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Health Care Reform Primer: Independent Payment Advisory Board (Part 1)

It has been months since I added anything new to the health care reform primer. I covered virtually all of the insurance-related provisions last year, and the remainder of the Patient Protection and Affordable Care Act, while still important, is less relevant to IIABNY members. However, one of my original reasons for doing this series of posts was to combat the spread of misinformation about the law. I still feel that, while reasonable people may support it or despise it, they should take those positions based on what is actually in the law's text, not on what talk radio or letters to the editor say.

One provision that has been the source of frequent criticism is the creation of an Independent Payment Advisory Board (IPAB). The IPAB has been referred to as "the real death panel, the true seat of rationing, and the royal road to health-care socialism." Others have called it "the most promising cost control in the Affordable Care Act..." The rapid rise of health care costs is one of the problems the PPACA is supposed to address. So, is the IPAB part of the solution, or is it the first slide down the slippery slope of health care rationing? 

In this series of blog posts, I will summarize what the law says and leave it to you to decide whether this is good or bad. I expect that readers will differ on their conclusions, but at least you will know what the facts (as reflected in the law's text) are. For reference, all provisions relating to IPAB are in Title 42 of the United States Code, Section 1395kkk. 

What is the IPAB?

The IPAB is an independent board within the federal government charged with developing and submitting proposals containing recommendations to reduce the growth rate in per capita Medicare costs in any year in which the projected growth rate exceeds a target rate. (see subsection (b))

Who will sit on the IPAB?

The IPAB will have 15 members, nominated by the president and subject to confirmation by the Senate. The secretary of Health and Human Services, the administrator of the Center for Medicare & Medicaid Services, and the adminstrator of the Health Resources and Services Administration will be non-voting members. The members must have national recognition for their expertise in:

• Health finance and economics
• Actuarial science
• Health facility management
• Health plans and integrated delivery systems
• Reimbursement of health facilities

Other qualified individuals include allopathic and osteopathic physicians, other health service providers, those in related fields, "who provide a mix of different professionals, broad geographic representation, and a balance between urban and rural representatives." Health service providers cannot make up the majority of the board members.

Members will serve six-year terms and may serve up to two consecutive full terms. The chair of the board is also subject to confirmation by the Senate. (All of this is in subsection (g))

What power does the IPAB actually have? That's the subject of tomorrow's post.

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Employers Liability Coverage is Unlimited in New York, Except When It's Not

Question from an IIABNY member: When a certificate lists employers liability at :

• 100,000 each accident
• 500,000 policy limit
• 100,000 each employee

I always tell insured that in New York Employers liability is unlimited per the statute. Do you have something that proves this?

Answer: This is actually a little complicated because there isn’t a statute that mandates this. It’s more of a longstanding tradition. Also, the EL limits on the dec page may actually apply in certain circumstances. 

There is a 1988 New York Insurance Department advisory legal opinion on this topic. The last opinion the department issued on this was in 1990, and I think the 1988 opinion provides a better explanation. The attorney wrote in part: 

The workers' compensation carrier must "pay all sums" that the insured employer is legally obligated to pay third parties with respect to an employee's injuries which arose out of and in the course of employment, provided that, both the insured employer and the employee are subject to the New York State Workers' Compensation Law. [EMPHASIS ADDED]

The workers' compensation carrier may not impose any limit of liability for compensable injuries. The unlimited liability language of the New York Workers' Compensation Policy has been in effect for more than 40 years. The New York State Department of Insurance has never approved a workers' compensation policy form that would impose a limit on a carrier's liability for a compensable injury which includes the employer's liability. It is interesting to note that, the unlimited coverage for liability contained within Coverage B is a continuation of the coverage prevalent at the time the standard compensation policy was revised in New York in 1954. The concept of unlimited liability coverage originated in the insurance industry and was accepted by the Insurance Department when workers' compensation policy forms were submitted to the Superintendent of Insurance for approval.

Therefore, EL coverage is unlimited with regard to injuries and employments that are subject to the New York Workers’ Compensation Law. For example, a worker is in a scissor lift installing overhead piping when the lift collapses. He collects WC benefits but also sues the lift’s manufacturer, who in turn sues the employer, alleging improper use or maintenance. The employer’s EL coverage is unlimited for this loss because the injury and employment are compensable under the New YorkWC law.

In contrast, a worker borrows a power saw without permission from his employer because the motor burned out on his own saw. While at home on a weekend, he amputates a finger when the guard on the saw falls off. He sues the saw’s manufacturer, who sues the employer, again alleging faulty maintenance. Because this injury is probably not compensable under the New York WC law, the EL coverage is subject to the limits shown on the dec page.

Another example: Recently, a public school teacher near here got burned when his science experiment in the classroom went wrong. Put him in private school. If he sued the manufacturers of the equipment and supplies used in the experiment, and those entities in turn sued the private school, the EL limits on the school's WC policy would apply, because “people engaged in a teaching capacity in or for a nonprofit…educational institution” are not covered by the NY WC law while “performing teaching duties.” 

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When Is a Home 'Unoccupied' Under a Homeowners Policy?

Question from an IIABNY member: In a strict reading on the homeowners policy, after a period of the home not being occupied, coverage becomes limited. The question came up on clients who leave their summer homes in New York to go to their winter residence, such as in Florida. We have a disagreement in our office as to whether the summer home would be considered unoccupied under the policy. Is there a clear answer to this?

Answer: I found a 1999 New York appellate court decision that appears to address your question. In McCabe v. Allstate, which pertained to a seasonal home located in Saratoga County, the judge wrote: 

We next review Allstate's contention that it was entitled to summary judgment due to the following loss exclusion: "Freezing of plumbing, fire protective sprinkler systems, heating or air conditioning systems or household appliances, or discharge, leakage or overflow from within the systems or appliances caused by freezing, while the building structure is vacant, unoccupied or being constructed unless you have used reasonable care to: (a) maintain heat in the building structure; or (b) shut off the water supply and drain the system and appliances." We find plaintiffs' assertion that their house was not "unoccupied" in light of their continuing, albeit seasonal use of the premises, to be unavailing. Inasmuch as plaintiffs' primary residence was in Virginia and they concede that no one resided at or visited the house in Edinburg from September 1995 until March 1996, their claim falls squarely within the exclusion provision. This Court has previously determined that use of the word "unoccupied" in an insurance policy carries its ordinarily accepted meaning and that "[i]t is the regular presence of inhabitants that makes occupancy" (Coutu v Exchange Ins. Co., 174 AD2d 241, 244; see, Page v Nationwide Mut. Fire Ins. Co., 15 AD2d 306, 306-307). [EMPHASIS ADDED]

This decision has been cited by a federal court as recently as 2009, so it appears to still be a valid precedent. Consequently, it appears that the coverage limitations do apply to a home in New York that is unoccupied during the winter months.

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When a Carrier Terminates an Agency: Personal Lines Policies

Question from an IIABNY member: Can you please indicate where it is stated that an insured can request a one more year renewal for an automobile insurance policy after the required three successive one year policy periods, and if it also applies to personal lines insurance policies?

Answer: That’s not exactly what the law says. New York Insurance Law Section 3425(j)(1) states:

Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:…

(B) with respect to an automobile insurance policy subject to this section, the insurer shall offer to continue the policy for any remaining part of the required policy period and, unless the policy is cancelled or non-renewed in accordance with the provisions of either subsection (b), (c) or (f) of this section, it shall, at the specific request of the insured, offer to continue the policy through the terminated agent or broker for three successive one year policy periods which commence within the year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account;

As a side note: 

• Subsection (b) permits the insurer to cancel a policy for any reason in the first 60 days.
• Subsection (c) permits the insurer to cancel after day 60 and on renewals for non-payment of premium; suspension or revocation during the required policy period of the driver's license of the named insured or any other person who customarily operates an auto insured under the policy; and discovery of fraud or material misrepresentation in obtaining the policy or in making a claim under it.
• Subsection (f) permits the insurer to non-renew up to two percent of its auto policies in a given rating territory per calendar year.

What the above provision of the law is saying is that the insurer must offer to finish the auto policy’s required policy period (which is one year – see subsection (a)(8),) and, if the insured requests, offer to renew the policy through the terminated agent for three consecutive one-year policy periods. Here’s an example to illustrate:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Personal Auto Policy finishes the one-year required policy period on March 1, 2012

The carrier must offer to continue coverage under the policy until March 1, 2012. In addition, if the insured requests, it must offer to renew the policy through the terminated agent in 2012, 2013 and 2014. Effective March 1, 2015, it no longer has any obligation to offer a renewal.

With non-auto personal policies, it’s a bit different. The law states:

Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated:(A) with respect to a personal lines insurance policy required to be continued by this section, the insurer shall offer to continue the policy for any remaining part of the required policy period … and the insurer shall offer to continue the policy through the terminated agent or broker for at least its next one year policy period which commences within one year following the date of mailing or delivery to the terminated agent or broker of written notice of termination of such contract or account, and thereafter, at the specific request of the insured, shall offer to continue the policy through such terminated agent or broker for any remaining part of the required policy period …

Here are two illustrations (in more understandable English) to show what this means. First:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Homeowners policy was written new on March 1, 2009, so the three-year required policy period (see subsection (a)(7)) ends on March 1, 2012.

The carrier must offer to continue coverage under the policy until March 1, 2012, it must offer to renew the policy through the terminated agent for the 2012-13 policy period, and, if the insured requests, must offer to renew the policy through the terminated agent for 2013 and 2014. Effective March 1, 2015, it has no obligation to offer a renewal.

Second scenario:

• Carrier notifies agent on Dec. 16, 2011 that the appointment is terminated
• Homeowners policy was written new on March 1, 2010, so the three-year required policy period (see subsection (a)(7)) ends on March 1, 2013.

The carrier must offer to continue coverage under the policy until March 1, 2013, but it has no obligation to offer to renew the policy through the terminated agent after that. This is because the three-year required policy period ends more than a year after the carrier notified the agent of termination.

The rules surrounding a carrier's obligations to insureds when it terminates an agent are complex, but they boil down to when the carrier notifies the agent and when a policy expires.

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Ask Tim, Episode #31 -- Conditional Renewal Notices

In today's episode of the Ask Tim podcast, I take a look at the requirements in New York Insurance Law Section 3426 regarding when insurance carriers have to send conditional renewal notices on commercial lines policies. Also, a generous IIABNY colleague buys me lunch. Here are the highlights:

Carriers must send conditional renewal notices on some commercial lines policies to the first-named insured, at the address shown on the policy, and to the insured's authorized agent or broker. They must send a notice if they are conditioning renewal upon:

• Change of limits
• Change in type of coverage
• Reduction of coverage
• Increased deductible
• Addition of exclusion
• Some premium increases in excess of 10 percent

Future episodes will explore Section 3426 in more detail. 

Download Episode 31 of Ask Tim

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Coordinating Flood Insurance Deductibles

Last winter, I got a call from an IIABNY member who had a commercial client with flood damage from Tropical Storm Irene. This client, despite not being in a flood zone, had purchased both private flood insurance (an endorsement to a Package policy) and coverage from the National Flood Insurance Program. This turned out to be a very good decision. However, the Package carrier was claiming that the client should pay "stacked" deductibles; that is, the private insurance deductible should be added to the NFIP deductible. Since both of these deductibles were quite large, the member wanted to know if this was true. The following is the text of my email back to him.

Answer: Following up on our phone conversation yesterday, I disagree with the Package carrier’s contention that two deductibles should apply to your client’s flood loss.

The NFIP General Property Form states:

C. Other Insurance 

1. If a loss covered by this policy is also covered by other insurance that includes flood coverage not issued under the Act, we will not pay more than the amount of insurance that you are entitled to for lost, damaged, or destroyed property insured under this policy subject to the following: 

a. We will pay only the proportion of the loss that the amount of insurance that applies under this policy bears to the total amount of insurance covering the loss, unless C.1.b. or c. immediately below applies. 

b. If the other policy has a provision stating that it is excess insurance, this policy will be primary. 

c. This policy will be primary (but subject to its own deductible) up to the deductible in the other flood policy (except another policy as described in C.1.b. above). When the other deductible amount is reached, this policy will participate in the same proportion that the amount of insurance under this policy bears to the total amount of both policies, for the remainder of the loss. 

The ISO Commercial Property Conditions endorsement (CP 00 90 07 88) states:

G. OTHER INSURANCE

1. You may have other insurance subject to the same plan, terms, conditions and provisions as the insurance under this Coverage Part. If you do, we will pay our share of the covered loss or damage. Our share is the proportion that the applicable Limit of Insurance under this Coverage Part bears to the Limits of Insurance of all insurance covering on the same basis.

2. If there is other insurance covering the same loss or damage, other than that described in 1. above, we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether you can collect on it or not. But we will not pay more than the applicable Limit of Insurance.

The Deductible provision in the ISO Building and Personal Property Coverage Form (CP 00 10 06 07) states:

D. Deductible

In any one occurrence of loss or damage (hereinafter referred to as loss), we will first reduce the amount of loss if required by the Coinsurance Condition or the Agreed Value Optional Coverage. If the adjusted amount of loss is less than or equal to the Deductible, we will not pay for that loss. If the adjusted amount of loss exceeds the Deductible, we will then subtract the Deductible from the adjusted amount of loss, and will pay the resulting amount or the Limit of Insurance, whichever is less.

The NFIP’s coverage is directly dependent on the private flood coverage. If the Package policy says that its flood coverage is excess, then NFIP is primary, but only up to the amount of the Package policy’s deductible. Once it meets that deductible, coverage switches to pro-rata. To illustrate, assume an NFIP policy with a $100,000 limit and a $10,000 deductible, and a commercial package policy that covers flood with a $500,000 limit and a $25,000 deductible. The insured suffers a loss valued at $250,000. Based on the terms in the NFIP policy, here’s how the two carriers should share the loss: The insured pays the first $10,000 (the NFIP deductible) and NFIP pays the next $25,000 (the Package policy deductible). The remaining amount of the loss is $215,000 ($250,000 minus $35,000.) The combined flood limit equals $600,000 ($100,000 NFIP, $500,000 Package), so NFIP pays 1/6 of the balance and the Package pays 5/6. Using this formula, the final loss sharing looks like this:

Insured’s deductible	$10,000
NFIP	$60,833 ($25,000 plus [$215,000 multiplied by 1/6])
Package	$179,167 ($215,000 multiplied by 5/6)
TOTAL	$250,000

In this example, the Package carrier pays only $179,167, whereas it would have paid $225,000 if there was no NFIP policy. I forget the dollar amounts of your claim situation, but the math is the same. In any case, I believe that only one deductible applies – the NFIP policy deductible. As an aside, it seems to me that the neatest solution to this is to make the Package deductible equal to the NFIP limit, assuming that the Package carrier will offer that.

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Can an Insurer Deny a Claim Because of an Undisclosed Driver?

Question from an IIABNY member: We just had a carrier ask us to have our client sign an acknowledgement that all drivers are listed on the policy. We’ve never seen this before. Have you?  Do you feel that the carrier could deny a claim if a driver is not listed?  Also, what if we don’t return the form? Is that legal reason to cancel the insurance?  I would doubt it.  Please see the attached and let me know what you think. 

Answer: I’ve never seen this before, and it’s interesting the way they’ve phrased it: Using unlisted drivers “may cause coverage disputes.” Here are my thoughts:

• Unless there’s an endorsement to the Business Auto Policy listing all drivers by name, there is no such thing as listing drivers on a policy. The carrier may have a list of drivers in its underwriting file, but that’s not the same as listing drivers on the policy.
• The New York Department of Financial Services (formerly the Insurance Department) has been very clear in the past that it considers “named driver exclusions” that exclude coverage required by law to be against public policy. In other words, a named driver exclusion applying to liability, PIP or UM will not hold up, but an exclusion applying to collision probably will. However, the department has said that the carrier should have the insured sign the exclusion to signify understanding.
• New York insurance law limits the reasons for which a carrier can cancel a commercial auto policy midterm. NY Insurance Law Section 3426(c) states:

After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

(A) nonpayment of premium provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

(B) conviction of a crime arising out of acts increasing the hazard insured against;

(C) discovery of fraud or material misrepresentation in the obtaining of the policy or in the presentation of a claim thereunder;

(D) after issuance of the policy or after the last renewal date, discovery of an act or omission, or a violation of any policy condition, that substantially and materially increases the hazard insured against, and which occurred subsequent to inception of the current policy period;

(E) material physical change in the property insured, occurring after issuance or last annual renewal anniversary date of the policy, which results in the property becoming uninsurable in accordance with the insurer's objective, uniformly applied underwriting standards in effect at the time the policy was issued or last renewed; or material change in the nature or extent of the risk, occurring after issuance or last annual renewal anniversary date of the policy, which causes the risk of loss to be substantially and materially increased beyond that contemplated at the time the policy was issued or last renewed;

(F) a determination by the superintendent that continuation of the present premium volume of the insurer would jeopardize that insurer's solvency or be hazardous to the interests of policyholders of the insurer, its creditors or the public;

(G) a determination by the superintendent that the continuation of the policy would violate, or would place the insurer in violation of, any provision of this chapter; or

(H) where the insurer has reason to believe, in good faith and with sufficient cause, that there is a probable risk or danger that the insured will destroy, or permit to be destroyed, the insured property for the purpose of collecting the insurance proceeds, provided, however, that:

(i) a notice of cancellation on this ground shall inform the insured in plain language that the insured must act within ten days if review by the department of the ground for cancellation is desired pursuant to item (iii) of this subparagraph (H);

(ii) notice of cancellation on this ground shall be provided simultaneously by the insurer to the department; and

(iii) upon written request of the insured made to the department within ten days from the insured's receipt of notice of cancellation on this ground, the department shall undertake a review of the ground for cancellation to determine whether or not the insurer has satisfied the criteria for cancellation specified in this subparagraph; if after such review the department finds no sufficient cause for cancellation on this ground, the notice of cancellation on this ground shall be deemed null and void.

(2) With respect to that portion of a covered policy providing motor vehicle coverage, in addition to the basis for cancellation set forth in paragraph one of this subsection, suspension or revocation during the required policy period of the driver's license of any person who continues to operate a motor vehicle insured under the policy, other than a suspension issued pursuant to subdivision one of section five hundred ten-b of the vehicle and traffic law or one or more administrative suspensions arising from the same incident which has or have been terminated prior to the effective date of cancellation.

With regard to an undisclosed driver, paragraph (1)(D) might apply. Paragraph (2) would apply if an undisclosed driver also does not have a valid license. In either of these cases, the carrier would have to pay the claim but could then legally cancel the policy. I don’t see where failure to return the form would fit within any of these reasons unless the carrier actually inserts that requirement into the policy conditions.

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Ask Tim, Episode #30: Employees' Autos

It's St. Patrick's Day here at the Geek Cave, and I raise a mug of green tea (seriously, it was just tea, unfortunately) for episode #30 of Ask Tim. In this episode, I talk about when employees use their own cars on company business. Key points:

• The employee's personal auto policy provides primary liability coverage for both the employee and employer
• The employee's limits may not be adequate to cover the loss
• The employer's auto policy will provide excess coverage for the employer but not the employee
• To protect their employees, businesses should consider adding the Employees As Insureds endorsement to their auto policies.
• More information is in the IIABNY Research Library under Auto Insurance Issues.

Remember, if you go to a parade tomorrow, and you see St. Patrick, and he sees his shadow, it means we get six more weeks of winter. I think.

Download Ask Tim Episode #30

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Can an Insurance Agent Decline to Place Coverage for Someone?

Question from an IIABNY member: We have had a client in the past couple of years cancel for nonpayment on his auto policy. The last two times were for not sufficient funds. He doesn’t qualify for any of our standard markets due to the payment history. If one of the nonstandard companies would take him back, are we obligated to write him again, or can we tell him no, due to his past payment history with our agency?

Answer: Unless you’ve signed a contract with the client promising to obtain insurance for him, you have no legal obligation to continue your business relationship with him. The New York Insurance Department (now the Department of Financial Services) issued a 2006 advisory legal opinion stating:

The Department’s longstanding position is that a broker may discontinue its relationship as a producer with an insured either during the term of the policy, or upon renewal time, absent contractual agreement to the contrary between the producer and the insured or the insurer. The terminating broker should advise the insured of the right to continue coverage with the insurer, and the right to choose a new agent or broker if the insured so desires. 

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Does the Homeowners Policy Cover Electronic Funds Transfer Fraud?

Question from an IIABNY member: I was meeting with a commercial insured yesterday and was talking to her about Computer Fraud and Funds Transfer Fraud coverage now available under a Crime bond. She then asked me if there is any coverage available for her personally under a homeowner’s policy. Identity Theft only covers the expense of having your identity stolen, money is usually only covered while at the insured’s residence so….my question-is there any coverage for someone personally? 

Answer: There is a little bit of coverage built into the ISO HO-3. SECTION I – PROPERTY COVERAGES, C. Coverage C – Personal Property, 1. Covered Property states, “We cover personal property owned or used by an ‘insured’ while it is anywhere in the world.” I.C.3 states, “The special limit for each category shown below is the total limit for each loss for all property in that category. These special limits do not increase the Coverage C limit of liability…a. $200 on money…” Therefore, the policy provides up to $200 coverage on money. Nothing in I.C.4. Property Not Covered appears to exclude coverage for money off-premises.

In addition, I.E.6. Credit Card, Electronic Fund Transfer Card Or Access Device, Forgery And Counterfeit Money provides up to $500 coverage for loss resulting from theft or unauthorized use of an electronic fund transfer card or access devise used for deposit, withdrawal or transfer of funds, issued to or registered in an insured’s name. So, if the loss is due to someone taking and using the insured’s ATM card without permission, the insured has up to $500 coverage.

Obviously, these are not very large limits. There is an ISO endorsement available for increasing the amount of credit card and EFT card coverage, but it sounds like your client is more concerned with someone hacking into her bank account. I’m not aware of any personal lines coverage for that exposure. As you pointed out , the ISO identity fraud endorsement covers costs resulting from identity theft, not theft of money. Ultimately, the financial institution holding her funds should be legally responsible for a theft from their systems.

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