Faulting No-Fault: Insurers Push No-Fault Auto Insurance Reforms

Car accident lawsuits lead to higher insurance premiums. (Photo: iStock/Tanya Clyde)

Whenever a New Yorker gets in a car wreck, no-fault automobile insurance is supposed to help get medical claims paid quickly, reduce litigation and keep premiums down—but the way it plays out is not always without its faults.

After an auto accident, no-fault insurance automatically pays up to $50,000 per person to cover medical costs and lost wages, regardless of who is at fault. Under New York’s no-fault law, lawsuits are only allowed when the costs exceed the no-fault benefits or when an injury is deemed “serious.”

But in recent years, insurance companies have been raising the alarm about no-fault fraud and calling for stricter measures to crack down on a range of schemes, from the staging of accidents to the recruiting of injured drivers, passengers and even doctors to collect and share the automatic benefits.

“The no-fault system is really broken in New York, and it needs major reform,” said Ellen Melchionni, president of the New York Insurance Association. “The fraud tax that everybody pays is really outrageous in New York. This problem is so multifaceted, and it keeps morphing, and the target keeps moving. It’s been very difficult for the insurers to fight it.”

(Source: New York Insurance Association)

The Cuomo administration has stepped up efforts to crack down on no-fault fraud, with Department of Financial Services Superintendent Benjamin Lawsky rolling out regulations this year to target doctors who provide unnecessary treatment to accident victims, help submit fake bills and participate in other moneymaking schemes.

In March Lawsky’s office announced that it would implement a 2005 law that would allow it to ban doctors engaging in fraud, saying the crackdown would help bring down auto insurance premiums that are the fourth highest in the nation. In May Lawsky said his department would halt no-fault payments when medical care is not actually provided.

“Last year we were encouraged by the Department of Financial Services Superintendent Lawsky’s efforts to fight this problem,” said Kristina Baldwin, an assistant vice president of the Property Casualty Insurers Association of America. “We still see there needs to be some legislative changes, and we’re hopeful that we can get some action there in the coming year as well.”

The push for reform has had less success in the Legislature despite the efforts of state Sen. Jim Seward and Assemblyman Joe Morelle, who chair the insurance committees in their respective houses.

Earlier this year Morelle cited high auto insurance rates, especially in places like Brooklyn and the Bronx, as one reason to fix the no-fault system, and called for reforms, including increased reliance on arbitration to resolve disputes.

Seward said he wants to make it a felony to stage an accident or to be a “runner” who takes patients through medical mills to collect the $50,000 in no-fault benefits.

The Senate has passed both bills, as well as another measure that would allow for the retroactive cancellation of auto insurance policies that have been paid for fraudulently, but the Assembly has not passed the legislation.

Some proponents of no-fault reform and other tort reform measures have blamed trial lawyers and their powerful allies in the Democratic-controlled Assembly for preventing any significant changes to the status quo.

Lawyers counter they also support efforts to crack down on fraud, but that the insurance industry’s proposals are too broad and would needlessly limit access to care for victims who aren’t trying to game the system.

William Purdy, an attorney and a member of New Yorkers for Fair Automobile Insurance Reform, said that mandatory arbitration gives victims fewer rights than they would have in a courtroom. As for making it a felony to be a runner, legislators have to be careful to make sure the measure wouldn’t make it a crime to recommend a doctor to a friend injured in an auto accident.

“The problem with many of the industry proposals is that they are designed to make it more difficult for automobile accident victims to obtain the automobile insurance benefits that they’re obligated by law to purchase,” Purdy said. “If I had to attribute failure, that’s where the failure came.”

Furthermore, Purdy said, while the insurance industry has not actually increased its payouts to accident victims, the proposed reforms are geared toward insurance companies saving money and “not trying to create a more fair mechanism for obtaining benefits.”

Melchionni said insurance companies are continuing to write insurance policies despite the problems with fraud, but warned that legislative action will still be needed to prevent the situation from getting worse.

“If it continues to percolate at the rate it’s going until it’s really a crisis in New York and you have an availability issue—right now it seems to be affordability issue in many areas of the state—it seems the Legislature hasn’t been willing to act, and that’s been really frustrating,” she said.