PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:
Proposed Action:
Amendment of Subpart 65-4 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 proposed 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] and 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)).
Text of proposed rule and any required statements and analyses may be obtained from:
Camielle Barclay, New York State Department of Financial Services, One State Street, New York, NY 10004, (212) 480-5299, email: camielle.barclay@dfs.ny.gov
Data, views or arguments may be submitted to:
Same as above.
Public comment will be received until:
45 days after publication of this notice.
This rule was not under consideration at the time this agency submitted its Regulatory Agenda for publication in the Register.
Regulatory Impact Statement
1. Statutory authority: Sections 202 and 302 of the Financial Services Law, and Sections 301 and 5221 and Article 51 of the Insurance Law.
Financial Services Law Section 202 establishes the office of the Superintendent of Financial Services (“Superintendent”).
Financial Services Law Section 302 and Insurance Law Section 301 authorize the Superintendent to effectuate any power accorded by, and prescribe regulations interpreting, the Financial Services Law, Insurance Law, or any other applicable law.
Insurance Law Section 5221 specifies the duties and obligations of the Motor Vehicle Accident Indemnification Corporation with respect to the payment of no-fault benefits to qualified persons.
Article 51 of the Insurance Law governs the no-fault insurance system.
2. Legislative objectives: Article 51 of the Insurance Law is popularly referred to as the “no-fault law.” No-fault legislation was introduced to rectify problems that were inherent in the existing tort system, under which injured parties had sought claims settlement and the prompt payment of health care and loss of earnings benefits. Insurance Law § 5106(a) was enacted as part of that measure, and it provides, in material part, that a no-fault insurance “claimant shall also be entitled to recover his attorney’s reasonable fee, for services necessarily performed in connection with securing payment of the overdue claim, subject to limitations promulgated by the superintendent in regulations.”
3. Needs and benefits: The current regulation: (1) imposes a $60 minimum fee to be awarded to an attorney who prevails in court or at arbitration; (2) limits the attorney fee to either $60 or $80 during the conciliation phase of the arbitration process; and (3) generally limits the fee to be awarded to an attorney who prevails in court or at arbitration to $850, all of which encourages attorneys for applicants (generally, health service providers who have obtained assignments from insureds) to unbundle disputed claims in court and arbitration filings and discourages them from consolidating disputed claims whenever feasible. Revising the current regulation is thus necessary to curtail the increase in filings of low monetary value claims in court and arbitration proceedings. To that end, the proposed amendment: (1) eliminates the $60 minimum attorney’s fee; (2) eliminates the $60-or-$80 attorney-fee limit that applies during the conciliation phase of the arbitration process; and (3) increases the maximum fee to be awarded to an attorney who prevails in court or at arbitration to $1,360. These changes to the current fee structure should reduce the backlog of pending lawsuits and arbitrations by creating a more expeditious process to resolve disputes. The amendment should also reduce no-fault fraud and abuse by making billing practices more transparent, because when an action is consolidated, multiple services billed by a health service provider will be presented in a single legal action, allowing the finder of fact in arbitration or court to identify any questionable billing patterns, whereas with separate legal proceedings, billed services are spread out among multiple arbitrators or judges, making fraudulent and abusive billing more difficult to detect.
Additionally, the amendment removes the reference to the Department of Financial Services (“Department”) from proposed section 65-4.6(f) (current section 65-4.6(g)), because disputes involving overdue or denied claims are administered by an organization designated by the Superintendent as set forth in 11 NYCRR 65-4.2.
4. Costs: This rule should have no cost impact on applicants, applicants’ attorneys, insurers, self-insurers, or state and local governments. The Department expects that the amendment to the rule’s attorney-fee structure will incentivize attorneys to consolidate no-fault actions, and therefore reduce costs associated with multiple filings and backlog of pending lawsuits and arbitrations. The Department thus anticipates that no insurer subject to the rule, if any, or self-insurer will experience a cost increase as a result of this amendment, because any increase in attorneys’ fees is likely to be mitigated by the savings caused by the consolidation of legal proceedings.
5. Local government mandates: This rule does not impose any requirement upon a city, town, village, school district, or fire district. However, local governments who are self-insurers are subject to this amendment’s revised attorney-fee provisions when disputed claims are awarded to applicants by arbitrators and courts.
6. Paperwork: This amendment does not impose any additional paperwork on any persons affected by the rule. By encouraging applicants’ attorneys to consolidate disputes whenever feasible, this amendment should result in a reduction of disputed claims filings in courts and arbitrations and thus the generation of less paperwork.
7. Duplication: This rule will not duplicate any existing state or federal rule.
8. Alternatives: The Superintendent carefully evaluated the written comments made by various stakeholders in response to the Department’s publication in the State Register on August 21, 2013 of the rule’s current attorney-fee provisions, which were published in order to solicit comments. Listed below, by topic, is a summary of alternatives to the proposed rule that the Superintendent considered.
Providers and their attorneys asserted that the $60 minimum fee, prescribed in 11 NYCRR Section 65- 4.6(c), awarded to an attorney who prevails in court or at arbitration is unreasonably low. Some commentators suggested an increase in the minimum fee to a level between $120 and $200, while others recommended an increase to $250. Two insurers and a trade organization representing property/casualty insurers recommended that the regulation be amended to require providers and their attorneys to file only one action for all disputed claims that arise out of the same accident and involve the same injured person. One of those insurers also recommended that the amendment impose a limit of one attorney’s fee award per arbitration or lawsuit, regardless of the number of healthcare providers involved in the dispute.
The Superintendent disagrees that the $60 minimum attorney’s fee should be increased. The proponents of such an increase failed to support their position that an increase would result in the prompt resolution of claims at arbitration and in court. The Superintendent also rejects the recommendation to limit the number of actions that a healthcare provider may commence, because to do so would violate Insurance Law Section 5106(b), which grants an applicant the option to bring any dispute to arbitration, and deprive providers of due process.
One provider’s attorney proposed that the maximum attorney’s fee that applies during the conciliation phase of an arbitration process should be increased to $400. Several providers’ attorneys also recommended eliminating the lower attorney’s fees that are awarded during the conciliation phase, and applying the minimum and maximum attorney’s fees that are permitted during the arbitration phase.
The Superintendent proposes that the maximum attorney’s fee during the conciliation phase be made equivalent to the maximum attorney’s fee during the arbitration phase to curtail the increase in filings of low monetary value claims in court and arbitration. The American Arbitration Association submitted persuasive arguments for making such a change: (1) as a result of a regulatory revision made ten years ago requiring early submission of case documents and legal arguments in arbitration (the “rocket docket” phase) and the need to fulfill any additional requirements set forth on the arbitration request form, 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; (2) eliminating the current maximum attorney’s fee would eliminate the disparity in attorneys’ fees awarded in court as opposed to arbitration; and (3) providers’ attorneys no longer would have an incentive to avoid settlement during conciliation solely to obtain higher attorney fee awards at arbitration.
Several providers and their attorneys recommended that the first party benefits plus interest awarded as attorney’s fees in no-fault disputes pursuant to 11 NYCRR Section 65 4.6(e) should be increased from the prescribed 20 percent to 40 percent, subject to a maximum of $2,500, rather than the currently prescribed $850 maximum. An attorney suggested that the maximum fee should be increased to $1,950, and another attorney recommended an increase to $2,000. A provider’s attorney recommended increasing the maximum fee to $1,650 and adding a $130 appearance fee, provided that an attorney be given the option of pursuing attorney’s fees pursuant to either 11 NYCRR Section 65-4.6(e) or 11 NYCRR Section 65-4.6(d), which currently prescribes an hourly rate of $70, subject to a maximum fee of $1,400, for arbitrating or litigating a coverage dispute. An insurer suggested increasing the maximum fee set forth in 11 NYCRR Section 65-4.6(e) from $850 to $1,500 to encourage providers’ attorneys to consolidate disputed claims into single actions, but only for those actions that meet an amount-in-dispute threshold of $7,500 or more. All of the other insurers and a trade association representing property/casualty insurers strongly opposed any increase in the maximum attorney’s fee.
Increasing the maximum fee set forth in 11 NYCRR Section 65-4.6(e) to $1,360 should sufficiently address the concerns expressed by providers and their attorneys and motivate them to consolidate disputes wherever feasible. Any increase in the percentage of fees prescribed by 11 NYCRR Section 65-4.6(e) would be unreasonable, because such an increase would discourage providers’ attorneys from consolidating disputed claims into single actions. Additionally, attorneys should not be given the option of pursuing fees under either 11 NYCRR Section 65-4.6(d) or 11 NYCRR Section 65-4.6(e), because 11 NYCRR Section 65-4.6(d) applies to adjudication of coverage disputes that generally involve complex legal issues requiring more preparation and appearances than the typical no-fault dispute, which is subject to 11 NYCRR Section 65-4.6(e).
9. Federal standards: There are no minimum federal standards for the same or similar subject areas. The rule is consistent with federal standards or requirements.
10. Compliance schedule: The amendment will take effect upon publication of the Notice of Adoption in the State Register.
Regulatory Flexibility Analysis
1. Effect of the rule: This amendment affects no-fault insurers authorized to do business in New York State and self-insurers of no-fault benefits. The Department is not aware of any insurer writing automobile liability insurance and required to comply with no-fault provisions that is a “small business” as defined in State Administrative Procedure Act Section 102(8) as being both independently owned and having less than one hundred employees. The Department of Financial Services (“Department”) does not have any information to indicate that any self-insurer, which must have the financial ability to self-insure losses, is a small business as defined in State Administrative Procedure Act Section 102(8).
Local government units make independent determinations on the feasibility of becoming self-insured for no-fault benefits or having these benefits provided by authorized insurers. There are no provisions in the State’s financial security laws that require local governments to report to the Departments of Financial Services or Motor Vehicles whether they are self-insured. Therefore, the Department has no way of estimating how many local government units are self-insured for no-fault benefits.
Small businesses that may be impacted by this rule include health service providers, who frequently are no-fault applicants having obtained assignments from insureds, and their attorneys. Their participation in the no-fault system, however, is optional and the Department has established no preauthorization or reporting requirements with respect to these small businesses. Furthermore, because the Department does not maintain records of the number of health service providers licensed in this state, the number of such applicants actually providing services to injured persons eligible for no-fault benefits, or the number of attorneys that represent such applicants in no-fault disputes, the Department is not able to estimate the number of health service providers that will be affected by this rule. However, the proposed rule only revises the fee structure pertaining to fees that are awarded to attorneys that prevail in no-fault disputes on behalf of applicants.
2. Compliance requirements: The proposed amendment should not have any impact on compliance requirements for small businesses or local governments affected by the amendment because the amendment only revises the fee structure pertaining to fees that are awarded to attorneys when an applicant prevails in a no-fault dispute.
3. Professional services: This amendment does not require any small business or local government affected by the amendment to use any professional services beyond those currently used to comply with this rule.
4. Compliance costs: The proposed amendment should have no impact on compliance costs for small businesses or local governments affected by this amendment because the amendment only revises the fee structure pertaining to fees awarded to attorneys that prevail in no-fault disputes on behalf of applicants. The Department expects that the amendment to the rule’s attorney-fee structure will incentivize attorneys to consolidate no-fault actions, and therefore reduce costs associated with multiple filings and backlog of pending lawsuits and arbitrations. The Department thus anticipates that no small business subject to the rule, if any, or local government that self-insures no-fault benefits will experience a cost increase as a result of this amendment, because any increase in attorneys’ fees is likely to be mitigated by the savings caused by the consolidation of legal proceedings.
5. Economic and technological feasibility: Small businesses and local governments affected by this amendment should not incur any economic or technological impact as a result of this amendment, because the amendment does not impact the economy or require the use of technology.
6. Minimizing adverse impact: This rule should have no adverse impact on small businesses or local governments affected by this amendment because the amendment only revises the fee structure pertaining to fees that are awarded to attorneys when an applicant prevails in a no-fault dispute. As explained in item 4. above, the Department anticipates that no small business subject to the rule, if any, or local government that self-insures no-fault benefits will experience any cost increase as a result of this amendment.
7. Small business and local government participation: Interested parties, including small businesses and local governments, were given an opportunity to review and comment on certain current attorney’s fee provisions of the no-fault regulation when the Department published such provisions in the State Register on August 21, 2013 for the purpose of soliciting their comments.
Rural Area Flexibility Analysis
1. Types and estimated number of rural areas: Applicants (generally, health service providers who have obtained assignments from insureds), applicants’ attorneys, insurers, and self-insurers affected by this amendment do business in every county in this state, including rural areas as defined in State Administrative Procedure Act Section 102(10).
2. Reporting, recordkeeping and other compliance requirements: The proposed amendment will not impose any reporting, recordkeeping or other compliance requirements on any applicant, applicant’s attorney, insurer, or self-insurer located in a rural area.
3. Costs: This amendment should not impose any additional costs on any applicant, applicant’s attorney, insurer, or self-insurer located in a rural area. The Department expects that the amendment to the rule’s attorney-fee structure will incentivize attorneys to consolidate no-fault actions, and therefore reduce costs associated with multiple filings and backlog of pending lawsuits and arbitrations. The Department thus anticipates that no insurer subject to the rule, if any, or self-insurer will experience a cost increase as a result of this amendment, because any increase in attorneys’ fees is likely to be mitigated by the savings caused by the consolidation of legal proceedings.
4. Minimizing adverse impact: This amendment does not impose any adverse impact on rural areas, because it only revises the structure of fees that are awarded to attorneys who prevail in no-fault disputes on behalf of applicants. As explained in item 3. above, the Department anticipates that no insurer subject to the rule, if any, or self-insurer will experience any cost increase as a result of this amendment.
5. Rural area participation: Interested parties, including those located in rural areas, were given an opportunity to review and comment on certain current attorney’s fee provisions of the no-fault regulation when the Department published such provisions in the State Register on August 21, 2013 for the purpose of soliciting their comments.
Job Impact Statement
The proposed rule should have no adverse impact on jobs or employment opportunities in this state, because it only revises the structure of fees that are awarded to attorneys who prevail in no-fault disputes on behalf of applicants (generally, health service providers who have obtained assignments from insureds).
