DFS-11-13-00018-E Unfair Claims Settlement Practices and Claim Cost Control Measures

3/13/13 N.Y. St. Reg. DFS-11-13-00018-E

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 11

March 13, 2013

RULE MAKING ACTIVITIES

DEPARTMENT OF FINANCIAL SERVICES

EMERGENCY RULE MAKING

 

I.D No. DFS-11-13-00018-E

Filing No. 231

Filing Date. Feb. 26, 2013

Effective Date. Feb. 26, 2013

Unfair Claims Settlement Practices and Claim Cost Control Measures

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:

Action taken:

Amendment of Part 216 (Regulation 64) of Title 11 NYCRR.

Statutory authority:

Financial Services Law, sections 202 and 302; and Insurance Law, sections 301, 2601 and 3404(e)

Finding of necessity for emergency rule:

Preservation of public health, public safety and general welfare.

Specific reasons underlying the finding of necessity:

Insurance Law § 2601 prohibits an insurer doing business in New York State from engaging in unfair claims settlement practices and sets forth a list of acts that, if committed without just cause and performed with such frequency as to indicate a general business practice, will constitute unfair claims settlement practices. Insurance Regulation 64 sets forth the standards insurers are expected to observe to settle claims properly.

On October 26, 2012, in anticipation of extensive power outages, loss of life and property, and ongoing harm to public health and safety expected to result from then-Hurricane Sandy, Governor Andrew M. Cuomo issued Executive Order 47, declaring a State of Disaster Emergency for all 62 counties within New York State. As anticipated, Storm Sandy struck New York State on October 29, 2012, causing extensive power outages, loss of life and property, and ongoing harm to public health and safety. Just a week later, a nor’easter hit the State, causing further damage. The counties of New York, Bronx, Kings, Richmond, Queens, Nassau, Suffolk, Westchester, Rockland, and Orange suffered the greatest damage from Storm Sandy and the nor’easter.

Insurers insuring property in affected areas have not always begun investigating claims, including by deploying insurance adjusters to adjust the claims, in a prompt manner. As a result, homeowners and small business owners have not always been able to start to repair or replace their damaged property. In addition, even though several months have now passed since the storms, claimants still are filing claims, and many claims previously filed are still pending with insurers. It is of the utmost importance that homeowners and small business owners be able to start rebuilding their homes and businesses right away and, if there are legitimate reasons for any delay in making payments, the insurer should apprise the claimant on a regular basis of those reasons.

Given the nature and extent of the damage and the wintry weather, the existing regulation’s time frames were and remain inadequate to protect the public and ensure its safety and welfare.

For the reasons stated above, the promulgation of this regulation on an emergency basis is necessary for the public health, public safety, and general welfare.

Subject:

Unfair Claims Settlement Practices and Claim Cost Control Measures.

Purpose:

To ensure timely claims investigation and resolution, permit certain immediate repairs when needed to protect health or safety.

Text of emergency rule:

Section 216.5(a) is amended to read as follows:

(a)(1) Every insurer shall [establish procedures to] commence an investigation of any claim filed by a claimant, or by a claimant’s authorized representative, within 15 business days of receiving notice of claim. An insurer shall furnish to every claimant, or claimant's authorized representative, a notification of all items, statements and forms, if any, which the insurer reasonably believes will be required of the claimant, within 15 business days of receiving notice of the claim. A claim filed with an agent of an insurer shall be deemed to have been filed with the insurer unless, consistent with law or contract, such agent notifies the person filing the claim that the agent is not authorized to receive notices of claim.

(2)(i) Notwithstanding paragraph one of this subdivision, the provisions of this paragraph shall apply to any claim filed on or after November 29, 2012 for loss, damage, or liability for loss, damage, or injury, occurring from October 26, 2012 through November 15, 2012, in the counties of Bronx, Kings, Nassau, New York, Orange, Queens, Richmond, Rockland, Suffolk or Westchester, including their adjacent waters, with respect to:

(a) loss of or damage to real property;

(b) loss of or damage to personal property; or

(c) other liabilities for loss of, damage to, or injury to persons or property.

(ii) Every insurer shall commence an investigation of any claim filed by a claimant, or by a claimant’s authorized representative, within six business days of receiving notice of claim. If the insurer wishes its investigation to include an inspection of the damaged or destroyed property, the inspection, whether performed by the insurer, an independent adjuster, or other representative of the insurer, must occur within the time frames specified in this paragraph.

(iii) An insurer shall furnish to every claimant, or claimant's authorized representative, a written notification detailing all items, statements and forms, if any, that the insurer reasonably believes will be required of the claimant, within six business days of receiving notice of the claim.

(iv) A claim filed with an agent of an insurer shall be deemed to have been filed with the insurer unless, consistent with law or contract, the agent notifies the person filing the claim that the agent is not authorized to receive notices of claim.

(v) Where necessary to protect health or safety, a claimant may commence immediate repairs to heating systems, hot water systems, and necessary electrical connections, as well as exterior windows, exterior doors, and, for minor permanent repairs, exterior walls, in order to enable property to retain heat, and any policy requirement that the policyholder exhibit the remains of the property may be satisfied by the policyholder submitting proof of loss documentation of the damaged or destroyed property, including photographs or video recordings; material samples, if applicable; and inventories, as well as receipts for any repairs to or replacement of property. This subparagraph does not apply to claims under flood policies issued under the national flood insurance program.

Section 216.6(c) is amended to read as follows:

(c)(1) Within 15 business days after receipt by the insurer of a properly executed proof of loss and receipt of all items, statements and forms which the insurer requested from the claimant, the claimant, or the claimant's authorized representative, shall be advised in writing of the acceptance or rejection of the claim by the insurer. When the insurer suspects that the claim involves arson, the foregoing 15 business days shall be read as 30 business days pursuant to section 2601 of the Insurance Law.

(2) If the insurer needs more time to determine whether the claim should be accepted or rejected, it shall so notify the claimant, or the claimant's authorized representative, within 15 business days after receipt of such proof of loss, or requested information. Such notification shall include the reasons additional time is needed for investigation. If the claim remains unsettled, unless the matter is in litigation or arbitration, the insurer shall, 90 days from the date of the initial letter setting forth the need for further time to investigate, and every 90 days thereafter, send to the claimant, or the claimant's authorized representative, a letter setting forth the reasons additional time is needed for investigation. If the claim is accepted, in whole or in part, the claimant, or the claimant's authorized representative, shall be advised in writing of the amount offered. In any case where the claim is rejected, the insurer shall notify the claimant, or the claimant's authorized representative, in writing, of any applicable policy provision limiting the claimant's right to sue the insurer.

(3)(i) Notwithstanding paragraph two of this subdivision, the provisions of this paragraph shall apply to any claim for loss, damage, or liability for loss, damage, or injury, occurring from October 26, 2012 through November 15, 2012 in the counties of Bronx, Kings, Nassau, New York, Orange, Queens, Richmond, Rockland, Suffolk or Westchester, including their adjacent waters, with respect to:

(a) loss of or damage to real property;

(b) loss of or damage to personal property; or

(c) other liabilities for loss of, damage to, or injury to persons or property.

(ii) If the insurer needs more time to determine whether the claim should be accepted or rejected, it shall so notify the claimant, or the claimant's authorized representative, in writing, within 15 business days after receipt of such proof of loss, or requested information. Such notification shall include the reasons additional time is needed for investigation and the anticipated date a determination on the claim will be provided. If the claim remains unsettled, unless the matter is in litigation or arbitration, the insurer shall, 30 days from the date of the initial letter setting forth the need for further time to investigate, and every 30 days thereafter, send to the claimant, or the claimant's authorized representative, a letter setting forth the reasons additional time is needed for investigation and the anticipated date a determination on the claim will be provided. If the claim is accepted, in whole or in part, the claimant, or the claimant's authorized representative, shall be advised in writing of the amount offered. If the insurer rejects a claim subject to clause (a) or (b) of subparagraph (i) of this paragraph, the insurer shall notify the claimant, or the claimant's authorized representative, in writing, of any applicable policy provision limiting the claimant's right to sue the insurer.

(iii) If an insurer has any claim subject to this paragraph under which the claimant, or the claimant's authorized representative, has not been advised in writing of the insurer’s acceptance or rejection of the claim within the time frames specified in paragraph (1) of this subdivision, the insurer shall submit a report to the superintendent in a form acceptable to the superintendent. The insurer shall submit the report each week that the insurer has any such claims. The insurer shall submit the report on the Tuesday of the week, except if that day is a holiday, then the report shall be submitted on the next business day. For each such claim, the insurer shall specify:

(a) the date the loss was alleged to have occurred;

(b) the date the claim was filed with the insurer;

(c) the date a properly executed proof of loss and receipt of all items, statements and forms required by the insurer were received by the insurer;

(d) the alleged estimated amount of the loss;

(e) the reason given for the extension;

(f) the anticipated date a determination will be made on the claim provided to the claimant;

(g) how many extensions have been requested on that claim; and

(h) the zip code where the loss occurred.

This notice is intended

to serve only as an emergency adoption, to be valid for 90 days or less. This rule expires May 26, 2013.

Text of rule and any required statements and analyses may be obtained from:

Joana Lucashuk, New York State Department of Financial Services, 25 Beaver Street, New York, NY 10004, [phone], email: [e-mail]

Regulatory Impact Statement

1. Statutory authority: Sections 202 and 302 of the Financial Services Law and Sections 301, 2601, and 3404(e) of the Insurance Law. Financial Services Law § 202 grants the Superintendent of Financial Services (“Superintendent”) the rights, powers, and duties in connection with financial services and protection in this state expressed or reasonably implied by the Financial Services Law or any other applicable law of this state. Insurance Law § 301 and Financial Services Law § 302 authorize the Superintendent to prescribe regulations interpreting the provisions of the Insurance Law and to effectuate any power granted to the Superintendent under the Insurance Law. Insurance Law § 2601 prohibits an insurer doing business in New York State from engaging in unfair claims settlement practices; sets forth certain acts that, if committed without just cause and performed with such frequency as to indicate a general business practice, constitute unfair claims settlement practices; and imposes penalties if an insurer engages in these acts. Insurance Law § 3404(e) sets forth the form of the standard fire insurance policy (which may be substituted for another policy form provided that, with respect to the peril of fire, terms and provisions are no less favorable to the insured). This form requires an insured to protect the insured’s property from further damage.

2. Legislative objectives: As noted in the Department’s statement in support for the bill that added the predecessor section to Insurance Law § 2601, Section 40-d, to the Insurance Law in 1970 (Chapter 296 of the Laws of 1970), an insurance company’s obligation to deal fairly with claimants and policyholders in the settlement of claims – indeed, its simple obligation to pay claims at all – was solely a matter of private contract law. That left the Department unable to aid consumers and relegated them solely to the courts. There was a wide variety in insurers’ claims practices. Insurance Law § 2601 reflects the Legislature’s concerns with the insurance claims practices of insurers. One particular concern noted by the Department in its memorandum was that insurers often failed to adequately communicate with insureds. In enacting the section, the Legislature authorized the Superintendent to monitor and regulate insurance claims practices in New York and to help ensure that insurers would not engage in unfair claims settlement practices.

3. Needs and benefits: On October 26, 2012, in anticipation of extensive power outages, loss of life and property, and ongoing harm to public health and safety expected to result from then-Hurricane Sandy, Governor Andrew M. Cuomo issued Executive Order 47, declaring a State of Disaster Emergency for all 62 counties within New York State. As anticipated, Storm Sandy struck New York State on October 29, 2012, causing extensive power outages, loss of life and property, and ongoing harm to public health and safety. In addition, a nor’easter struck New York just a week later, adding to the damage and dislocation. Many people still had not had basic services, such as electric power, restored before the second storm hit.

Insurers insuring property in areas that were hit the hardest by the storms, including Long Island and New York City, have not always investigated or resolved all claims, including by deploying insurance adjusters to adjust the claims, in a prompt manner. In addition, even though several months have now passed since the storms, claimants still are filing claims, and many claims previously filed are still pending with insurers. As a result, many homeowners and small business owners have not been able to start to repair or replace their damaged property. It is of the utmost importance that homeowners and small business owners be able to start to rebuild their homes and businesses right away, especially during this winter season.

Therefore, with respect to New York, Bronx, Kings, Richmond, Queens, Nassau, Suffolk, Westchester, Rockland, and Orange, the areas that suffered the greatest storm damage, this rule reduces the number of days within which an insurer must commence an investigation of a claim upon receiving notice of the claim and, if the insurer wishes its investigation to include an inspection of the damaged or destroyed property, requires that the inspection, whether performed by the insurer, an independent adjuster, or other representative of the insurer, occur within the prescribed time frames. In addition, the rule clarifies that, where necessary to protect health or safety, a claimant may commence immediate repairs to heating systems, hot water systems, and necessary electrical connections, as well as to exterior windows, exterior doors, and, for minor permanent repairs, exterior walls, in order to enable property to retain heat. The rule also clarifies that a policyholder may satisfy any policy requirement that the policyholder exhibit the remains of the property by submitting proof of loss documentation of the damaged or destroyed property, including photographs or video recordings; material samples, if applicable; and inventories, as well as receipts for any repairs to or replacement of property. The clarification regarding repairs does not apply to claims made under flood policies issued pursuant to the national flood insurance program.

Furthermore, the rule addresses concerns where claims remain open for an extended period of time. Under existing Insurance Regulation 64, if a claim remains unsettled, an insurer must, every 90 days, send to the claimant, or the claimant’s representative, a letter setting forth the reasons additional time is needed for investigation. This rule requires an insurer to send a claimant a letter every 30 days, rather than 90 days, with regard to any claim for loss, damage, or liability for loss, damage, or injury, occurring from October 26, 2012 through November 15, 2012 in certain counties, thereby providing the claimant with more timely updates. The update shall also indicate the anticipated date that a determination will be provided. If a first-party claim for property damage is rejected, the insurer shall notify the claimant of any applicable policy provision limiting the claimant’s right to sue the insurer. In addition, the rule requires the insurer to file weekly with the Superintendent a report whenever the insurer has not advised the claimant of the insurer’s acceptance or rejection of the claim within 15 days of receipt of proof of loss (or 30 days where the insurer suspects arson.)

4. Costs: This rule does not impose compliance costs on state or local governments. The rule may increase costs for insurers, because they may need to hire additional staff to comply with the reduced time period within which they must commence an investigation. Moreover, insurers will have to provide more frequent updates to claimants and submit a weekly report to the Superintendent if they do not advise a claimant of acceptance or rejection of his or her claim in a timely manner. However, because of the magnitude of the storms and the extraordinary degree of damage, it is hard to quantify the cost impact. This rule should, though, speed up the claims process and thereby may reduce costs for homeowners and small business owners who will be able to repair or replace their damaged or destroyed property sooner.

5. Local government mandates: This rule does not impose any program, service, duty, or responsibility upon any county, city, town, village, school district, fire district, or other special district.

6. Paperwork: If a claim remains unsettled, this rule requires an insurer to send certain claimants in certain counties a letter every 30 days instead of every 90 days, as is currently the case. Further, the rule requires an insurer to submit a weekly report to the Superintendent whenever the insurer has not advised the claimant of the insurer’s acceptance or rejection of the claimant’s claim within 15 days of receipt of proof of loss (or 30 days where the insurer suspects arson). If a first-party claim for property damage is rejected, the insurer shall notify the claimant of any applicable policy provision limiting the claimant’s right to sue the insurer.

7. Duplication: This rule does not duplicate any existing state or federal rule or other legal requirement.

8. Alternatives: The Department considered making this rule applicable to the entire state. However, since the concerns appeared to be localized, the applicability of the amendment is limited to those counties most impacted by the storms.

9. Federal standards: There are no minimum standards of the federal government for the same or similar subject areas. The rule is consistent with federal standards or requirements.

10. Compliance schedule: Insurers must comply with this rule upon the Superintendent’s filing the rule with the Secretary of State.

Regulatory Flexibility Analysis

1. Small businesses: The Department of Financial Services (“Department”) finds that this rule will not impose any adverse economic impact on small businesses and will not impose any reporting, recordkeeping, or other compliance requirements on small businesses. The basis for this finding is that this rule is directed at insurers authorized to do business in New York State, none of which fall within the definition of a “small business” as found in State Administrative Procedure Act § 102(8). The Department has monitored annual statements and reports on examination of authorized insurers subject to this rule, and believes that none of the insurers falls within the definition of “small business” because no insurer is both independently owned and has fewer than 100 employees.

2. Local governments: The rule does not impose any impact, including any adverse impact, or reporting, recordkeeping, or other compliance requirements on any local governments. The basis for this finding is that this rule is directed at authorized insurers, which are not local governments.

Rural Area Flexibility Analysis

1. Types and estimated numbers of rural areas: “Rural areas”, as used in the State Administrative Procedure Act (“SAPA”) § 102(10), means the counties within the state having less than 200,000 population, and the municipalities, individuals, institutions, communities, programs and such other entities or resources as are found therein. In counties with a population of 200,000 or greater, “rural areas” means towns with population densities of 150 persons or less per square mile, and the villages, individuals, institutions, communities, programs, and such other entities or resources as are found therein. While insurers affected by this rule may be headquartered in rural areas, the rule itself applies only within the counties of New York, Bronx, Kings, Richmond, Queens, Nassau, Suffolk, Westchester, Rockland, and Orange. None of these counties are rural areas, and the Department does not believe that there are any towns within any of those counties that would be considered to be rural areas within the SAPA definition.

2. Reporting, recordkeeping and other compliance requirements, and professional services: The rule would not impose any additional reporting or recordkeeping requirements in rural areas. However, the rule would impose other compliance requirements on insurers that may be headquartered in rural areas by reducing the number of days within which an insurer must commence an investigation of a claim upon receiving notice of the claim and, if the insurer wishes its investigation to include an inspection of the damaged or destroyed property, by requiring that the inspection, whether performed by the insurer, an independent adjuster, or other representative of the insurer, occur within the prescribed time frames. In addition, if a claim remains unsettled, this rule requires an insurer to send certain claimants in certain counties a letter every 30 days instead of every 90 days, as is currently the case. In addition, if a first-party claim for property damage is rejected, the insurer shall notify the claimant of any applicable policy provision limiting the claimant’s right to sue the insurer. Further, the rule requires an insurer to submit a weekly report to the Superintendent whenever the insurer has not advised the claimant of the insurer’s acceptance or rejection of the claimant’s claim within 15 days of receipt of proof of loss (or 30 days where the insurer suspects arson).

It is unlikely that professional services would be needed in rural areas to comply with this rule.

3. Costs: The rule may result in additional costs to insurers headquartered in rural areas, because they may need to hire additional staff to comply with the reduced time period within which they must commence an investigation. Moreover, insurers will have to provide more frequent updates to claimants and submit a weekly report to the Superintendent if they do not advise a claimant of acceptance or rejection of his or her claim in a timely manner. As a result of the magnitude of the storms and the extraordinary degree of damage, it is hard to quantify the cost impact. However, this rule should speed up the claims process and thereby may reduce costs for homeowners and small business owners who will be able to repair or replace their damaged or destroyed property sooner.

4. Minimizing adverse impact: The Department of Financial Services considered the approaches suggested in SAPA § 202-bb(2) for minimizing adverse economic impacts. Since the public health, safety, or general welfare has been endangered, establishment of differing compliance or reporting requirements or timetables based upon whether a claimant is in a rural area is not appropriate. However, the rule applies only in the counties of New York, Bronx, Kings, Richmond, Queens, Nassau, Suffolk, Westchester, Rockland, and Orange, the areas that suffered the greatest storm damage, and thus the impact of the rule on rural areas is minimized, since none of those counties are rural areas.

5. Rural area participation: Due to the short timeframe to promulgate the amendment, participation with the industry was limited to discussion of the provisions of the amendment with industry trade groups. Public and private interests in rural areas will have a fuller opportunity to participate in the rule making process once the rule is published in the State Register and posted on the Department’s website.

Job Impact Statement

The Department of Financial Services (“Department”) finds that this rule will not have any substantial adverse impact on jobs and employment opportunities. This rule reduces the number of days within which an insurer must commence an investigation of a claim upon receiving notice of the claim, and, where necessary to protect health or safety, permits a claimant to commence immediate repairs to certain of the claimant’s property without awaiting an inspection. The rule also reduces from every 90 days to every 30 days the time within which an insurer must send to a claimant or the claimant’s authorized representative the reasons additional time is needed for investigation, if the claim remains unsettled, and requires an insurer to file a weekly report with the Superintendent if the insurer has not notified the claimant of the insurer’s acceptance or rejection of the claimant’s claim within 15 days of receipt of proof of loss (or 30 days where the insurer suspects arson).

The Department does not believe that this rule will have any substantial adverse impact on jobs and employment opportunities, including self-employment opportunities.