The Option of Indefinite Denial: NYS Legis. Considers Auto Insurance Nightmare

Cyrus Dugger

The Option of Indefinite Denial: NYS Legis. Considers Auto Insurance Nightmare

Have you ever been in an accident? Have you ever had to go through the process of filing a claim with your auto insurance company? For any who have had their claims challenged they know that the deck is stacked against them. Insurance companies may require that claimants fill out additional forms, submit to "independent" medical examinations, and/or report to make statements under oath. Given the procedural hurdles a claimant must go through and the insurance company's ability to deny and then endlessly litigate claims, the average New York resident faces an uphill battle.

State Assemblyman Heastie has recently proposed a bill (A.8267) that would make life even easier for auto insurance companies. The bill proposes to allow insurance companies to disregard the current 30 day time limit they have to either pay or deny claims and extend it indefinitely with the caveat that the insurance company pay 2% interest a month on the claim and pay reasonable attorneys' fees once the claim is ultimately found to be valid. This measure applies across the board to all claimants that the insurance company decides to investigate for fraud. In theory, auto insurance companies would be able to indefinitely withhold benefits from all claimants in New York as long as they eventually paid 2% interest and reasonable attorneys' fees.

This law would mean that a person with a valid auto insurance claim who is incorrectly flagged and investigated as having filed a fraudulent claim may receive no payments for an indefinite period of time during which they receive nothing for their medical costs and lost wages.

Not only is this rule unfair in that it makes people wait needlessly for the valid claim that they are owed after paying their insurance premiums for years, it also assumes that a claimant can actually pay out of pocket lawyers' fees in the first place (plus their medical bills if they are uninsured), let alone that they can wait to be reimbursed for them at some unknown point in the future. This framework also creates an ironic situation in which claimants must continue to pay their premiums while their insurance company withholds the very benefits of their insurance policy from them.

Although the delays involved with the current law can already work a hardship on a working family living paycheck to paycheck and should itself be improved, today's legal framework at least allows the claim to progress forward as the claimant meets specific procedural requirements. Currently, the auto insurance company can, by way of requests for additional information and "independent" medical exams, extend the time before which they must pay or deny a claim for up to 70 days (assuming the claimant is able to respond immediately to each procedural demand made by the insurer). Despite the current law's shortcomings, the new law would take the length of the insurance companies’ investigation of the claim completely out of the hands of even the most cooperative claimant, and allow it to continue indefinitely.

Although under the current system insurance companies are hit with a penalty of 2% and lawyers' fees if they take over 30 days (or 70 days based on the use of extensions from requests for additional information) to pay claims, the current system additionally prohibits insurance companies from challenging the validity of claims (in most instances) when their delay exceeds the given limit. Removing this punishment from the bill will allow insurance companies to needlessly delay valid claims since the financial consequences are not substantial (reasonable attorneys’ fees appear to be calculated under the current law as only 20% of the benefits claimed). Moreover, these fees are offset by the profit the company makes through its investments while holding onto the claimant's money a few weeks or months longer.

The justification for this bill is that insurance companies need the additional time past the current thirty day standard in order to investigate fraud. This justification does not measure up to reality. Insurance fraud undoubtedly increases costs for all those with coverage. However, the idea that there is a current auto fraud explosion in New York requiring this extreme measure is simply untrue. Suspected cases of auto fraud decreased 17% in 2004. Not only is auto fraud down but auto insurance litigation is also down generally. Lastly, although auto insurance rates were recently reduced, the reductions have not matched the significant decrease in the cost to insurers of providing auto insurance in New York (Steven Tuckey, NY Auto Market: Rates Down, Availability Up; Fraud reduction efforts lead to loss ratio, price dips, National Underwriter, Sept. 19, 2005). Given these cost reductions, the argument that this bill is needed to stem rampant fraud and/or assist struggling auto insurance companies does not measure up.

This new bill is also especially alarming in light of the fact that just recently, in 2002, the state legislature reduced the time the claimant has available to file their initial claim with their insurance company from ninety to thirty days. Indeed, after reducing the time that the claimants have to file from 90 to 30 days, the legislature now proposes to extend the time that auto insurance companies have to pay or deny a claim from the standard 30 days to possible infinity.

All of this would be tolerable and could be seen as harmful albeit well intentioned legislation trying to crack down on fraud in order to reduce insurance rates, if it weren't for the fact that the bill's sponsor received $11,000 from a group of twelve insurance companies and lobby groups (totaling 89% of his campaign contributions since the beginning of 2006). While Assemblyman Heastie has supported positive bills in the past, he has a duty not to bend to the lobby of insurance companies who support him financially, and a duty not to do so to the detriment of the residents of New York whose job it is for him to protect. Indeed, it is the taxpayers of New York who provide his most important financial support: his salary of more than $79,500.