PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:
Action taken:
Amendment of Subpart 65-4 (Regulation 68-D) of Title 11 NYCRR.
Statutory authority:
Financial Services Law, sections 202 and 302; Insurance Law, sections 301 and 5201 and art. 51
Subject:
Arbitration.
Purpose:
To revise the fee structure awarded to attorneys who prevail in no-fault disputes on behalf of applicants.
Text of final rule:
Section 65-4-6 is amended to read as follows:
Section 65-4.6 Limitations on attorney’s fees pursuant to section 5106 of the Insurance Law.
The following limitations shall apply to the payment by insurers of applicants’ attorney’s fees for services necessarily performed in the resolution of no-fault disputes:
(a) If an arbitration was initiated or a court action was commenced by an attorney on behalf of an applicant and the claim or portion thereof was not denied or overdue at the time the arbitration proceeding was initiated or the action was commenced, no attorney’s fees shall be granted.
(b) If the claim is resolved by the designated organization at any time prior to transmittal to an arbitrator and it was initially denied by the insurer or overdue, the payment of the applicant’s attorney’s fee by the insurer shall be limited [as follows:
(1) If the resolved claim was initially denied, the attorney’s fee shall be $80.
(2) If the resolved claim was overdue but not denied, the attorney’s fee shall not exceed the amount of first-party benefits and any additional first-party benefits, plus interest thereon, which the insurer agreed to pay and the applicant agreed to accept in full settlement of the dispute submitted, subject to a maximum fee of $60.
(3) In disputes solely involving interest, the attorney’s fee shall be equal to the amount of interest which the insurer agreed to pay and the applicant agreed to accept in full settlement of the dispute submitted, subject to a maximum fee of $60.
(4) Notwithstanding the limitations of this subdivision, the insurer may, at its discretion, offer a higher attorney’s fee, subject to the limitations of subdivisions (d) or (e) of this section, in order to resolve the dispute during conciliation.
(c) Except as provided in subdivisions (a) and (b) of this section, the minimum attorney’s fee payable pursuant to this subpart shall be $60.] to 20 percent of the total amount of first-party benefits and any additional first-party benefits, plus interest thereon, for each applicant with whom the respective parties have agreed and resolved disputes, subject to a maximum fee of $1,360.
[(d)] (c) For disputes subject to arbitration [by the No-Fault Arbitration forum] or court proceedings, where one of the issues involves a policy issue as enumerated on the prescribed denial of claim form (NYS form NF-10), subject to [the provisions of subdivisions (a) and (c) of] this section, the attorney’s fee for the arbitration or litigation of all issues shall be limited [as follows:] [(1) for preparatory services relating to the arbitration forum or court, the attorney shall be entitled to receive] to a fee of up to $70 per hour, subject to a maximum fee of $1,400.[; and
(2) in] In addition, an attorney shall be entitled to receive a fee of up to $80 per hour for each personal appearance before the arbitration forum or court.
[(e)] (d) For all other disputes subject to arbitration or court proceedings, subject to the provisions of [subdivisions] subdivision (a) [and (c)] of this section, the attorney’s fee shall be limited as follows: 20 percent of the total amount of first-party benefits and any additional first-party benefits, plus interest thereon, for each applicant per arbitration or court proceeding [awarded by the arbitrator or court], subject to a maximum fee of [$850] $1,360. If the nature of the dispute results in an attorney’s fee [which] that could be computed in accordance with the limitations prescribed in both subdivision (c) and this subdivision, the higher attorney’s fee shall be payable. [However, if the insurer made a written offer pursuant to section 65-4.2(b)(4) of this Subpart and if such offer equals or exceeds the amount awarded by the arbitrator, the attorney’s fee shall be based upon the provisions of subdivision (b) of this section.
(f)] (e) Notwithstanding the limitations [listed] specified in this section, if the arbitrator or a court determines that the issues in dispute were of such a novel or unique nature as to require extraordinary skills or services, the arbitrator or court may award an attorney’s fee in excess of the limitations set forth in this section. An excess fee award shall detail the specific novel or unique nature of the dispute [which] that justifies the award. An excess award of an attorney’s fee by an arbitrator shall be appealable to a master arbitrator.
[(g)] (f) If a dispute involving an overdue or denied claim is resolved by the parties after it has been forwarded [by the Department of Financial Services or the] to the conciliation center [to] of the appropriate arbitration forum or after a court action has been commenced, the [claimant’s] attorney for the applicant shall be entitled to a fee, which shall be computed in accordance with the limitations set forth in this section.
[(h)] (g) No attorney shall demand, request or receive from the insurer any payment of fees not permitted by this section.1
[(i)] (h) Notwithstanding any other provision of this section and with respect to billings on and after the effective date of this regulation, if the charges by a health care provider, who is an applicant for benefits, exceed the limitations contained in the schedules established pursuant to section 5108 of the Insurance Law, no attorney’s fee shall be payable by the insurer. This provision shall not be applicable to charges that involve interpretation of such schedules or inadvertent miscalculation or error.
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1 Attorneys should be aware of the Appellate Division Rules prohibiting fees in connection with the collection of first-party no-fault benefits (22 NYCRR sections 603.7(e)(7), 691.20(e)(7), 806.13(f) and 1022.31(f)).
Final rule as compared with last published rule:
Nonsubstantive changes were made in section 65-4.6(a).
Text of rule and any required statements and analyses may be obtained from:
Camielle Barclay, NYS Department of Financial Services, One State Street, New York, NY 10004, (212) 480-5299, email: camielle.barclay@dfs.ny.gov
Revised Regulatory Impact Statement
The Department of Financial Services is withdrawing the non-substantive clarification that was made to Section 65-4.6(a). Because this withdrawal has no effect on the last published Regulatory Impact Statement, it is not necessary to revise the previously published Regulatory Impact Statement.
Revised Regulatory Flexibility Analysis
The Department of Financial Services is withdrawing the non-substantive clarification that was made to Section 65-4.6(a). Because this withdrawal has no effect on the last published Regulatory Flexibility Analysis for Small Businesses and Local Governments, it is not necessary to revise the previously published Regulatory Flexibility Analysis for Small Businesses and Local Governments.
Revised Rural Area Flexibility Analysis
The Department of Financial Services is withdrawing the non-substantive clarification that was made to Section 65-4.6(a). Because this withdrawal has no effect on the last published Rural Area Flexibility Analysis, it is not necessary to revise the previously published Rural Area Flexibility Analysis.
Revised Job Impact Statement
The Department of Financial Services is withdrawing the non-substantive change that was made to Section 65-4.6(a). Because this withdrawal has no effect on the last published Job Impact Statement, it is not necessary to revise the previously published Job Impact Statement.
Initial Review of Rule
As a rule that requires a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2018, which is no later than the 3rd year after the year in which this rule is being adopted.
Assessment of Public Comment
The Department received comments from 27 interested parties in response to its publication of the proposed rule in the New York State Register. The Department received comments from the following groups of interested parties:
• Property/casualty insurers;
• A health care provider;
• Trade associations comprised of New York State automobile insurers;
• Two coalitions comprised of consumer groups;
• A coalition of plaintiffs’ attorneys, health care providers and other interested parties;
• A coalition of attorneys representing eligible injured persons;
• Hospitals; and
• Law firms that provide legal services to various health care providers.
Comments on specific parts of the proposed rule are discussed below.
Proposed 11 NYCRR 65-4.6(a) (“Limitations on attorney’s fees”)
Comment
Representatives of providers, hospitals, and injured persons, as well as consumer groups, expressed concern that the Department’s proposed amendment that would substitute “and” for “or” in 11 NYCRR 65-4.6(a) would result in many attorneys being denied attorney’s fees unless a claim was both denied and overdue at the commencement of a proceeding.
Department’s Response
The Department intended this amendment to be a non-substantive clarification that both denied claims and overdue claims submitted to arbitration or court would be eligible for attorney’s fees, and not to be interpreted as saying that a claim had to be both denied and overdue at the start of the proceeding. However, because of the overwhelming concern and confusion regarding this non-substantive change, the Department is withdrawing this amendment.
Representatives of health care providers (“providers”), hospitals, and injured persons, as well as consumer groups, strongly oppose eliminating the $60 minimum attorney’s fee, asserting that such an amendment unduly favors insurers, will not achieve more consolidation of claims, and will have a negative impact on eligible injured persons (“EIPs”) and providers with no-fault disputes involving low monetary value claims. They proffered the following arguments to support their objection to the proposed amendment:
(1) It will be difficult for EIPs and providers to retain attorneys willing to represent them in arbitration or in court with respect to small monetary value claims if the attorney’s fee is limited to only 20 percent of the value of the claim plus interest;
(2) Providers will be reluctant to accept no-fault patients if it is difficult to retain attorneys to represent them in disputes against an insurer involving a small monetary value claim, or providers may treat patients unnecessarily in order to increase the total value of claims in dispute;
(3) Insurers will engage in the unlawful practice of improperly lowering the value of claims so as to reduce the attorney’s fees, and the Department does not have the financial resources to take effective action against insurers that engage in such unlawful practice;
(4) There is no empirical evidence that having a minimum attorney’s fee results in attorneys commencing multiple actions for related claims, and doing so is not cost effective;
(5) Courts have consistently severed consolidated cases where there are multiple EIPs and multiple accidents, and arbitration does not permit consolidation of disputes that do not arise out of the same action;
(6) The amount of time needed to arbitrate or litigate multiple claims is the same whether the issues are addressed in one action or individual actions;
(7) The Department failed to consider alternatives to the proposed rule although the proposal will have a deleterious effect on parties whose low monetary value claims may not be consolidated with other claims;
(8) Consolidation of cases is infeasible because the regulation requires a provider to bill an insurer within 45 days of treatment and to commence an action within 30 days of an insurer’s denial of the claim or failure to pay within 30 days of the receipt of the bill in order to prevent interest from being tolled; and
(9) Providers and EIPs who delay filing arbitrations in order to consolidate claims will forfeit priority in scheduling hearings.
Department’s Responses
With respect to comments (1), (2) and (3), the Department is not persuaded by the comments that attorneys will be reluctant to represent providers, including hospitals, in disputes involving low monetary value claims. Many law firms that handle no-fault matters specialize in this area and the success of this business is based on volume; therefore, those firms are unlikely to reject a no-fault claim solely because it is of low monetary value. Additionally, the Department informally discussed this issue with a trade organization representing hospitals. That organization asserted that hospitals typically retain attorneys to handle a block of business rather than just an individual no-fault claim, and if an attorney wants to remain a hospital’s legal representative, that attorney will not decline to represent a hospital in arbitration or court solely because the dispute involves a low monetary value claim.
The Department also is not persuaded that a provider, in deciding whether to treat a no-fault patient, takes into account whether the provider will be able to retain an attorney to handle a dispute regarding payment for treating that patient. Further, the Department is skeptical that an honest provider would jeopardize its license by treating a patient unnecessarily in order to bolster the monetary value of claims in the event of a dispute in order to be able to be represented by an attorney. To do so would violate Insurance Law § 5109 and Insurance Regulation 68-E, the consequence of which would be a prohibition on demanding or requesting payment for medical services in connection with any no-fault claim. Likewise, the Department is confident that insurers are unlikely to engage in the unlawful claims settlement practice of lowering the value of claims to decrease attorney’s fees because of the risk of regulatory action by the Department, and because, although provider attorneys would receive lower fees, an insurer would still incur additional costs for its legal representation at the prevailing rate, as well as assessments required to be paid to the American Arbitration Association.
With respect to comments (4), (5), (7), (8), and (9) regarding consolidation, nothing in the proposed regulation mandates consolidation of claims. The Department’s intent in amending the minimum fee provision is to encourage consolidation of claims where feasible, but this does not include claims involving multiple accidents, providers, or EIPs, or where consolidation would otherwise violate or contradict any law or regulation. Further, the Department, in promulgating this amendment, considered all the alternatives that commentators suggested in response to the Department’s solicitation for comments on this regulation and concluded that the provision as amended would significantly reduce the voluminous filings of low monetary value claims and curtail possible fraudulent activity in the no-fault system.
Finally, the Department finds that comment (6) is without merit because attorney’s fees are based on the amount of the provider’s bill and not on the time spent preparing for arbitration or a court proceeding.
Comment
Insurers and trade organizations representing insurers overwhelmingly support eliminating the minimum attorney’s fee. They contended that this amendment would reduce the number of individual filings of low monetary value claims made solely to generate attorney’s fees, and that insurers no longer would be forced to settle such claims that they would otherwise contest but for the cost of litigating those claims. One insurer trade organization further recommended that the regulation require providers and their attorneys to file only one action for all disputes arising out of the same accident and involving the same EIP.
Department’s Response
The Department agrees that the amendment is necessary to curtail the voluminous filings of low monetary value claims. However, the Department rejects the recommendation to require providers and their attorneys to commence a single action for all disputed claims arising out of the same accident and involving the same EIP, because to do so would violate Insurance Law § 5106(b), which grants an applicant the option to bring any dispute to arbitration.
Comment
Some of the insurers and an insurer trade organization requested that the Department clearly specify the effective date of this proposed amendment, and suggested that the proposed amendment to the fee structure apply as of the date of filing of an arbitration or lawsuit, rather than the date of loss or date of service.
Department’s Response
Because section 65-4.6 applies to arbitrations or court proceedings, the amendment applies to all new arbitrations or court proceedings initiated on or after the effective date of the amendment, rather than to dates of service or dates of loss occurring on or after the effective date of the amendment.
Proposed 11 NYCRR 65-4.6(b) (“Maximum Attorney’s Fee During the Conciliation Phase”)
Comments
One insurer opposed eliminating the maximum $60/$80 attorney’s fee during conciliation, asserting that to do so would result in hearings over disputes involving fees, which in turn would increase costs and prolong the resolution of no-fault claims. The insurer also opposed the proposed fee of 20 percent of first-party benefits and any additional first-party benefits, plus interest, up to a maximum of $1,360, contending that the fee is excessive for the limited amount of work involved in filing a case for arbitration.
On the other hand, one insurer trade organization supported the proposed fee structure, asserting that this would discourage the filing of multiple no-fault claims in order to generate more attorney’s fees and encourage consolidation of small monetary value claims, which would result in a more efficient no-fault system.
Department’s Response
The Department disagrees that the maximum attorney’s fee conciliation phase should not be increased because the current maximum attorney’s fee is not commensurate with the increase in the amount of work an attorney must expend upon filing and during the conciliation phase of an arbitration case as a result of a regulatory change made ten years ago requiring early submission of case documents and legal arguments in arbitration.
Representatives of providers, hospitals, and injured persons, as well as consumer groups, strongly agreed that the current $850 maximum attorney’s fee should be increased, but asserted that the Department’s proposed increase to $1,360 is insufficient to achieve the Department’s objective of encouraging consolidation of claims. Those commentators suggested either increasing the maximum fee – some provider attorneys suggested increasing the maximum to $2,000 and a hospital attorney suggested $4,000 for hospital bills – or eliminating the maximum fee altogether.
Most insurers and insurer trade organizations opposed any increase to the maximum fee. They contended that the current $850 maximum attorney’s fee fairly compensates attorneys for the work involved in resolving a no-fault claim at arbitration or in court, and that there is no evidence that at the current fee providers would be hard pressed to find attorneys to represent them.
On the other hand, two insurers agree with the Department’s amendment to the attorney’s fees provisions of Insurance Regulation 68-D, asserting that those amendments should reduce the overwhelming number of low monetary value claims filed in order to maximize attorney’s fees, as well as minimize the impact that fees have on pervasive fraud in the no-fault system.
Department’s Response
The Superintendent, based on his knowledge and expertise in the area of no-fault law and regulation, as well as his responsibility to the public, finds that an increase in the maximum attorney’s fee to $1,360 is reasonable in order to achieve a more efficient resolution of no-fault claims that is equitable to both providers and insurers. The Superintendent also finds the proposed maximum fee to be sufficient incentive for provider attorneys to consolidate disputes where feasible, while not so exorbitant as to unduly increase transaction and litigation costs.
Other Comments on Insurance Regulation 68-D Regarding Attorney’s Fees
Interested parties submitted comments that were beyond the scope of changes to the regulation being implemented at this time. Accordingly, no changes to the regulation were made based upon those comments. Also, although the Department initially solicited comments on Section 65-4.6(f) of the current regulation, the Department did not propose any changes at this time, and therefore comments received on Section 65-4.6(f) are beyond the scope of changes to the regulation being implemented and are not discussed here.
