Insurance organizations gathered on February 4 to urge the New York State Senate Insurance Committee to take action on the state’s no-fault automobile insurance system. The Property Casualty Insurers Association of America (PCI) and the Insurance Information Institute (I.I.I.) were among the organizations testifying that no-fault costs are out of control and unethical medical providers and collections attorneys are abusing the system.

According to I.I.I., under current New York no-fault laws, motorists may sue for severe injuries and for pain and suffering only if the case meets certain conditions. These conditions, known as a threshold, relate to the severity of injury. Because high threshold no-fault systems restrict litigation, they tend to reduce costs and delays in paying claims. Verbal thresholds eliminate the incentive to inflate claims that may exist when there is a dollar "target" for medical expenses. However, the institute says, in some states the verbal threshold has been eroded over time by broad judicial interpretation of the verbal threshold language, and personal injury protection (PIP) coverage has become the target of abuse and fraud by dishonest doctors and clinics that bill for unnecessary and expensive medical procedures, pushing up costs.

Currently 12 states and Puerto Rico have no-fault auto insurance laws. Florida, Michigan, New Jersey, New York and Pennsylvania have verbal thresholds. The other seven states—Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota and Utah—use a monetary threshold.

No-fault auto insurance fraud in New York is estimated to have added almost $229 million in costs to the insurance system in 2009, PCI says. Enacting meaningful, comprehensive legislation reform of the New York no-fault system is a top priority for PCI and others in the industry. PCI is seeking reforms that will combat excessive medical charges, encourage fast and fair settlements of claim disputes, provide adequate time for fraud investigations, and institute tough penalties for insurance fraud by making it possible to decertify health care providers who commit no-fault insurance fraud.

In his testimony of February 4, Paul Blume Jr., SVP, state government relations for PCI, highlighted aspects of New York’s system needing reform and offered potential solutions, including:

1. Elimination of Preclusion—This problem could be addressed by amending the 30-day rule statute to provide that interest is the exclusive remedy when an insurer fails to issue a timely payment or denial, and that a denial of claims and the insurers’ defenses, such as a lack coverage or fraud, not be precluded.

2. Burden of Proof—This problem could be addressed by amending the statute to require an assignee to present admissible evidence that the services billed were medically necessary and provided by a properly licensed practitioner.

3. Assignment of Benefits—An appropriate solution to this deceptive problem would be amending the statute so that the right to contest denials of claims involving policy issues should belong to the claimant only. This limitation of assignment would only apply to “policy” issues resulting in a denial of coverage to an injured party, and not to denials to the provider for charges not medically necessary, or their own failure to comply with policy terms.

4. Anti-Fraud Measures—This problem could be addressed by amending the 30-day rule statute to provide that interest is the exclusive remedy when an insurer fails to issue a timely payment or denial, and that a denial of claims and the insurers’ defenses, such as a lack coverage or fraud, not be precluded.

Robert P. Hartwig, Ph.D., CPCU, President & Economist of I.I.I. testified that “The bottom line is that no-fault fraud is the major driver of cost in New York’s private passenger auto insurance system today,” he said. “Indeed, New York may have once again recaptured the dubious distinction as the nation’s auto insurance fraud capital. Attacking the state’s rampant no-fault fraud and abuse is the only way to meaningfully contain costs and reduce future pressure on auto insurance rates.”

Other organizations with representatives testifying included:

• Steve Nachman, ESQ, Deputy Superintendent for Frauds and Consumer Services, New York State Insurance Department
• Howard Goldblatt, Director of Government Affairs, Coalition Against Insurance Fraud
• Robert C. Passmore, CPCU, Senior Director - Personal Lines, Property Casualty Insurance Association of America
• Thomas Lehmann, Area Director of Operations, National Insurance Crime Bureau
• Judith Fitzgerald, Vice President for Government Affairs, National Insurance Crime Bureau
• Ellen Melchionni, President, New York Insurance Association
• Gary Henning, Assistant Vice President, American Insurance Association
• Edmond Valente, Attorney, State Farm, Dewey & Leboeuf
• Frank Carrigan, Plan Manager, New York Automobile Insurance Plan
• Jack Houston, Special Investigations Unit Manager, New York Automobile Insurance Plan
• Patrick O’Malley, New York Product Manager, Progressive Insurance
• James Potts, Vice President for Special Investigations, New York Central Mutual Insurance Company
• Joe Persaud, Director – No Fault Department, American Transit Insurance Company
• Pat Shea, Director SIU, American Transit Insurance Company
• Richard Binko,ESQ, President, New York State Trial Lawyers Association
• Skip Short, Attorney, Short and Billy, P.C.
• Kevin Ryan, President, Professional Insurance Agents of NY
• Peter Resnick, Director, Professional Insurance Agents of NY

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