litigation, such as lawsuits being filed or that could be filed due to the CVA’s opening a one‑year window for previously time-barred claims and extending the statutes of limitations, the Department encourages Addressees to keep all relevant records until the later of the above-referenced time periods and the full resolution of all possible claims that could be covered under policies an Insurer issued.  The Department encourages Addressees not to cite the minimum requirements set forth in the Insurance Law and regulations as a basis for destroying potentially relevant records, when they know or have reason to know they have potential liability with respect to CVA-related claims.

Rather, the Department encourages all Addressees to act promptly and in good faith with their prior and current policyholders, and the related claimants, so that victims are appropriately compensated for the harms they have suffered.  Accordingly, Insurers must act in accordance with the principles in Insurance Regulation 64 described above, and all Addressees should act in good faith to work with policyholders to preserve and reconstruct prior records and data.

The Department understands that some policyholders and former policyholders with potential exposures to CVA-related legal claims might not have copies of their policies from the applicable time (years, or even decades, ago).  In such cases, the Department encourages Addressees to act in good faith and apply their best efforts to locate and provide copies of policies to policyholders.  Where no copy is available or can be reconstructed, an Insurer and any other party that was involved in the issuance of a relevant policy (including, but not limited to, the marketing/solicitation/sale/administration of such policy) should provide any other relevant records (such as declaration pages, letters or other correspondence, certificates of insurance, or any other documents describing the relevant coverage).  The Department encourages all Addressees to preserve and produce such records to policyholders when needed.  The Department also encourages Addressees to give due consideration to similar other records that a policyholder may be able to produce as a demonstration of good faith. 

VI. Loss and Loss Expense Reserves

The Department expects all Addressees with exposures to CVA-related legal claims promptly to assess their exposures and adjust their loss and loss expense reserves accordingly pursuant to Insurance Law § 1303 if they have not already done so, as should all reinsurers, and retrocessionaires.  The Department encourages such Addressees to apply appropriate legal, actuarial, and accounting principles and standards to estimate such reserves in good faith, including with the assistance of professionals with specialized expertise when appropriate, and then regularly to update their reserves as claims develop.

VII. Conclusion

The Department expects Addressees to cooperate fully with the intent of the CVA and with any other applicable laws and regulations and encourages Addressees to exceed the minimum standards described in this Circular Letter in dealing with actual and potential CVA-related insurance claims. 

Please direct any questions regarding this circular letter by mail to Child Victims Act Inquiries, c/o Consumer Assistance Unit, New York State Department of Financial Services, One State Street, New York, NY 10004 or by email to cva@dfs.ny.gov.

Very truly yours,

_______________________________
Linda A. Lacewell
Superintendent of Financial Services

<><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><>

The Department divided this circular letter into seven sections:

I.  Purpose
II.  Discussion
III.  Fair Claims Practices
IV.  Unfair Claims Practices
V.  Records
VI.  Loss and Expense Reserves
VII.  Conclusion

My thoughts and observation on each section:

I.  Purpose

The purpose of this circular letter is to inform all authorized property/casualty insurers, licensed insurance producers, adjusters, and reinsurers (collectively, “Addressees”) that the Department of Financial Services (“Department”) expects Addressees to cooperate fully with the intent of the Child Victims Act (“CVA”).

The intent of the CVA, as I understand it, was to revive time-barred claims of sexual abuse victims for money damages.  Not sure how insurance licensees can "cooperate fully" with that intent, unless the Department is suggesting that insurers should cooperate with victims' counsel to ensure the recovery of money damages.  

II.  Discussion

Accordingly, the Department encourages all Addressees with potential exposure to CVA-related legal claims to act promptly and in utmost good faith and to exercise best practices with their prior and current policyholders, and their respective claimants, including properly performing any and all duties to defend CVA-related claims.

How exactly should insurers assess any "potential exposure to CVA-related legal claims"?  Should this be done before insurers actually receive notice of any CVA-related claims?  Read on.  

III.  Fair Claims Practices

This section begins with a reiteration of Regulation 64's preamble.  For CVA-related claims in particular, the Department has added another set of what the Department now says insurers "should" do:  

In the case of CVA-related insurance claims, the Department encourages Addressees to act in utmost good faith and to take the initiative to be cooperative so that victims may be compensated, including that Addressees should:

1. act promptly, not extending unnecessarily to the maximum time periods permissible;
2. exert diligence to seek out copies of relevant policies of current and prior policyholders that the addressee knows or has reason to know may be subject to CVA-related legal claims;
3. fairly review such policies, interpreting such contracts so as to resolve any ambiguities in the policyholders’ favor;
4. assess the applicable coverage, including any applicable exclusions or other limitations;
5. affirmatively contact the relevant policyholders with such assessments promptly (even before a claim is filed, whenever possible) to assist policyholders in considering their coverage, such that the addressee and policyholders can cooperate in addressing complaints as they are filed; and
6. perform on its duties to defend policyholders.

There you have it.  Setting aside the notions that liability insurance protects only accidentally caused injury or harm, the general rule than employers are not liable for the criminal acts of their employees, and that, in some cases, the organizational defendants listed in this circular letter knew nothing about the sexual abuse or molestation, the Department nonetheless wants insurers to "take the initiative to be cooperative" to compensate victims.  Know that if you're an insurer your conduct in handling CVA-related claims will be measured not only by Regulation 64's Preamble, but by the extra set of what the Department says insurers "should" do.  

IV.  Unfair Claims Practices

Nothing new here (not surprisingly).  Conduct that would constitute an unfair claim practice can only be enumerated and prescribed by promulgated regulation. A circular letter is not a regulation.  

V.  Records

Read this section (above) again.  There's a lot here, including the letter's sole use of all caps :

For CVA-related legal claims that were previously time-barred, the Department encourages Addressees and any other parties with potentially relevant records to maintain ALL such records until the full resolution of such legal claims.

The Department again "encourages" insurers "to act promptly and in good faith with their prior and current policyholders, and the related claimants, so that victims are appropriately compensated for the harms they have suffered."  Translation: the Department wants insurers to pay CVA-related claims.  I think that's pretty clear.

On the issue of a "lost policy", the letter states:

The Department understands that some policyholders and former policyholders with potential exposures to CVA-related legal claims might not have copies of their policies from the applicable time (years, or even decades, ago).  In such cases, the Department encourages Addressees to act in good faith and apply their best efforts to locate and provide copies of policies to policyholders.  Where no copy is available or can be reconstructed, an Insurer and any other party that was involved in the issuance of a relevant policy (including, but not limited to, the marketing/solicitation/sale/administration of such policy) should provide any other relevant records (such as declaration pages, letters or other correspondence, certificates of insurance, or any other documents describing the relevant coverage).  The Department encourages all Addressees to preserve and produce such records to policyholders when needed.  The Department also encourages Addressees to give due consideration to similar other records that a policyholder may be able to produce as a demonstration of good faith. 

My next CVA-related post on this blog will be New York's common law on lost policies.

Any insurer that has not already destroyed historical records of policies issued to the "potential defendants" mentioned in this circular letter should consider the shoulds and musts of this circular letter before doing so.

VI.  Loss and Expense Reserves

This section begins:

The Department expects all Addressees with exposures to CVA-related legal claims promptly to assess their exposures and adjust their loss and loss expense reserves accordingly pursuant to Insurance Law § 1303 if they have not already done so[.]

Exposures or "potential exposures" (see Section II above)?  If the later, by what method can an insurer assess its potential exposure to CVA-related claims and reserve accordingly?  By the name or nature of its policyholders?   This section must relate to actual CVA-related legal claims that have already been presented and/or sued, right?

VII.  Conclusion

The Department expects Addressees to cooperate fully with the intent of the CVA and with any other applicable laws and regulations and encourages Addressees to exceed the minimum standards described in this Circular Letter in dealing with actual and potential CVA-related insurance claims. 

Expectation and encouragement.

Words matter, so for those who like word metrics, here's a tally for those who weren't counting:
Encourages -- 13
Legal -- 11
Good faith -- 10
Policies -- 10
Should -- 9
Exposure(s) -- 8
Minimum -- 6
Relevant records -- 6
11 NYCRR Part 216 (Regulation 64) -- 5
Expects -- 4
Intent -- 3
Cooperate -- 3
Settlement -- 3
Requirements -- 3
Unfair -- 3
Utmost good faith -- 3
Must -- 1

So this circular letter is more encouraging than cautionary in tone and substance?  

The Part of No New York No-Fault Insurers Must Understand -- HCRA Surcharges May No Longer Be Offset Against Aggregate No-Fault Limits

Back in December 2009, I posted about the New York State Insurance Department's withdrawal after only 81 days of Circular Letter No. 21 (2009), entitled "The New York State Health Care Reform Act and No-Fault Insurance", which for a time superseded Circular Letter No. 16 (1996) and Supplement No. 1 to Circular Letter No. 16 (1996).  It all had to do with the the Department's position on whether New York no-fault insurers and self-insurers could offset an applicant's aggregate no-fault benefit limit by the amount of any HCRA surcharges paid directly to the New York State Department of Health's (“DOH”) Office of Pool Administration.  The Department's position on that question from November 22, 1996 through September 16, 2009 was YES, such HCRA surcharge payments could be applied as an offset, NO from September 16 through December 6, 2009, and YES again from December 7, 2009 to present, retroactive to its 1996 circular letter.

Once again, the answer is NO, and it's likely to stay that way indefinitely. On August 24, 2010,  the Department released Circular Letter No. 12 (2010).  Alike its withdrawn 2009 predecessor, this circular letter again supersedes and withdraws Circular Letter No. 16 (1996) and Supplement No. 1 to Circular Letter No. 16 (1996) and again advises New York no-fault insurers and self-insurers that the Department has "reconsidered its position on this issue."

Quoting a June 16, 2010 opinion of the Department's Office of General Counsel, the circular letter states:

The Legislature clearly intended payment to health providers to be included as part of basic economic loss when it enacted Article 51 of the Insurance Law. There is no similar evidence, however, that the Legislature intended payment of the surcharge to be included as a reimbursable health expense under the no-fault law. To the contrary, when it enacted the law providing for HCRA surcharge, the Legislature did not amend the no-fault law in any manner. Accordingly, the interpretive guidance set forth in Circular Letter No. 16 no longer should be followed, and insurers may not offset the HCRA surcharge against any no-fault benefits to which an injured person is entitled under Insurance Law § 5102(a).

 In light of OGC Opinion No. 10-06-05, insurers and self-insurers may not offset an applicant's aggregate no-fault benefit limit for the payment of a surcharge when the surcharge is paid directly to the DOH's Office of Pool Administration.

Since there is no effective date to this circular letter, it took effect immediately upon its issuance.  No more offsetting HCRA surcharges against aggregate no-fault limits. 

NYSID Circular Letter No. 9 (2010) -- Incorrect Amounts Listed on Cancellation Notices for Non-Payment of Premium

Circular Letter No. 9 (2010)

August 9 , 2010

TO:  All Insurers Writing Property/Casualty Policies in New York 

RE:  Incorrect Amounts Listed on Cancellation Notices for Non-Payment of Premium

STATUTORY REFERENCES:  Insurance Law §§ 3425 and 3426 

The purpose of this Circular Letter is to clarify for property/casualty insurers that are subject to Insurance Law §§ 3425 and 3426 that a notice of cancellation for non-payment of premium must clearly inform the policyholder of the overdue amount.

It has come to the Department’s attention that some insurers are sending to policyholders notices of cancellation for non-payment of premium that include installment payments that are not yet in arrears.  Therefore, many insureds believe that they must pay premiums not yet overdue in order to avoid a cancellation for non-payment of premium.  

New York Insurance Law § 3425(c) (McKinney Supp. 2009) states in relevant part as follows:

After a covered policy has been in effect for sixty days, or upon the effective date if the policy is a renewal, no notice of cancellation shall be issued to become effective…unless it is based on one or more of the following: 

(1) With respect to automobile insurance policies: 

(A) nonpayment of premium, provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

*          *          *         *

(2) With respect to personal lines insurance policies:

(A) nonpayment of premium, provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due[.]

Regarding commercial lines insurance, Insurance Law § 3426(c) states that:

After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured’s authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

(A) nonpayment of premium provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due.

In turn, Insurance Law § 3425(a)(10) and Insurance Law § 3426(a)(3) define “nonpayment of premium” as:

the failure of the named insured to discharge any obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium, whether the premium is payable directly to the insurer or its agent, or indirectly under any premium finance plan or extension of credit.  Payment to the insurer, or to an agent or broker authorized to receive such payment, shall be timely, if made within fifteen days after the mailing to the insured of a notice of cancellation for nonpayment of premium.

Because the language of Insurance Law §§ 3425(c)(1)(A), 3425(c)(2)(A) and 3426(c)(1)(A) is identical, the Department construes these provisions in the same manner.  Thus, an insured may receive a non-payment of premium notice only if the insured has failed to discharge an obligation in connection with the payment of premiums on a policy of insurance.[1]

In addition, in an Office of General Counsel (OGC) Opinion 06-12-08 (December 14, 2006), the Department’s OGC found that a notice of cancellation that failed to correctly inform the insured of the amount that was past due constituted a violation of Insurance Law § 3425(c)(1)(A) because any amount not yet due does not provide legal grounds to cancel for nonpayment of premium.  

Accordingly, a notice of cancellation for non-payment of premium must inform the policyholder of the overdue amount and that the policyholder must pay that amount in order to avoid a cancellation.

While an insurer may notify an insured of an installment payment at the same time that the insurer sends a notice of cancellation, the insurer must make clear that those installment payments are not necessary in order to avoid a cancellation.

Questions regarding this Circular Letter should be addressed to Lisa Bugaj, Examiner, New York State Insurance Department, One Commerce Plaza, Albany, New York 12257, 518-473-8162, lbugaj@ins.state.ny.us.

Sincerely,

___________________________________
Mitchel Gennaoui
Assistant Deputy Superintendent
and Chief, Consumer Services Bureau

[1] An obligation in connection with the payment of premiums on a policy of insurance may include, in some instances, an installment fee, late payment fee, or reinstatement fee.  For a detailed discussion, please see Office of General Counsel Opinion 03-04-31 (April 29, 2003).

The Second Coming of No -- Offsetting HCRA Surcharges Against Aggregate No-Fault Limits

Back in December 2009, I posted about the New York State Insurance Department's withdrawal after only 81 days of Circular Letter No. 21 (2009), entitled "The New York State Health Care Reform Act and No-Fault Insurance", which for a time superseded Circular Letter No. 16 (1996) and Supplement No. 1 to Circular Letter No. 16 (1996).  It all had to do with the the Department's position on whether New York no-fault insurers and self-insurers could offset an applicant's aggregate no-fault benefit limit by the amount of any HCRA surcharges paid directly to the New York State Department of Health's (“DOH”) Office of Pool Administration.  The Department's position on that question from November 22, 1996 through September 16, 2009 was YES, such HCRA surcharge payments could be applied as an offset, NO from September 16 through December 6, 2009, and YES again from December 7, 2009 to present, retroactive to its 1996 circular letter.

Soon it'll be NO again.  Yesterday, the Department released a draft of Circular Letter No. XX dated July XX, 2010.  Alike its withdrawn 2009 predecessor, this proposed circular letter again supersedes and withdraws Circular Letter No. 16 (1996) and Supplement No. 1 to Circular Letter No. 16 (1996) and again advises New York no-fault insurers and self-insurers that the Department has "reconsidered its position on this issue."

Quoting a June 16, 2010 opinion of the Department's Office of General Counsel, which is not yet posted to the Department's website, the proposed circular letter states:

The Legislature clearly intended payment to health providers to be included as part of basic economic loss when it enacted Article 51 of the Insurance Law. There is no similar evidence, however, that the Legislature intended payment of the surcharge to be included as a reimbursable health expense under the no-fault law. To the contrary, when it enacted the law providing for HCRA surcharge, the Legislature did not amend the no-fault law in any manner. Accordingly, the interpretive guidance set forth in Circular Letter No. 16 no longer should be followed, and insurers may not offset the HCRA surcharge against any no-fault benefits to which an injured person is entitled under Insurance Law § 5102(a).  In view of OGC Opinion No. 06-16-2010, insurers and self-insurers may not offset an applicant's aggregate no-fault benefit limit for the payment of a surcharge when the surcharge is paid directly to the DOH's Office of Pool Administration.

The last sentence should probably be its own paragraph, rather than within the proposed circular letter's quotation of OGC Opinion No. 06-16-2010 (which are usually numbered YY-MM-DD).  One of my regular Insurance Department readers -- please tell Debra Parris.

According to the Department's website, the proposed circular letter will be available for review for only five (5) business days, or through July 14, 2010.  Comments on the proposed circular letter may be directed here.

New York State Insurance Department Unchanges Its Mind -- Withdraws Circular Letter No. 21 (2009) Regarding New York HCRA & No-Fault Insurance Surcharge

This may be a new record for the shortgevity of a NYSID circular letter.  Circular Letter No. 21 (2009), issued on September 16, 2009, has been withdrawn effective December 7, 2009.  That's a shelf life of only 81 days.

For the 81 days it was in effect, Circular Letter No. 21 (2009), entitled "The New York State Health Care Reform Act and No-Fault Insurance", expressly superseded Circular Letter No. 16 (1996) and Supplement No. 1 to  Circular Letter No. 16 (1996), which the Department withdrew on 9/16/2009.  With today's withdrawal of Circular Letter No. 21 (2009), Circular Letter No. 16 (1996) and its Supplement No. 1 presumably go back into effect.

In Circular Letter No. 16 (1996), issued November 22, 1996, the Department advised all authorized insurers writing motor vehicle insurance and motor vehicle automobile self-insurers that they were obligated, under the Health Care Reform Act (“HCRA”) set forth in New York Public Health Law § 2807-c and related provisions, to pay a surcharge to the Public Goods Pool on payments made for services rendered in general hospitals, diagnostic and treatment centers, and freestanding clinical laboratories. Supplement No. 1 to Circular Letter No. 16 (1996), issued November 21, 2003, updated the information set forth in Circular Letter No. 16 to take account of amendments to HCRA.  Both Circular Letter No. 16 (1996) and Supplement No. 1 advised insurers and self-insurers that they could offset an applicant's aggregate no-fault benefit limit for the payment of a surcharge when the surcharge was paid directly to the New York State Department of Health's (“DOH”) Office of Pool Administration.

Based on a December 30, 2008 OGC opinion (which has also been withdrawn and rescinded), the Department "changed its position" on the surcharge issue and declared in Circular Letter No. 21 (2009) that insurers and self-insurers were not allowed to offset an applicant's aggregate no-fault benefit limit by the amount of any HCRA surcharges paid directly to the DOH's Office of Pool Administration.

With the withdrawal of both the OGC Opinion No. 08-12-07 and Circular Letter No. 21 (2009), New York insurers subject to HCRA (payors pursuant to the New York State workers' compensation law, volunteer firefighters' benefits law, ambulance workers' benefit law, and the comprehensive motor vehicle insurance reparations act [article 51 of the New York Insurance Law]) may continue to reduce or offset an applicant's aggregate no-fault benefit limit by the amount of any HCRA surcharges paid directly to the DOH's Office of Pool Administration.

The Department's withdrawal of Circular Letter No. 21 (2009) should not affect the increases in HCRA surcharges enacted by the New York state legislature in its 2009-2010 State Fiscal Year Budget.  For services rendered in general hospitals, diagnostic and treatment centers, and freestanding clinical laboratories from 1/1/06 through 03/31/09, the HCRA surcharge percentages were 8.95% and 26.26% (both being owed if paid directly to the provider; just the former if paid directly to the DOH's Office of Pool Administration).

For services rendered from 4/1/09 through 12/31/11, the HCRA surcharge percentages were raised to 9.63% and 28.27%.

Insurers that did not offset or reduce an eligible insured's aggregate PIP limit by HCRA surcharge payments made in 2009 in accordance with the Department's now withdrawn OGC opinion and circular letter on the subject may wish to recalculate the available limits on the involved policies.

New York State Insurance Department Circular Letter # 3 (2009) -- Unfair Claims Settlement Practices - No-Fault Notice of Claim Provisions

February 19, 2009

TO:	All Motor Vehicle Self-Insurers and Insurers Writing Motor Vehicle Insurance in New York State
RE:	Unfair Claims Settlement Practices - No-Fault Notice of Claim Provisions

STATUTORY REFERENCE: Article 51 and Section 2601 of the New York Insurance Law; 11 NYCRR § 65 (Regulation 68)

Circular Letter No. 9 (2002), issued April 9, 2002, provided guidance to insurers and self-insurers in implementing a revised no-fault insurance regulation, 11 NYCRR Pt 65 (Regulation 68), which took effect on April 5, 2002.  The Circular Letter advised of a new time limit for providing notice of a motor vehicle accident to an insurer or self-insurer, and provided guidance to insurers and self-insurers for establishing standards for excusing late notice where there is clear and reasonable justification for the failure to comply with the required timeframe.

The purpose of this Circular Letter is to remind insurers and self-insurers of their obligations with respect to the notice of claim provisions set forth in 11 NYCRR § 65-3.3, and to provide further guidance with regard to those requirements.

NYS Form NF-2 Submission
Regulation 68 does not establish a required time frame in which a claimant must return an NF-2 form to an insurer.  11 NYCRR § 65-3.3(e) permits an insurer to issue a denial for failure to provide timely written notice of claim within 30 days of the accident.  However, as noted in the June 2, 2008 opinion of the Department’s Office of General Counsel (“OGC”) (OGC Op. No. 08-06-01), neither the Insurance Law nor the regulations promulgated thereunder authorize an insurer to issue a denial on the ground that the claimant failed to return a completed NF-2 to the insurer when the claimant has otherwise submitted timely written notice within 30 days of the accident in accordance with 11 NYCRR § 65-1.1.

Satisfaction of Written Notice
11 NYCRR § 65-3.3(d) allows for satisfaction of the written notice requirement through the insurer’s receipt of an NF-2 or completed hospital facility form (NYS Form NF-5).  But the written notice requirement may be satisfied in other ways as well.  Indeed, 11 NYCRR § 65-3.3(c) provides that the receipt by an insurer of a Department of Motor Vehicles Accident Report 104 (MV-104) or other accident report indicating injuries to an eligible injured person shall satisfy the written notice requirement.  Further, pursuant to 11 NYCRR § 65-3.5(g), an insurer must accept a completed hospital facility form (NYS Form NF-5) submitted on behalf of a provider of health services in lieu of a prescribed NF-2.

Standards for Excusing Late Notice of Claim
In accordance with 11 NYCRR § 65-1.1, the 30-day written notice requirement must be excused if the claimant submits written proof of clear and reasonable justification for the failure to comply.  Moreover, 11 NYCRR § 65-3.5(l) requires insurers to establish standards for review of determinations where an applicant has provided late notice of claim.  Such standards must be available for review upon request by Department examiners.

Self-Insurers
All of the aforementioned notice regulatory provisions apply equally to self-insurers, as set forth in 11 NYCRR § 65-2-4.

Additional Requirements
Insurers also are reminded that in accordance with 11 NYCRR § 65-3.2(g), insurer personnel responsible for the handling and settlement of claims must be thoroughly familiar with the provisions of Regulation 68.  Insurers should review their claims handling procedures to ensure that their processes conform to Regulation 68.

Please direct any questions or comments regarding the contents of this Circular Letter to:

Elizabeth Anderson, Associate Insurance Examiner
New York State Insurance Department
25 Beaver Street
New York, NY 10004
212-480-5592 or email at eanderso@ins.state.ny.us.

Circular Letter No. 23 (2008) -- Mid-Term Cancellation of Policies Based Upon Residence Becoming Unoccupied

Circular Letter No. 23 (2008)
November 19, 2008

TO: ALL INSURERS WRITING HOMEOWNERS' POLICIES IN NEW YORK

RE: MID-TERM CANCELLATION OF POLICIES BASED UPON RESIDENCE BECOMING UNOCCUPIED

STATUTORY REFERENCE: INSURANCE LAW § 3425

The Department has received numerous complaints from consumers whose homeowners’ policies were cancelled after insurers claimed that their residences had become unoccupied. The Department investigated these complaints and determined that a number of insurers had improperly cancelled homeowners’ policies on the ground that an apparently unoccupied residence constituted a “physical change” in the premises. The purpose of this Circular Letter is to review the relevant sections of the Insurance Law governing mid-term cancellations of homeowners’ policies, and to advise insurers of the Insurance Department’s interpretation of the law, so as to ensure that homeowners are protected from improper cancellations.

Homeowners’ policies are “personal lines insurance” under Insurance Law § 3425. That statute governs cancellation and renewal of most non-commercial property/casualty insurance policies. Such policies may not be cancelled in the middle of the policy term, except for certain reasons specified in § 3425, which must be set forth in the notice of cancellation. In particular, Insurance Law § 3425(c)(2)(E) permits a mid-term cancellation of a personal lines insurance policy due to:

physical changes in the property insured occurring after issuance or last annual anniversary date of the policy which result in the property becoming uninsurable in accordance with the insurer’s objective, uniformly applied underwriting standards in effect at the time the policy was issued or last voluntarily renewed...

The Department’s investigation determined that a number of insurers, after apparently determining that residences had become unoccupied, improperly cancelled the owners’ policies on grounds that the lack of occupancy constituted “physical changes” within the meaning of § 3425(c)(2)(E). One investigation revealed that an insurer had improperly cancelled the policy of a husband and wife while they were residing in a nursing home.

Insurance Law § 3425(c)(2)(E) applies only when there has been an actual physical change to the property that renders the property uninsurable in accordance with the insurer’s underwriting guidelines. Physical change occurs only when the dwelling or property has been altered or changed in some manner. (See Opinion of Office of General Counsel No. 04-11-20, November 29, 2004). The fact that an insured is not occupying a residence does not constitute a physical change to the premises within the meaning of § 3425(c)(2)(E).

Similarly, the fact that an insured is not occupying a residence does not, standing alone, constitute grounds for cancellation of a homeowners’ policy under Insurance Law § 3425(c)(2)(D). That provision permits an insurer to cancel coverage upon “discovery of willful or reckless acts or omissions increasing the hazard insured against.” Whether an insured would be justified in cancelling a homeowners’ policy pursuant to § 3425(c)(2)(D) depends on the totality of the circumstances. While lack of occupancy of the premises might be a relevant factor to consider, it is not necessarily a willful or reckless act or omission, which also must be demonstrated.

Nor may insurers use the existence of a foreclosure action as a basis to cancel a homeowners’ insurance policy under Insurance Law § 3425(c)(2)(D) or (E). The filing of a foreclosure action does not constitute a willful or reckless act or omission or increase the hazard insured against, nor does it constitute a physical change in the property.

Questions regarding this Circular Letter should be addressed to Deborah Jewell, Senior Examiner, New York State Insurance Department, 1 Commerce Plaza, Albany, New York, 12257, 518-402-2312, djewell@ins.state.ny.us.

Very Truly Yours,

Steven Nachman
Deputy Superintendent for Frauds and Consumer Services