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Does the Law Require An Agent To Do a Former Client's Detective Work?

Question from an IIABNY member: I have a question in regards to a loss run request.  If a former insured sends the letter addressed to the agency requesting loss runs without any policy numbers or insurance company name, is the agency obligated under New York Insurance Law to respond?  Is it up to us to go back and research who the coverage was with and fill in the policy numbers and forward to the correct insurance company?

Answer: This issue pertains only to commercial lines, not personal lines. New York Insurance Law Sect. 3426(g)(2) requires an insurer to provide loss information within 10 days of receiving a request from the first-named insured or the insured's authorized agent or broker. It places no direct obligation on the agent. The Insurance Department can suspend or revoke a producer's license for using fraudulent, coercive or dishonest practices; for demonstrating incompetence; or for demonstrating untrustworthiness. To the extent that refusing to obtain loss information for a past client can reasonably be viewed as falling into one of those categories, you may have an exposure to disciplinary action. However, I don't interpret this to mean that you have to do the insured's research for him. If he gives you complete information, your duty is to forward the requests to the appropriate insurer. Other than that, I don't see that you have a legal obligation to search for carrier names and policy numbers.

One exception: If your company contracts so require, you must keep policy records for six calendar years after a policy is no longer in effect. The insured's records could conceivably fall within that time frame.

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Health Care Reform Primer: State Waivers, Interstate Compacts

Today we look at how states can get some of the Patient Protection and Affordable Care Act’s requirements waived and how states can enter interstate compacts.

Waivers

States can apply to the federal Department of Health and Human Services for waivers of certain requirements for plan years beginning in 2017 (NOTE: Earlier this year, President Obama announced that he supports moving this date up to 2014.) HHS can waive any or all of the following requirements:

• Establishment of qualified health plans and essential health benefits requirements
• Health benefit exchanges
• Reduced cost-sharing requirements for individuals enrolled in qualified health plans, and
• Premium tax credits, the employer mandate, and minimum essential coverage

HHS evaluates applications for waiver of the first three requirements; the Treasury Department evaluates applications for waiver of the last one.

In situations where a state waiver makes otherwise eligible individuals ineligible for premium tax credits and cost-sharing reductions, HHS must provide an alternate means by which the state will receive the aggregate dollar amount of the credits and reductions that individuals would have received. The state must use these funds to implement its plan. HHS must calculate this reimbursement annually.

HHS was required to issue regulations by September 2010 with regard to the state waivers. The regulations provided:

• A process for public notice and comment at the state level on the proposed waiver request
• A waiver application process specifying the provisions of the PPACA the state wishes to waive and the state’s specific plans to ensure that the waiver will meet requirements (see below)
• A process for public notice and comment after the state has applied for the waiver
• A process for states to report on the implementation of their programs under the waivers
• A process for HHS to periodically review the program under the waiver.

HHS must annually report to Congress its actions regarding waiver applications.

To ease the paperwork burden on the states, HHS must create a process for coordinating and consolidating state waiver process with the pre-existing waiver process under Medicare, Medicaid, the State Children’s Health Insurance Program, and other federal health programs. The process must allow states to submit a single application for all of its waivers.

Requirements for Granting Waivers

HHS must rule on a waiver application within 180 days of receipt. It can grant a waiver to a state if the state can show that its plan:

• Will provide coverage at least as comprehensive as the essential health benefits and offered through the exchanges
• Will provide coverage and cost-sharing protections against excessive out-of-pocket spending at least as affordable as those provided in the PPACA
• Will cover at least a comparable number of its residents as the PPACA would
• Will not increase the federal budget deficit.

The state must pass a law providing for state actions under the waiver, including implementation of its plan. It can also opt out of the waiver by repealing its law.

HHS must determine the scope of all waivers but cannot exceed its legal authority in doing so. If it approves the waiver, it must notify the state of the waiver’s terms and effectiveness. In the case of a denial, HHS must notify the state and the appropriate congressional committees of the reasons for its decision.

Waivers are for five-year terms. A state can request a continuation of its waiver, and HHS must, within 90 days, either deny the request or ask for additional information. If the department fails to do either, the law deems the request approved after 90 days.

Health Care Choice Compacts

By July 2013, HHS must issue regulations for the creation of “health care choice compacts.” These are agreements between two or more states in which the states will offer one or more health plans for individuals in all participating states, but the plans will be subject to the laws and regulations only of the plan’s home state. However, plans are still subject to market conduct, unfair trade practices, network adequacy and consumer protection laws of the purchaser’s home state. The carriers providing coverage must hold licenses in all of the participating states, and they must clearly notify consumers that not all of their state’s laws and regulations apply to their policies. States must enact laws specifically authorizing them to enter these compacts. The compacts will take effect in 2016.

HHS must approve a proposed compact and may do so if the compact:

• Will provide coverage at least as comprehensive as the essential health benefits and offered through the exchanges
• Will provide coverage and cost-sharing protections against excessive out-of-pocket spending at least as affordable as those provided by the PPACA
• Will cover at least a comparable number of residents as the PPACA would
• Will not increase the federal budget deficit
• Will not weaken enforcement of state market conduct, unfair trade practices, network adequacy and consumer protection laws.

Next time: Multi-state plans.

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Health Care Reform Primer: State Programs for Low-Income Individuals

It's Friday and health care reform primer time again. Today, we step forward into the Patient Protection and Affordable Care Act's Title I, Subtitle D, Part IV -- State Flexibility To Establish Alternative Programs.

Basic Health Programs for Low-Income Individuals

The federal Department of Health and Human Services must create a basic health program under which a state can contract to offer one or more plans that provide at minimum the essential health benefits to certain individuals instead of offering them coverage through the state exchange. An individual's premium for a plan cannot exceed what his cost would be for the second-lowest cost silver plan offered through the exchange, and the plan's cost-sharing cannot exceed that required under the exchange's gold plan (or platinum plan, in the case of households with incomes equal to 150 percent or less of the federal poverty line.) The insured's required premium and cost-sharing will be reduced by any applicable premium credits and sharing reductions for the plan. Plans offered by health insurance carriers must have medical loss ratios of at least 85 percent.

To qualify for coverage under this program, a person must:

• Be ineligible for Medicaid
• Have a household income between 133 percent and 200 percent of the poverty line for the family size involved (less than 133 percent for legal immigrants who are ineligible for Medicaid)
• Be ineligible for minimum essential coverage or be eligible for employer-sponsored coverage that is not affordable, and
• Be under age 65 at the beginning of the plan year.

If a person is eligible for coverage under this program, he cannot use the state exchange.

States that choose to contract with these plans must establish a competitive bidding process that includes negotiations of premiums, cost-sharing, and benefits beyond the essential health benefits. The competitive bid proces must include:

• Negotiations for the plan to include innovative features like care coordination and care management for enrollees ("especially for those with chronic health conditions"), incentives for use of preventive services, and creation of patient-provider relationships that maximize patient involvement in decision-making and that provide incentives for appropriate use of plan benefits.
• Consideration of and allowances for differences in the health care needs of various enrollees, and differences in local availability of and access to health care providers.
• As many attributes of managed care as feasible in the local market
• Creating specific performance measures that focus on quality of care and improved outcomes; requiring plans to report their results to the state; and making the results available to enrollees in a useful form.

To the extent feasible, states must seek to make multiple plans available. At their option, they can permit HMO's, health insurance carriers, and provider networks to offer plans. They also have the option of forming regional compacts with other states in which eligible individuals can enroll in any of the plans offered in the member states. To maximize efficiency and improve continuity of care, states must coordinate administration and benefits offered through this program with their Medicaid programs, the state child health plan, and any other state-administered health plans.

States that meet the program's requirements are eligible for grants from HHS equal to 95 percent of the premium tax credits and cost-sharing reductions that enrollees in the program would have received if they had bought coverage through an exchange. They must use these funds to reduce plan premiums and cost-sharing or to provide additional benefits for enrollees. HHS will calculate the amount due to a state on a "per enrollee" basis, taking into account an enrollee's agen and income, whether coverage was for an individual or for a family, geographic differences in health care spending, and other factors. An actuary must certify that the calculation is correct. If HHS makes an error in the calculation, it must make an adjustment to correct for it the following fiscal year.

Lastly, HHS must review each state plan annually for compliance with eligibility verification requirements, requirements for use of federal funds, and achievement of quality and performance standards.

Next time, we'll look at what states can do to get waivers from the PPACA's requirements.

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No-Faullt Reimbursement and Trust Clause

Question from an IIABNY member:Can you please explain the Reimbursement and Trust clause of the NY Basic PIP endorsement.  We have a client who was involved in an auto accident and was injured along with two children.  There is an argument between her carrier and the claimants carrier as to who should provide PIP benefits ( a story for another time)  Right now her carrier is providing the PIP benefits with the intent to go to arbitration against the claimant carrier.  In the meantime the liability department of the claimant carrier wants to negogiate a BI settlement and secure a release.  This will be for a nominal amount in the $3,000 range. It is my understanding that the carrier paying the PIP benefits has a right to be reimbursed for the first $50K of benefits.  The claimant's carrier says I'm wrong, it is everything over the first $50K.  I don't see that in the policy form unless I misunderstand it. My end goal (if the PIP carrier has a right to reimbursement) is to ask them to waive the right so the nominal settlement amount to secure the release goes to our client.

Answer: New York Insurance Law Sect. 5104(b) states:

In any action by or on behalf of a covered person, against a non-covered person, where damages for personal injuries arising out of the use or operation of a motor vehicle or a motorcycle may be recovered, an insurer which paid or is liable for first party benefits on account of such injuries has a lien against any recovery to the extent of benefits paid or payable by it to the covered person. No such action may be compromised by the covered person except with the written consent of the insurer, or with the approval of the court, or where the amount of such settlement exceeds fifty thousand dollars. The failure of such person to commence such action within two years after accrual gives the insurer a cause of action for the amount of first party benefits paid or payable against any person who may be liable to the covered person for his personal injuries. The insurer's cause of action shall be in addition to the cause of action of the covered person except that in any action subsequently commenced by the covered person for such injuries, the amount of his basic economic loss shall not be recoverable.

If an injured person can sue for non-economic damages, the no-fault insurer has a lien against the settlement equal to whatever it paid for no-fault first party benefits. The injured person may not “compromise” the action (which I take to mean settle separately with the other party) unless one of the following is true:

• The insurer has given written consent
• The court has approved the settlement
• The amount of the settlement exceeds $50,000 

If none of these is true, the injured person cannot do anything to impede the insurer’s right to recovery. The key amount is the amount of the settlement, not the amount of first party benefits paid. The insurer’s right to recovery is not limited to $50,000, nor does it have a $50,000 “deductible” (which is what it sounds like the claimant’s carrier is saying.) I’m not sure where they’re getting that.

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Health Care Reform Primer: New Nonprofit Health Insurance Carriers

In my last post, I started the review of the Consumer Operated and Oriented Plan (CO-OP) program. This is a program to encourage the creation of new nonprofit health insurance carriers. I looked at the loans and grants that will be available to these new carriers and what criteria these carriers must meet to qualify for these funds. Today's post will look at the new carriers' collective option to achieve greater efficiency; limits on who may partipate in carriers' governance; limits on the federal Departhment of Health and Human Services activities with regard to these carriers; funding for the grants and loans; tax exemptions for the new carriers; future marketplace studies; and fairness in how different carriers are treated.

Private Purchasing Council

Nonprofit health carriers participating in the CO-OP program have the option of creating a private purchasing council. This council will enter into collective purchasing agreements on behalf of all participating insurers, thus achieving cost efficiencies in the areas of claims administration, administrative services, health information technology and actuarial services. The law prohibits the council from setting payment rates for health care facilities and providers participating in the carriers' coverage. Federal anti-trust laws apply to both the council and its participating carriers.

Carrier Governance

The law bars the following from serving as members of a qualified nonprofit health carrier's board of directors:

• Representatives of federal, state or local governments or their political subdivisions or instrumentalities
• Representatives of entities that were health insurance carriers on July 16, 2009

Restraints on HHS

HHS cannot

• Get involved in negotiations between qualified nonprofit health insurance carriers (individually or collectively) and health care facilities or providers
• Create or maintain a structure of reimbursement rates for covered health benefits
• Interfere with competition between qualified nonprofit health insurance carriers

Funding

Congress appropriated $6 billion for the grants and loans to new qualified nonprofit health insurance carriers.

Tax Status

Qualified nonprofit health insurance carriers have tax-exempt status if:

• They have received loans or grans under the CO-OP program
• They are in compliance with the requirements I described in my last blog post
• They notify HHS that they are applying for tax-exempt status
• They use their profits to lower premiums, improve benefits, or for other programs to improve the quality of health care their members receive, and not to benefit any private shareholders or individuals
• Their substantial activities do not include "carrying on propaganda" or otherwise attempting to influence legislation
• They do not particpate in or intervene in political campaigns supporting or opposing candidates for public office
• They do not publish or distribute statements supporting or opposing candidates

The carriers will have to report to the Internal Revenue Service the reserve requirements for each state in which they are licensed, and the actual reserve amounts they have on hand. They will be subject to the tax on excess benefit transactions.

Study and Report

The federal General Accountability Office will conduct an ongoing study of the competition and market concentration in the U.S. health insurance market following implementation of health care reform. One subject of the study will be an analysis of new health insurance carriers in the market. The GAO must report to Congress every two years starting by the end of 2014 on the results of the study, including recommendations for administrative or legislative changes to increase competition in the market.

Level Playing Field

If plans offered by qualified nonprofit health insurance carriers are exempt from certain federal or state laws, coverage offered by private health insurance carriers is also exempt. These include laws relating to:

• Guaranteed renewal
• Rating
• Pre-existing conditions
• Non-discrimination
• Quality improvement and reporting
• Fraud and abuse
• Solvency and financial requirements
• Market conduct
• Prompt payment
• Appeals and grievances
• Privacy and confidentiality
• Licensing
• Benefit plan material or information

The next lesson in the primer will look at the flexibility states will have to create alternative programs.

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Is It a Flood Or Just a Plugged Drain?

Question from an IIABNY member: I insure a small retail store that bought the insurance carrier's extended property coverage endorsement. The endorsement provides coverage for damage resulting from water that backs up from a sewer or drain. The insured recently suffered $20,000 in damage when water backed up, but the carrier issued a reservation of rights letter, indicating that they might deny coverage based on the flood exclusion. They sent an engineer out to examine the property. Now they are hinting that, even if the loss wasn't caused by flood, there may be no coverage because the reservation of rights letter told the insured to save damaged and undamaged property for their inspection. The insured apparently did not save a damaged pipe from the drain.

Is this a legitimate claim denial?

Answer: After reading the claim representative's email, it’s still unclear to me whether she is intending to deny the claim. Her last message states only that the reservation of rights letter quoted the “Duties in the Event of a Loss” conditions in the policy and that the insured allegedly was asked to save the damaged property for the company’s inspection. It appears that the insured failed to do this, but that might not be sufficient grounds for the company to deny payment (assuming they are planning to do that).

The endorsement you sent me states:

We will pay for direct physical loss of or physical damage to Covered Property solely caused by water that backs up from a sewer or drain. This coverage is included within the Covered Property Limits of Insurance… We will not pay for water or other materials that back up from any sewer or drain when it is caused by any flood. This applies regardless of the proximity of the flood to Covered Property. Flood includes the accumulation of surface water, waves, tides, tidal waves, overflow of streams or other bodies of water, or their spray, all whether driven by wind or not that enters the sewer or drain system.

Therefore, with regard to this loss, the questions are:

• Was there direct physical loss of or physical damage to Covered Property?
• If yes, was water the sole cause of that loss or damage?
• If yes, did that water back up from a sewer or drain?
• If yes, did an accumulation of surface water cause the water to back up from the sewer or drain?

If the answer to the last question is “yes,” then the insurance does not apply. You mentioned that an engineer visited the scene of the loss. Did the engineer find evidence of an accumulation of surface water (i.e., a flood)? The endorsement uses the word “flood” in reference to a list of conditions (accumulation of surface water, tidal waves, overflow of streams, etc.), but does not limit the term to mean only those things. Assuming that the carrier's form uses the same language as that used in the ISO Causes of Loss Special Form, the word “flood” does not have a special definition. In situations like this, courts rely on the plain meaning of a term. Here are some definitions of the word “flood”:

• “A great flowing or overflowing of water, especially over land not usually submerged.” (Random House Dictionary)
• "The inundation of land that is normally dry through the overflowing of a body of water, esp. a river” (World English Dictionary)
• “A temporary rise of the water level, as in a river or lake or along a seacoast, resulting in its spilling over and out of its natural or artificial confines onto land that is normally dry.” (American Heritage Science Dictionary)
• “A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is [the insured’s] property) from: a. Overflow of inland or tidal waters; b. Unusual and rapid accumulation or runoff of surface waters from any source; c. Mudflow… “ (National Flood Insurance Program General Property Form Standard Flood Insurance Policy)

As I see it, the question becomes, did the water damage result from a condition that falls within these definitions of flood? Did the engineer see a “great overflowing of water,” an “inundation of land that is normally dry,” or a “partial or complete inundation of two or more acres of normally dry land area or of two or more properties,” one of which was your client’s? If the engineer did not see these things, then there was no flood; the third sentence of the coverage statement does not apply; and the water backup coverage should apply to the loss.

The presence or absence of a damaged pipe does not help or hurt the carrier’s ability to determine whether there was a flood. I therefore question whether the insured’s failure to retain the pipe so the carrier could examine it is sufficient grounds for denying payment. While it certainly would have been better if the insured had made sure that the piping was saved until the carrier had a chance to inspect, I don’t see pipe damage as being relevant to this claim. If the insured was asking the carrier to pay for replacing the pipe, the pipe’s condition would be very relevant. However, as I understand it, that is not what the insured is seeking.

To summarize, I believe the question of coverage hinges on whether or not a flood caused the water to back up. If the carrier can reasonably show that a flood caused the back up, then it should rightfully deny coverage. Otherwise, I believe that coverage applies.

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