By Matthew F. Guilbault, Esq.
The New York State Legislature completed its regular 2010 session, considering a number of issues affecting the property/casualty insurance industry right up until the conclusion of the session. PIANY is pleased with most of the legislative outcomes affecting our industry in New York this year, especially with the passage in both houses (and sent to the governor) of a proposal, long-advocated by PIANY, to raise the surcharge threshold for automobile policies. The measure, if signed into law, would bring relief to those insureds who file minor claims only to find surcharges added to their policies that greatly exceed the amount of the claim for the next three years. We also were successful in preventing a number of bad bills from advancing to the governor's desk, including bills that would make New York's already burdensome civil justice system even worse, expanding employer liability and enacting regressive no-fault measures that would raise automobile insurance premiums. PIANY is disappointed, however, that much-needed proposals to reform New York's no-fault auto system also were unsuccessful. In testimony provided earlier this year, PIANY pointed out that no-fault claim costs in New York have increased by 58 percent since 2004, and no-fault fraud and abuse in the state is costing insurers and drivers more than $200 million per year. Although receiving attention this session, legislators were unable to produce cost-saving legislation.
State lawmakers voted to adjourn without resolving all budget issues facing the state and at least one special session is expected.
Listed below are more details regarding some of the substantial insurance-related legislation considered this session.
2010 saw the enactment of three new insurance-related laws. They are as follows:
- Chapter 107: Prior approval of health insurance premiums. Gov. Paterson signed into law legislation that authorizes the state Insurance Department to approve health insurance premium rate adjustments before they take effect. Sponsors claim that enactment of the bill was necessary to achieve $70 million in savings in 2010-11 by controlling inappropriate health insurance premium increases and reducing the number of uninsured individuals that will migrate to public health insurance programs.
- Chapter 25: Standard fire insurance policies. Gov. Paterson also signed into law legislation that authorizes a court to compel either party to a standard fire insurance policy to submit to the appraisal process in such policy and to authorize either party to commence a special proceeding to specifically enforce the appraisal clause in such policy. This new law is designed to remedy the problems inherent in CPLR 7601 by providing clear language to allow either party to utilize the appraisal process more frequently and thereby avoid the high costs and delays inherent in protracted litigation.
- Chapter 11: Insurance fraud. Finally, Gov. Paterson signed into law legislation that requires that the report due the governor and legislative leaders relating to insurance fraud include the incidence of misrepresentation by insureds of the principal place where motor vehicles are garaged and driven. Sponsors claim that reporting the incidences of this type of fraud will enhance the ability of the carriers to combat these abuses.
The following bills also were considered this session but have not (as of yet) been signed into law:
- Policy surcharges. New York state drivers may be close to relief from added costs associated with vehicle damage after an accident, thanks to support by PIANY of legislation (S.1700-B/A.1952-B) that passed both houses and has been sent to the governor. The proposal would increase from $1,000 to $2,000 the property damage threshold after which carriers may assess a surcharge. As a result of PIANY's efforts, the bill passed the New York State Senate for the first time in 2010, and now awaits the governor's signature into law.
- Insurance fraud. The chairs of the Senate and Assembly Insurance committees introduced the Automobile Fraud Prevention Act of 2010 (S.8414/A.11596). The proposal was designed to combat fraud in the automobile no-fault insurance system through two significant changes: amending the Insurance Law with respect to preclusion of insurance company defenses; and providing the superintendent of insurance with the authority to terminate no-fault payments to deceitful providers of medical care. Additionally, it would promote the use of arbitration in no-fault cases. The bill remained in committee at the conclusion of the regular session.
- More insurance fraud. Assemblyman Morelle also introduced a stand-alone proposal (A.10877) designed to reduce the incidence of auto insurance fraud, including fraud committed by those who misrepresent where they live, operate their automobile and garage such vehicle for insurance coverage purposes. By misrepresenting where such automobile operators truly live and operate their motor vehicle, these policyholders obtain inappropriate reductions in their auto insurance premium rates and these costs are shifted to other law-abiding automobile owners. The bill remained in committee at the conclusion of the regular session.
- No-fault reform. Near the end of session, Gov. David Paterson released a memo saying he submitted legislation (Program Bill 288) designed to assist in the fight against no-fault fraud by eliminating preclusion of insurance company defenses; providing the superintendent with the authority to terminate no-fault payments to unscrupulous providers of medical care; and providing for mandatory arbitration of all no-fault disputes. The governor's proposal was introduced by the Insurance Committee chairs as S.8274/A.11542. The bill remained in committee at the conclusion of the regular session.
- Tort threshold. Earlier this session, regressive legislation (A.10739/S.7518) was introduced that would expand the definition of “serious injury” and, for all practical purposes, eliminate summary judgment “threshold” motions. PIANY has consistently urged the Legislature to put responsible citizens first and to take action this year to curtail the actions of unethical medical providers and collections attorneys who are abusing the system and causing costs to rise. PIANY supported reform of the no-fault system, and has continuously done so since 1974 when the system was adopted and strongly opposed this proposal. The bill remained in committee at the conclusion of the regular session.
- Photo inspections. With strong support from PIANY, the state Legislature saw the introduction of a proposal (S.1039/A.10171) to provide that an insurer may waive the inspection of a private-passenger automobile prior to providing physical damage coverage. The intent of this bill was simply to remove the burden from the department of crafting a one size fits all solution that all vehicles must be physically inspected. It allows each insurer to either comply with the existing physical inspection laws or, if it wants to, to develop its own plan of operation relative to these inspections. Despite strong support by PIANY and carriers, this bill remained in committee at the conclusion of the regular session.
- Construction trade misclassification. Legislation (S.5847-F) currently awaiting action from Gov. Paterson could have ramifications for PIANY members. If signed into law, the bill would create far greater clarity in construction trades regarding independent contractor vs. employee classification. A presumption of “employment” status for construction workers in New York could be overcome by qualifying as a separate business entity (as defined), or by meeting a three-part test. Considerable penalties would apply for willful misclassification. According to its sponsors, the bill would generate “significant savings for the state. ”
- Group trusts. The 2010-11 State Budget (at least to the extent that it has been enacted) increases and extends the time period for the authority of the Workers' Compensation Board (WCB) to borrow money from the Uninsured Employers Fund to provide cash flow for these claims. Legislation enacted in 2008 originally let the WCB borrow up to $52 million for this purpose; the bulk of this borrowing already has been used. The 2010-11 budget increases the limit to $75 million; gives the WCB until April 1, 2011, to borrow funds, up to this amount; and defers the start of assessments to pay the funds back until the beginning of 2012. It also permits the WCB to execute an “assumption of risk” insurance policy, transferring the run-off of claims against a closed GSIT to a commercial carrier or the New York State Insurance Fund, in exchange for a single, up-front premium payment. The premium will include an amount that satisfies the GSIT members' liability for assessments owed to the WCB. (Counties and other public entities that cease self-insuring their workers' compensation program also can execute an assumption of risk policy, under similar conditions. ) To enhance the WCB's enforcement of its ongoing collection efforts, the budget deems a GSIT member that owes money under its joint and several liability obligations, and fails to pay, to be in default in the payment of workers' compensation. This subjects the defaulting employer to penalties applying to defaulting employers, including fines, stop-work orders and debarment from state contract work. The budget also clarifies that all records must be turned over to the WCB in the event the WCB assumes the assets and liabilities of a closed GSIT, which applies when a GSIT is found to be insolvent. And, it hands the WCB more time and discretion to hang on to GSITs' security deposits when they close. However, New York Gov. David Paterson's legislative efforts to address the state's troubled group trust system came too late for action in the regular legislative session. State lawmakers adjourned this year's session before taking action on Paterson 's proposed legislative fix. It is, however, still possible that a bill introduced by the outgoing governor will resurface at a special session later this year. The legislation originated after Paterson's Task Force on Group Self-Insurance found unpaid claims from failed trusts was projected to be about $500 million. To cover the claims of workers covered by the defaulted trusts, the WCB targeted healthy group self-insured trusts and individual self-insurers. The bill proposed eliminating the state's 30 existing private group trusts by the end of the year and allowing only a limited number of self-insured risk pools for government agencies. The Group Self-Insured Association of New York had proposed alternatives to shutting down the entire trust system in advance of Paterson's proposed legislation. The organization opposed the recommendations of Paterson's task force.
- State Insurance Fund (SIF). The state Senate saw the introduction of legislation (S.1662) to remove the State Insurance Fund's exemption from licensing and other requirements of the Insurance Law. The bill would require that the SIF be licensed by the Insurance Department and subject to the same requirements as other insurance companies providing workers' compensation insurance. The bill also would require that the superintendent of insurance approve the rules adopted by SIF for the conduct of its business. It also would delete the requirement for SIF policyholders to provide 30 days' notice to withdraw from the Fund. The bill remained in committee at the conclusion of the regular session.
- Flood insurance. The state Legislature considered (and the Senate Judiciary Committee reported) a proposal (S.1221/A.2096) to prohibit mortgagees from requiring mortgagors of certain pieces of real property to purchase flood insurance coverage exceeding the actual value of the loan. The proposal was the result of reports by certain lenders requiring this additional coverage beyond the value of the home. The bill remained in Assembly committee and on the Senate calendar at the end of the regular session.
- Hurricane windstorms. The state Legislature considered (and the Assembly passed) legislation (A.4847) strongly supported by PIANY to help promote better understanding of the applicability and amount of hurricane windstorm deductible triggers in homeowners and dwelling fire policies. An area of confusion for consumers is understanding the event which activates or "triggers" the applicability of their windstorm deductible. Currently, insurers' deductible programs contain a variety of "triggering" events. Since the triggering event will determine whether a windstorm deductible applies to a policyholder's loss, it is crucial that it be fair and reasonable to both the policyholder and the insurer. Uniform standards are necessary to promote easier comparison between different insurers' options, and to ensure clear understanding of the extent of policyholder exposure under these options. The requirements for understandable and fair standards will ensure that catastrophic windstorm deductibles are reasonable, actuarially appropriate, and applied in the proper circumstances. After passing the Assembly, the bill remained in the Senate Rules Committee at the end of the regular session.
- Official state advertisements. In reaction to PIANY's support, the Legislature saw the introduction of a proposal (S.7256/A.10322) to require state agencies that contract to disseminate advertising material to exclude material which relates to the agency's mission. The bill was designed to address instances in which the Department of Motor Vehicles permits the inclusion of advertisements for auto insurance companies in mailings relating to motor vehicle registration renewals. After passing the Assembly, the bill remained in Senate committee at the end of the regular session.
- Liability coverage for public vessels. The state Legislature considered (and the Senate passed) legislation (A.4697-B/S.5203) to require owners of public vessels intending to operate on the navigable waters of the state to obtain marine protection and indemnity insurance. The bill was introduced in reaction to a tragedy of Oct. 2, 2005, when the ship, the Ethan Allen, capsized on Lake George resulting in the deaths of 20 individuals. This incident brought to light the fact that there is currently no requirement that public vessels carry liability insurance. This bill was designed to enhance the safety and security of the public who utilize commercial watercraft for recreational and business purposes. After passing the Senate, the bill remained in the Assembly Codes Committee at the end of the regular session. 7/10