New York Wins Battle Over Anti-Fraud Regulation

New York Wins Battle Over Anti-Fraud Regulation

By Daniel Hays

NU Online News Service, Oct. 21, 4:26 p.m. EDT? New York's highest court yesterday upheld a regulatory change by the State Insurance Department, which the agency said was designed to thwart fraudulent auto injury claims.

The Court of Appeals decision in favor of tighter time frames for reporting an injury was hailed by insurers as an action that will help New York's no-fault system, which has been burdened by an estimated $1 billion a year in fraudulent injury claims.

David Snyder, vice president and assistant general counsel for the Washington-based American Insurance Association, which submitted a friend of court brief in the case, said the ruling from the high court in Albany, N.Y. will likely be an end to the legal battle against Regulation 68 that has been waged by trial attorneys and some health providers

He said he doubted there would be any grounds for a federal appeal, because the rule was "basically a state regulation contested under state administrative law and involved state law principles."

He said the opinion included much that affirmed the regulatory authority of the state's insurance superintendent.

Regulation 68, which has been in force for more than a year, reduced the time to give notice of an injury claim from 90 days to 30 days and cut the time limit for submitting medical bills from 180 days to 45 days.

The unanimous decision by five judges of the court took note of state and insurers' briefs outlining how the looser time limits were exploited by auto injury fraud rings.

As outlined in the briefs, ringleaders often associated with organized crime would purchase minimum automobile insurance on wrecked or salvaged vehicles, fill them with confederates, cause an accident and then have the "victims" attend corrupt medical clinics to feign aches, pains and soft tissue injuries.

The medical mills would generate stacks of bills for each passenger and the insurer would be notified of the accident 90 days after it occurred. When the insurer investigated, only a wrecked vehicle remained.

Just before the 180-day deadline for medical bills, insurers would be hit with a stack of bills. Once the bills were received, under New York law, insurers had only 30 days to pay or deny them or face a penalty for delay. Insurers, the court was told, had a choice between undertaking largely ineffective investigations and paying questionable claims.

Opponents of the rule change, who included the New York Trial Lawyers Association and others, had argued that the superintendent lacked authority under the no-fault statute to make them, but the court found that New York "regulators have commonly filled in statutory interstices by prescribing time limits when an enabling statute has been silent."

The court, in the opinion written by Chief Judge Judith Kaye, rejected arguments that the rule would deny benefits to innocent accident victims.

While some claims will be time-barred, the court noted that "in the year and a half that the regulations have been in effect, petitioners' predictions that thousands of innocent accident victims will fail to meet the new filing deadlines and be denied benefits, or that hospitals or other medical providers will prove unable to bill for services within 45 days, appear not to have materialized."

The National Association of Independent Insurers called the ruling "a major victory for insurance consumers" and the Professional Insurance Agents of New York State Inc. hailed "the New York State Insurance Department and Superintendent Gregory V. Serio for standing victorious over the hard-won legal battle to enact rules that will prevent no-fault fraud.

Bernard Bourdeau, president of the New York Insurance Association in Albany, said the regulation, which his group has fought for, will "help combat the rampant fraud in New York's no-fault system that is costing auto insurance policyholders and insurance companies $2 million per day."

Mr. Bourdeau said the legislature should now enact a package of anti-fraud measures proposed by Gov. George Pataki and the Insurance Department "to close other legal loopholes in the state's no-fault system.."