Legislative And Regulatory Changes To Combat Rise In No-Fault Fraud

May 7, 2010 | Appeals | Insurance Coverage

Insurance fraud continues to increase in New York,[1] and one area that is growing with particular vigor is no-fault insurance fraud. In response to the rise in no-fault fraud, the state Legislature is considering new legislation, and the New York State Department of Insurance is actively engaged in potentially substantial modifications to the regulations that govern no-fault. Both of these developments are worthy of careful attention. Indeed, the potential legislative and regulatory changes will likely have more impact on fraud in the no-fault arena in 2010 and beyond than any litigation issue.

At a public hearing on no-fault fraud before the State Senate Standing Committee on Insurance in early February, Steve Nachman, the Deputy Superintendent for Frauds and Consumer Services of the state Insurance Department, pointed out that over the past several years, there has been an “upward spike” of essentially 10 percent annually in no-fault fraud referral filings to the department – 11,000 in 2007, over 12,000 in 2008, and well over 13,000 in 2009. According to Mr. Nachman, filings of suspicious no-fault claims to the department constitute 54 percent of all referrals the department receives.[2] 

In many instances, no-fault fraud is a product of what Mr. Nachman referred to in his testimony as “highly organized criminal entities that include corrupt medical clinics and corrupt law firms.” He noted that a number of recent investigations conducted by the Insurance Department’s Frauds Bureau in conjunction with the New .York City Police Department and other law enforcement agencies have led to the prosecution of a “wide range of wrongdoers” in cases that have “involved runners who stage accidents and refer the phony accident victims” to clinics and law firms in exchange for a fee.

Mr. Nachman added that other recent investigations involved “runners” who solicited real motor vehicle accident victims after purchasing their patient contact information from hospital emergency room workers – which he warned was “a truly alarming trend that we’ve seen in a number of major investigations over the last few years.”  These runners, Mr. Nachman stated, then solicited the accident victims, who were “coached to fabricate injuries or to grossly exaggerate minor injuries.”

No-fault fraud costs consumers because it increases insurance rates. Mr. Nachman testified that, last year, there were more than 90 insurance company filings for increased auto insurance premiums, and that about 85 percent of the market changed rates, with an average increase of 6.3 percent for these auto insurers.  According to Mr. Nachman, “[m]uch of this increase was due to no-fault fraud.”

In particular, Robert P. Hartwig, president of the Insurance Information Institute, testified at the hearing that no-fault fraud and abuse in New York cost consumers and insurers approximately $229 million in 2009; that the cumulative cost of no-fault fraud since 2005 was at least $617 million through 2009, and that if no changes are made, the cumulative cost of no-fault fraud and abuse will be greater than $1 billion by early next year.  Put differently, he estimated that no-fault fraud amounted to an estimated $1,561, or 22 percent, of every no-fault claim in 2009.[3] 

This is not the first time in recent memory where allegedly fraudulent no-fault claims rocketed up. Early last decade, the state saw a surge in such claims through 2004. Mr. Nachman testified at the public hearing that there was a “coordinated effort” at that time by law enforcement, the insurance industry, and the department (which, among other things, implemented changes to the governing no-fault regulation,[4] Regulation 68), which led to a decrease in no-fault fraud filings in 2005, to 13,800, and then down to 10,000 in 2006.

The same kind of coordinated effort to reduce the current growth in fraudulent no-fault claims is ramping up now. The Senate Insurance Committee’s public hearing, which may lead to legislation, is one prong. As a second step, the Insurance Department has proposed changes to Regulation 68, with final revisions likely to take effect later this year. Finally, prosecutors are taking aggressive aim at no-fault fraud through the combined coordinated efforts of insurance agency fraud units (known as “SIUs” or “Special Investigation Units”) with the Frauds Bureau Insurance Department and other law enforcement agencies, such as the New York City Police Department’s fraud accident investigation squad.

Revisions to Regulation 68

Generally speaking, the no-fault law allows accident victims or providers to collect from insurance companies for medical and hospital expenses and lost wages, regardless of who is at fault.  Usually the providers collect directly, on an assignment of benefits. Insurance Department Regulation 68, which was first promulgated in 1974, is the governing regulation that implements the no-fault statute.

Late last year, the Insurance Department proposed significant revisions to Regulation 68, posting a working draft on its Web site.[5] The deadline for submitting comments was Feb. 1 – and the department received a great number of them.  It is likely that the department will soon promulgate another draft or will formally propose a rulemaking under the state’s Administrative Procedure Act.

According to the department, among the most significant proposed revisions to Regulation 68 are:

  • Modifying prescribed forms to require more information to ensure that claims paid are medically necessary and reduce the need for additional verification by the insurer, thereby expediting claims processing and legitimate payment to consumers. Insurers would have greater latitude to deny health services that are not provided or are not billed in compliance with the applicable fee schedule, thus reducing payment of fraudulent claims and instances of over-billing.
  • Simplifying procedures required for insurers to suspend all payments for claims submitted by the owners of medical clinics suspected of fraud while an investigation of the clinics’ licensing status is underway.
  • Insurers would have to schedule medical examinations they request so as not to overly burden the insured. For example, examinations may not be scheduled in geographically inconvenient locations and multiple exams may not be scheduled on the same day.
  • Raising the maximum attorney fee from $850 to $2,500 to reflect inflation and to reduce the incentive for claimants and providers to file small claims separately, and eliminate the minimum attorney fee to encourage the consolidation of claims in arbitration and litigation.

There are a number of other important procedural and substantive issues to be considered in the revised regulation, and all members of the no-fault bar anxiously await the department’s next version of the proposed amendments.


There are a number of pending bills in the New York State Legislature that relate to no-fault. These include: (1) an amendment to Insurance Law § 5109 to allow the Superintendent of Insurance alone to decertify medical providers for up to three years based on certain misconduct (S. 3552 / A. 7128); (2) an amendment to Insurance Law § 5106 to provide that payment of interest and attorneys’ fees for overdue claim decisions should be the exclusive remedy (S. 6448, S. 6449 / A. 04348); (3) an amendment to Insurance Law § 5106 to require mandatory arbitration of all no-fault insurance disputes (A. 8798); (4) an amendment to Insurance Law § 5106  that an arbitration award in a no-fault dispute shall not be collateral estoppel in a bodily injury action (A. 6275); and (5) an amendment to Insurance Law § 5103 to extend to 60 days the time limit for a claimant to provide notice to an insurer following an accident (A. 7714).

In addition, the Insurance Department has proposed that the Legislature enact legislation that in its view would help reduce no-fault fraud. Among the department’s proposals are for amendments to existing statutory law to alter the rule that provides that insurers that fail to deny no-fault claims within 30 days are precluded from asserting a defense to payment based on lack of necessity and other grounds, including where they suspect fraud, and are required to pay the claim. The Insurance Department suggests that insurers should be allowed to deny claims after the 30-day window where there is evidence of services not having been provided or billing in contravention of the workers’ Compensation fee schedule.

A second area the department is seeking statutory changes is to amend Insurance Law Section 5109 to give the department exclusive authority to seek to decertify fraudulent providers under no-fault, on notice and hearing, so they would be barred from submitting bills under no-fault for up to three years.  The current authority exists across multiple agencies and, in the department’s view, is somewhat unwieldy.

In addition, the department proposes that the Legislature enact a statute to require arbitration of no-fault disputes. The department points out that the civil and district courts have been inundated with lawsuits filed by health-service providers seeking reimbursement for no-fault services, which has resulted in long delays in resolution of these disputes. In the department’s view, mandatory arbitration would help expedite resolution of these disputes and unclog the courts (a goal when no-fault was first enacted).

Moreover, the department also urged passage of legislation allowing “runners” who solicit individuals for the purpose of submitting fraudulent claims to be charged with an E felony.


In its recent report to the governor,[6] the Superintendent of the Department of Insurance indicated that the department’s Frauds Bureau “will direct substantial resources to combating the recent increase in no-fault fraud” this year. Together with expected regulatory changes, possible statutory amendments, and continuing industry and prosecutorial efforts to combat no-fault fraud, one can hope that no-fault fraud will see a decline in the near future. All law-abiding consumers, medical providers, and insurers will benefit from the reduction of fraudulent activity in the no-fault arena.


[1] See, e.g., 2009 Highlights, in “The Annual Report to the Governor and the Legislature of the State of New York on the Operations of the Insurance Frauds Prevention Act (Article 4 of the Insurance Law),” March 12, 2010, available at http://www.ins.state.ny.us/frauds/fd09anrpt.pdf.

[2] See, Transcript of Public Hearing, N.Y. State Senate Standing Committee on Insurance, Feb. 4, 2010 (available from author).

[3] Judy Fitzgerald, vice president for government affairs for the National Insurance Crime Bureau (“NICB”) testified that the most frequent kind of questionable claim for auto insurance was faked or exaggerated injuries, with other problems including excessive treatment, medical provider practices, and phony billings.

[4] 11 NYCRR 65.

[5] See, http://www.ins.state.ny.us/r68_link.htm.

[6] See, http://www.ins.state.ny.us/frauds/fd09anrpt.pdf.


This article is reprinted with permission from the May 7, 2010 issue of the New York Law Journal. Copyright ALM Properties, Inc. Further duplication without permission is prohibited. All rights reserved.


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