Ink Ready: Insurance Bills likely to see Governor Cuomo’s Signature
Legislation pertaining to insurance have passed both houses of the Legislature and are now before Governor Andrew M. Cuomo. The bills range from Medicaid coverage for portable x-ray services to the definition of insurance fraud.
Following are the bill summaries:
Exemption from Certain Rate and Form Approval Requirements Policies for Large Commercial Insureds and Special Risks
Policies written in New York for large commercial insureds and special risks would be exempted from certain rate and form approval requirements under legislation which has passed both houses and has been sent to the Governor, sponsored by Senator James L. Seward (R-C-I – Oneonta) and co-sponsored by Assemblyman Joseph D. Morelle (D-I – Rochester).
According to Senator Seward, the Legislature enacted the predecessor section to Article 63 of the Insurance Law in 1978 to encourage insurance producers to place their large or unusual risks in the authorized New York market. At that time, overseas and out-of-state companies, such as Lloyd’s of London, wrote the great majority of these risks. Article 63 was intended to allow New York authorized insurers to compete more effectively with the London and out-of-state markets.
“This bill would expand the ability of New York-authorized insurers to compete more effectively with the London and outof- state markets, by permitting them to apply an exemption under Article 63 for policies issued to a ‘large commercial insured,’ that employs or retains a ‘special risk manager’ to assist in the negotiation and purchase of a policy, so long as the special risk manager meets certain qualifications and the insurer makes certain informational filings,” said Senator Seward. “At the same time, the bill would provide safeguards by allowing the Superintendent to re-impose filing and approval requirements where and to the extent that the Superintendent deems it in the interest of policyholders.”
According to Assemblyman Morelle, the bill also would exempt insurers from filing requirements with respect to inland marine insurance policies where the rates for the risks are not filed because by general custom of the business the rates are not written according to manual rates or rating plans. Historically, the Superintendent has not required such policy forms to be filed. This amendment would clarify the requirements for inland marine insurance. The Superintendent would retain the right to impose filing requirements.
The bill would also clarify that Article 63, in accordance with the Department’s longstanding interpretation, only exempts an insurer from the filing requirements of the Insurance Law, and that the insurer or any policy issued subject to Article 63 remains subject to all other applicable provisions or standards in the Insurance Law, regulations promulgated thereunder, and requirements of state law.
“Passage of this legislation would enhance the competitiveness of New York’s domestic insurers,” said Senator Seward. “The bill would also strengthen the financial requirements for an insurer to place coverage in the special risk market and enhances the Superintendent’s authority to take appropriate action to protect insureds where the insurer does not abide by minimum standards and requirements. Additionally, the bill would facilitate more streamlined economic development in New York, as existing and emerging busi- nesses that need to insure large or unusual risks would have quick access to the insurance products they need.”
Increasing the Qualified Financial Contracts in an Insurance Insolvency Proceeding Effecting a Domestic, Foreign, or Alien Insurer
The certainty of insurers and their creditors with respect to the enforceability of certain financial market transactions and related netting agreements in the event of insurer insolvency would be increased under legislation that has passed both house and has been sent to the Governor, sponsored by Senator James L. Seward (RC- I – Oneonta) and Assemblyman Joseph D. Morelle (D-I – Rochester).
“The importance of maintaining certainty among the participants in these markets has been acknowledged and addressed through changes in the Federal Bankruptcy Code, the Federal Deposit Insurance Act, governing the bankruptcy of banks, and other federal legislation and regulatory orders, as well as in the New York State Banking Law and in the laws of major non-U.S. jurisdictions applicable to the insurers’ trading counterparties,” said Senator Seward. “All of these legal structures recognize and enforce the netting and closeout provisions of financial contract master agreements.”
The only major category of financial and business institutions in the U.S. which lack such certainty are insurance companies. This lack of certainty threatens the ability of New York insurers to continue to use these investment tools to manage their risks and remain financially strong. Recent changes in the international capital rules for banks under the Basel II accords, events in the financial markets over the past year and the increasingly sophisticated risk control methods of financial institutions have placed a spotlight on the lack of protections for these contracts under the insurance laws of New York and most other states. The bill will also redress the competitive disadvantage of New York insurers vis-a-vis their competitors in Connecticut and elsewhere where netting legislation has been adopted,” said Senator Seward.
“Recent turmoil in the financial markets have heightened scrutiny, in the markets and among financial institutions about identifying, managing and limiting risk, the need for adequate capitalization and for understanding the interdependency of the different financial sectors,” said Assemblyman Morelle. “One source of risk to financial market participants has arisen due the lack of certainty in the treatment of financial intermediaries in the event of the insolvency of state regulated insurers. Under the patchwork of state laws, only a handful attempt to address the issue of certainty. This bill attempts to correct this lack of clarity in New York insurance law by specifying the status of “qualified financial contracts” in an insurance insolvency proceeding. This amendment brings New York’s insurance law into conformance with similar provisions of the state banking code, the Federal bankruptcy law and the NAIC Insurance Receivership Model Act (IRMA).”
Definition of Insurance Fraud
Activities that currently constitute a “fraudulent health care insurance act” would be included within the definition of “fraudulent insurance act,” according to legislation which has passed both houses and has been sent to the Governor, sponsored by Senator James L. Seward (R-C-I – Oneonta) and Assemblyman David I. Weprin (D-WF – Little Neck).
According to Assemblyman Weprin, Insurance Law currently states that it is a violation of the Insurance Law for any individual, firm, association, or corporation subject to the Insurance Law to commit a fraudulent insurance act, and for the purposes of Article 4 of the Insurance Law, defines a “fraudulent insurance act” as “an insurance fraud as defined in section 176.05 of the penal law.”
Penal Law § 176.05 is titled “Insurance fraud; defined,” and sets forth when a “fraudulent insurance act” is committed and when a “fraudulent health care insurance act” is committed.
In 1998, the Legislature amended a coverage for children through the Child Health Plus program and Medicaid and concomitantly amended the Penal Law to strengthen New York’s ability to deter Medicaid fraud and abuse. As part of these amendments, the Legislature added a new subdivision to Penal Law § 176.05, which defines a “fraudulent health care insurance act.” However, the Legislature failed to amend Penal Law §§ 176.10 through 176.30, which prescribe penalties for five different degrees of insurance fraud and permit penalties only for a person who commits a “fraudulent insurance act.”
In 2003, a chief operating officer and executive vice president of a managed health care provider was indicted on charges that included two counts of insurance fraud in the first degree. The indictment charged that the defendant committed fraudulent insurance acts in 2003 when he submitted marketing plans to Medicaid that he knew contained materially false information. The State asserted that marketing plans allegedly submitted by the defendant were fraudulent health care insurance acts, which are a species of fraudulent insurance acts. The defendant moved to dismiss the insurance fraud counts, asserting that he did not commit a “fraudulent insurance act” as defined in the Penal Law. The New York Supreme Court granted defendant’s motion and the Appellate Division and Court of Appeals affirmed. The New York State Court of Appeals held in People v. Boothe, 16 N.Y.3d 195 (2011), that “a ‘fraudulent health care insurance act’ is not included within the definition of ‘fraudulent insurance act'” and that “the Legislature plainly failed to criminalize the conduct at issue.” The Court of Appeals further stated that “if this deficiency is to be corrected, it must be done through legislative action.”
“The Legislature’s failure to criminalize activities that currently constitute a ‘fraudulent health care insurance act’ was not intentional, and as a result, this deficiency in the law should be remedied so that the Legislature may achieve its original goal of strengthening New York’s ability to deter Medicaid fraud and abuse,” said Senator Seward. “Therefore, this bill fixes the foregoing deficiency by amending Penal Law § 176.05 to include the activities that currently constitute a ‘fraudulent health care insurance act” within the definition of ‘fraudulent insurance act.’”
Permitting Insurers to Make Available Multiple Rating Programs for Private Passenger Motor Vehicle Insurance
Property/casualty insurers would be permitted to make available multiple rating programs for private passenger motor vehicle insurance within the same company under legislation which has passed both houses and has been sent to the Governor.
Sponsored by Senator James L. Seward (R-C-I – Oneonta) and co-sponsored by Assemblyman Joseph D. Morelle (D-I – Rochester), the proposal would permit insurers to make available multiple rating programs within the same company for personal lines insurance in the voluntary market. Such programs would be subject to prior approval by the superintendent. The superintendent is authorized to promulgate rules and regulations which may include criteria that would merit the superintendent’s approval.
Currently, insurance companies are prohibited from having more than one rating plan within the same company.
“While insurance companies are prohibited from having more than one rating plan within the same company, in practice, this restriction only affects smaller, regional insurance companies that do business primarily in New York,” said Senator Seward. “Larger insurers – like those that operate on a national basis that want to offer multiple rating plans to their customers – simply establish a separate subsidiary or affiliate company that is set up for the primary purpose of offering the new rating plan. Since smaller insurers lack the financial resources to set up separate corporations each time they want to offer a new rating plan, they are placed at a competitive disadvantage by the prohibition.”
According to Senator Seward, to remain competitive, insurance companies need to be able to continually develop new rating plans that introduce different rating elements that allow them to better segment and price business.
“Adding a new section to the insurance law that specifically authorizes multiple rating plans within the same company will level the playing field so that all insurers, not just large companies, can offer more than one rating plan to their customers,” said Assemblyman Morelle. “Each time a company develops a new plan, the plan would be provided only to new business customers, as is the current practice used when larger insurers establish a separate corporation to offer a new plan.”
