No-Fault Abuse Drives New Yorkers Premiums Up

OK, I apologize for the pun and I know you’ve heard it before, but the situation is getting worse: This month, the Insurance Research Council released a study showing that no-fault auto insurance claims in New York City that were found to include “claim abuse” rose from about 29 percent to 35 percent over the past three years. The study also indicated that 22 percent of personal injury protection (or PIP claims) include some element of fraud, and another 14 percent of PIP claims involve over billing or excessive utilization of medical services. New York’s no-fault laws are flawed and honest policyholders are carrying the burden. I checked with PIA, which provided me with some historic dates to reinforce my memory: New York state’s no-fault law, formally known as the Comprehensive Automobile Insurance Reparations Act, was enacted by the New York State Legislature in 1973 to speed up the claims process and provide faster payment to insureds, so they could receive timely medical care without having to prove responsibility for an accident.

About two decades after no-fault was enacted, several court decisions caused medical providers and carriers to start settling their disputes in the courts, rather than through arbit ration … Enter the lawyers again.

By 2002, no-fault fraud clearly had become a cash cow for lawyers and crooked medical providers. So, the Insurance Department adopted an amendment to Regulation 68, which reduced the claim-processing timeframes and lowered premiums. This helped in the short-term, but the no-fault system is still an absolute mess. The last statistic I saw said New York’s premiums are 111 percent higher than the U.S. average. This is a distinction New York does not need.

Don’t get me wrong—I believe the concept of a no-fault system is good public policy. Reducing expensive delays and uncertainties associated with the payment of medical claims and wage losses is a positive goal that benefits our clients and provides us with a far better insurance product to sell. Further, no fault attacked the trial bar’s golden goose and it is better than the tort-based system it replaced.

But, for unscrupulous health-care providers and lawyers (and the cheats who are willing to throw caution out the window by staging accidents), exploiting the no-fault system has become a lucrative pursuit. In fact, in an ironic twist, an entire cottage industry of lawsuits brought by attorneys has cropped up. They specialize in defending bogus medical bills sent en masse to no-fault insurers, which in turn, deny payments and are taken to court. This has become a goose that lays even bigger, bejeweled golden eggs.

Something has to be done. There are too many abuses within the system and we have to address what amounts to a fraud tax, thrust upon us by disreputable members of the legal and medical community. Perhaps, with the new administration in Albany, a remedy can be identified and put in place that keeps the positive aspects of the no-fault system and strengthens carriers’ ability to investigate and deter fraud. There’s no lack of interest or support for this. PIANY has called for reform continuously for some time. About a year ago, PIANY president Kevin Ryan testified before the New York State Senate Standing Committee on Insurance and argued that, despite the association’s support for the no-fault system, it needs an overhaul: “It’s clear that the time has come for true, comprehensive reform to the system in order to fight the epidemic of insurance fraud,” he said.

At that time, Ryan suggested several changes to our state’s no-fault policy, including: 1) requiring the use of medical guidelines for specific auto-related injuries to reduce over-treatment and unnecessary procedures; 2) mandating dispute resolution by arbitration to speed up the process and avoid the costs of going to court; 3) permitting those with claims for less than $5,000 to submit proof based on a doctor’s sworn affidavit rather than requiring physicians to appear in person; 4) strengthening the penalty to a felony for criminals who act as “runners” in scam accidents; 5) raising the burden of proof to receive nofault benefits by requiring plaintiffs to produce a witness with personal knowledge of the facts alleged in the complaint; and 6) overturn the New York State Court of Appeals decision in Presbyterian Hospital v. Maryland Casualty Co., which held that failure to pay or deny claims within the statutory 30-day period effects a waiver of essentially all defenses an insurance company would otherwise have to paying such claims, rendering insurance companies virtually defenseless in subsequent actions.

These suggestions are strong and I hope the new administration takes them up. I know the carriers want reform; and the agent community and our clients want reform; but we know the power trial attorneys wield, which is an industry that yields a lot of influence over our state government. The original intent of no-fault was and continues be positive, and it should be saved despite the vested interests of crooked practitioners.

For the sake of New York’s honest insurance-buying public and the good businesses that keep our economy running, including the honest attorneys and medical professionals who seek to do the best thing for their clients and society, reform is necessary now.