The Office of General Counsel issued the following informal opinion on March 27, 2001, representing the position of the New York State Insurance Department.
RE: Duty to Pay No-Fault Benefits When there is Belief of Fraud
May an insurer delay payments under the No-Fault portion of its insured's policy due to the insurer's suspicion of fraud in a claims submission, which results in an investigation by the insurer?
Yes. Where an insurer has a reasonable suspicion that a fraudulent claim submission for No-Fault benefits has been made, it may deny such claim within 30 days after the receipt of proof of claim, on the basis that the claimed loss has not been proven. Such action would permit the insurer to delay payment pending the outcome of the investigation.
An insurance company received a report of an accident involving a rear end collision that resulted in injuries to four persons in the insured's car. Subsequently, the insurer received a police report indicating that there were only two occupants in the car. The matter was then referred to a Special Investigations Unit for investigation. The Department was asked whether the insurance company could delay payment of the claim pending the outcome of the investigation.
Payment of No-Fault claims are governed by N.Y. Ins. Law § 5106 (McKinney 1999-2000). Section 5106 (a) provides, in pertinent part:
Payments of first party benefits and additional first party benefits shall be made as the loss is incurred. Such benefits are overdue if not paid within thirty days after the claimant supplies proof of the fact and amount of loss sustained. If proof is not supplied as to the entire claim, the amount which is supported by proof is overdue if not paid within thirty days after such proof is supplied.
Accordingly, the payment of first party benefits under No-Fault are not due until thirty days after the claimant supplies proof of the loss sustained. Where the claimant has failed to supply such credible proof, a denial should be issued. An insurer may determine, based upon reasonable suspicion of fraud, that the insured has failed to prove the claim and may issue a denial pending an investigation of the claim submission. This would permit an insurer to delay payment while conducting the investigation and provide notice to the insured of a suspicion of fraud and resultant delay in payment. It is ultimately for an arbitrator or court to determine whether or not such claim has been proven.
For further information you may contact Supervising Attorney Lawrence M. Fuchsberg at the New York City Office.