Are Statutory Changes To No-Fault Law on the Horizon?

As this column has frequently observed, insurance fraud in the no-fault arena often leads to litigation and court decisions in both civil suits and criminal cases. Those judicial opinions, to one extent or another, affect the ability of insurance companies to combat fraud by challenging no-fault claims they believe are fraudulent as well as the ability of prosecutors to charge individuals and businesses for fraudulent acts and practices. State regulators, of course, also assist the fight against no-fault insurance fraud by the regulations they enact, within the parameters permitted by the governing statutory framework.

But the continuing battle to reduce no-fault insurance fraud, to the benefit of policyholders who pay insurance premiums and the public at large, ultimately all comes down to the New York State Legislature. Insurance carriers, policyholders, third party claimants, and those who commit insurance fraud all operate within the statutory framework created by the Legislature. If that framework makes fraud more difficult to deter, there will be more fraud. If it makes it easier to find and fight fraud, there will be less of it. Fundamental change in the no-fault fraud environment rests in the hands of the Legislature and the Governor.

The good news is that a number of important bills are pending now in the Legislature (or are expected to be introduced in the near future) that, if enacted, would substantially reduce no-fault fraud in the state and finally bring about the relief New York insurance companies and consumers need and deserve. If the law cuts back on opportunities to commit fraud, New York might become a change leader rather than the fourth most costly state for auto insurance.

No-Fault Reform Bill

Consider, for example, Assembly Bill A6286, which is now with the Assembly’s Insurance Committee.^[1] The bill proposes to amend no-fault provisions of the Insurance Law “to reduce fraud, abuse and the associated costs in the New York no-fault system.” Among the key provisions are those that would amend Insurance Law Section 5106(a) in two important respects.

First, A6286 would make it clear that a court may not preclude an insurance carrier from asserting defenses to a claim as a penalty for paying the claim or denying the claim after the deadline. The background for this proposed change is interesting: Under current law, carriers must pay or deny claims within 30 days of receiving them. Current law also provides attorney’s fees to the successful claimant and for substantial interest, at a rate of two percent per month, as a penalty for the failure of an insurer to meet that standard; this penalty provision is intended to ensure that insurance companies promptly pay meritorious claims. A sharply divided Court of Appeals added an additional penalty to the statutory penalty that precludes insurers from denying a non-meritorious claim, or from asserting many defenses at all, if insurers have violated the “30 day rule.”[2]

The result is that, as a practical matter, insurance companies have been required to pay excessive and even fraudulent claims and the most frequently litigated issue in the no-fault arena is not the merits of claims, but the timeliness of a carrier’s response to a claim. The proposed amendment in A6286 to Section 5106(a) eliminating the judicially-created preclusion remedy would go a long way toward ensuring that insurers are not forced to pay non-meritorious claims by providing that attorney’s fees and interest would be the exclusive remedy when an insurer fails to issue a timely payment or denial of claim and that none of the insurers’ defenses would be precluded after the 30 day period has elapsed.

The second significant proposed change to Section 5106(a) contained in A6286 would make the burden of proof requirements in no-fault disputes more equitable. Generally speaking, in almost every civil dispute, the burden of proof is on a plaintiff to prove the basic elements of its case to prevail. Insurance Law 5102 permits an eligible injured person to submit bills for necessary and reasonable expenses incurred as a result of a motor vehicle accident.  One would assume, consistent with civil law requirements, a plaintiff whose claim for reimbursement was denied would have the burden to establish that the services rendered were necessary and reasonable.  Over the years, however, no-fault case law in New York has shifted that burden of proof entirely to the insurer to the point where a health service provider (as an “assignee” under an “assignment of benefits”) only has to prove that it submitted a bill that was not paid to establish a prima facie claim for benefits. The burden is then shifted to the insurer to establish that the bills were for medically unnecessary services or were not in accordance with the no-fault law.

The proposed change in A6286 would make burden of proof requirements in the no-fault context more equitable by requiring health service providers to present information that the services billed were medically necessary and were billed in accordance with the applicable fee schedule. The proposed change also specifically states that simply providing evidence of mailing a claim form is not sufficient to meet this burden.

In an effort to limit litigation costs, A6286 also would require arbitration of disputes involving an insurer’s liability to pay first party benefits. Under current law, claimants have the option of submitting such disputes to arbitration.

The bill also proposes a number of other changes that directly affect health service providers, all with the goal of eliminating excessive – or fraudulent – expenses. 

For example, the bill limits the abilities of insured individuals to assign their claims for medical expenses to health service providers, as occurs nowadays as a matter of course. The proposed amendment provides that such assignments are valid only where coverage and compliance with policy terms by the insured person are “not in dispute.” In addition, only the insured person – and not the health service provider – has the right to contest any issues involving coverage or the insured’s compliance with policy terms. These changes, if they become effective, will help to ensure that a policyholder meets all of the requirements under a policy and is available for examinations under oath, to the extent needed, so insurance companies can confirm that services were provided. Far too often, innocent victims find themselves manipulated in a system originally designed to protect their interests. Instead, those who are inclined to violate the law – and who do so – seize every opportunity to take advantage while others look to leverage a set of otherwise broken rules to their personal benefit.

Health service providers would be protected because the proposed amendment also creates a lien in a medical provider’s favor against any recovery by the insured for services provided. It also should be noted that individuals are protected, as well, by a proposed amendment that provides that a health service provider may not pursue payment for the cost of services arising out of the injuries sustained by an insured person due to a motor vehicle accident unless there is a determination that insurance coverage does not exist.

An important proposed change in A6286 that also might help to significantly reduce insurance fraud would amend the provision of existing law that authorizes state regulators to promulgate standards and procedures for investigating and suspending or removing the authorization for health service providers to request payment from no-fault insurers. The proposed change simplifies the process and would allow the Superintendent of Financial Services to prohibit a health service provider from participating in the no-fault program for three years after a hearing and a determination that the provider has:

(i) admitted to, or been found guilty of, professional misconduct,

(ii) solicited or employed another person to solicit treatment of any person in connection with a no-fault claim,

(iii) refused to answer questions or produce relevant information concerning the provider in connection with health services rendered,

(iv) engaged in a pattern of billing for health services that were not rendered or unnecessary,

(v) used unlicensed persons to render health services when only a licensed person was permitted to do so,

(vi) used licensed persons to render health services beyond the scope of the person’s license,

(vii) ceded ownership, operation, or control of the provider’s business to an individual or entity not licensed and permitted to render health services,

(viii) committed a fraudulent insurance act,^[3]

(ix) been convicted of a crime involving fraudulent or dishonest practices, or

(x) violated “any provision of this article or regulations promulgated thereunder.”

The bill also provides that insurers may not pay any charge that exceeds the charges permissible under the schedule prepared by the Workers’ Compensation Board, including for durable medical equipment or supplies.

Finally, another significant aspect of the bill would permit an insurance carrier to rescind coverage for personal injury protection where there was nonpayment of the initial premium or the initial installment within the first 60 days, or where it was discovered that the payment proceeds or identity of the purported policyholder were stolen. (A person injured during this period may have recourse under a personal insurance policy or the Motor Vehicle Indemnification Corporation provided the person did not participate in any fraudulent activity, including but not limited to a staged or intentionally caused accident.)   

Other Bills

A number of provisions similar to those contained in A6286 are contained in another bill, S03444,^[4] known as the “Automobile Fraud Prevention Act of 2011.”

For example, S03444 provides that the failure of an insurer to issue a denial of a claim within 30 days does not preclude the insurer (or a self-insurer) from presenting evidence to establish that the services or items billed for in a claim were not provided, that certain portions of the charges for services in a claim exceeded, by more than 10 percent, the permissible charges, or the event from which the claim arose was based on an intent to defraud an insurer (or a self-insurer).

In addition, S03444 provides that an insurer may deny a claim on the basis of lack of medical necessity not later than 60 days after the date on which the claim became “overdue.”

There are some differences between the bills. Unlike A6286, S03444 says that a claimant “shall have the option” of submitting any dispute involving an insurer’s liability to pay first party benefits to arbitration, but does not require it. In addition, S03444 would specifically amend the law to say that arbitrators “are required to follow and apply substantive law.”

The suggestions offered in the two bills discussed above are not the only suggestions available to the Legislature if it wants to curtail the rampant abuse of no-fault. For example, there is substantial merit to allowing insurers to recover their attorney’s fees should the insurer prevail in an arbitration or lawsuit brought by a medical provider for unpaid claims. Another potential remedy would be the enactment of a new law modeled on the New Jersey Automobile Insurance Fraud Prevention Act, which, among other things, permits insurers to seek treble damages and attorney’s fees against anyone engaged in a pattern of fraudulent conduct.[5] Penalizing those who wrongly leverage or break the rules for financial gain just might get their attention and affect their behavior. More importantly, the consequence, and its deterrent effect, will help level the playing field so that consumers ultimately win.

Conclusion

Insurance carriers believe, and legislators are recognizing, that fraud and abusive billing practices are on the rise in the automobile no-fault insurance system. That drives up the cost of consumers’ automobile insurance premiums and health care costs throughout the state. Whether the bills discussed here are enacted or not or whether other bills that undoubtedly will be submitted will receive attention, it can no longer be disputed that the power (if not the responsibility) to fix the fraud permeating the no-fault system rests with the elected officials in charge of state government. 

[1] A companion bill pending in the Senate is S2816A.

[2] See Fair Price Med. Supply Corp. v. Travelers Indem. Co., 10 N.Y.3d 556 (2008); Presbyterian Hosp. in City of N.Y. v. Maryland Cas. Co., 90 N.Y.2d 274 (1997); Cent. Gen. Hosp. v. Chubb Group of Ins. Cos., 90 N.Y.2d 195 (1997).

[3] Penal Law Section 176.05.

[4] A companion bill pending in the Assembly is A 3787.

[5] See http://www.nj.gov/oag/dcj/njinsurancefraud/pdfs/fraud-prevention-act.pdf.

This article is reprinted with permission from the November 4, 2011 issue of the New York Law Journal. Copyright ALM Properties, Inc. Further duplication without permission is prohibited. All rights reserved.