The Office of General Counsel issued the following opinion on October 11, 2007, representing the position of the New York State Insurance Department.
RE: Waiver of Deductible by an Automobile Collision Repair Facility
1. Does the waiver or reduction of a deductible by an automobile collision repair facility violate New York Insurance Law?
2. Are there any circumstances under which a plan to waive or reduce a deductible by an automobile collision repair facility would be permissible under New York law?
1. Although there may be scenarios where the waiver or reduction of a deductible by an automobile collision repair facility would not constitute a violation of N.Y. Penal Law § 176.05 (McKinney's Supp. 2007) and N.Y. Ins. Law § 403(b) (McKinney 2006), this opinion focuses on a set of facts that would constitute a violation of each of these statutes.
2. Yes. For example, a plan to waive or reduce the deductible may be permissible if the automobile collision repair facility reports its waiver of the deductible to the insurer, and/or the insurer is aware that the deductible has been waived.
The inquirer reports that the inquirer works for a law firm, and that it has come to the inquirer’s attention that an automobile collision repair facility is advertising that it will pay the deductible, or a portion of it, to customers that use its service to repair automobiles that are subject to New York automobile policy collision or comprehensive coverage deductible. The inquirer has noticed advertisements that use the following language: "XYZ - Home of the Deductible Rebate"; "XYZ - will pay your deductible"; and "XYZ - will actually pay a portion of your deductible". The inquirer has provided extensive legal research to support the inquirer’s theory that such a company is violating New York law by offering to pay insurance deductibles for its customers. The inquirer cites opinions from the Insurance Department’s Office of General Counsel (“OGC”) and Insurance Law § 3411(k) to support the inquirer’s position that the shop is violating the law, and asks whether the inquirer’s understanding of the law accords with that of the Department.
The analysis that follows if predicated on the assumption that the repair facility at issue is not a designated repair facility for an insurer. N.Y. Penal Law § 176.05 is relevant to this query. It reads in relevant part as follows:
1. A fraudulent insurance act is committed by any person who, knowingly and with intent to defraud presents, causes to be presented, or prepares with knowledge or belief that it will be presented to or by an insurer, self insurer, or purported insurer, or purported self insurer, or any agent thereof, any written statement as part of, or in support of, an application for the issuance of, or the rating of a commercial insurance policy, or certificate or evidence of self insurance for commercial insurance or commercial self insurance, or a claim for payment or other benefit pursuant to an insurance policy or self insurance program for commercial or personal insurance which he knows to: (i) contain materially false information concerning any fact material thereto; or (ii) conceal, for the purpose of misleading, information concerning any fact material thereto.
“A fraudulent insurance act”, as defined in N.Y. Penal Law § 176.05, has been incorporated into Article 4 of the Insurance Law by Insurance Law § 403(a), which addresses insurance fraud. Insurance Law § 403(b) makes it a violation of this chapter to commit a fraudulent insurance act. Insurance Law § 403(c) provides civil penalties for those who commit fraudulent insurance acts, and reads in relevant part as follows:
In addition to any criminal liability arising under the provisions of this section, the superintendent shall be empowered to levy a civil penalty not exceeding five thousand dollars and the amount of the claim for each violation upon any person, including those persons and their employees licensed pursuant to this chapter, who is found to have: (i) committed a fraudulent insurance act or otherwise violates the provisions of this section; . . .
The discussion herein assumes that the insurer does not know that the automobile collision repair facility has waived the insured's deductible. This analysis also assumes that prior to the repair work being performed, the insurer and the automobile collision repair facility agreed to the price that the insurer would pay the automobile collision repair facility for such work. Thus, if an individual was insured under a physical damage insurance policy having a $200 deductible, and the insurer and the facility agree that a certain repair required by the insured costs $1,000, the insurer should reimburse the insured $800.
But if the automobile collision repair facility were to waive the insured’s $200 deductible, the facility’s actual fee would only be $800, the amount of money actually paid by the insured. Since the insurer is only obligated to pay after the first $200, it should only reimburse the insured $600. Thus, if the automobile collision repair facility were to submit a bill for the full $1,000, when in fact its fee was only $800, its actions could be found to constitute insurance fraud. See OGC opinion June 7, 2007. However, if the insurer were aware that the automobile collision repair facility waived the deducible amount, then that might alter the conclusion about insurance fraud. See OGC opinions February 6, 2001 and April 4, 2003.
The inquirer suggests that Insurance Law § 3411(k) may affect the analysis. That statute reads as follows:
Each insurer which offers physical damage insurance subject to the provisions of this section shall offer such insurance with a standard deductible of two hundred dollars for each occurrence. The insured shall, however, at the inception of the policy or at the annual anniversary date, or at the time of the replacement or addition of an automobile, have the option of purchasing a policy with a lesser deductible, but in no event may the insurer sell a policy with a deductible of less than fifty dollars for fire, theft or comprehensive insurance coverages (one hundred dollars for assigned risk policies issued pursuant to paragraph two of subsection (a) of section five thousand three hundred three of this chapter) and one hundred dollars for collision insurance coverage except that window glass coverage may be sold without a deductible. Each insurer which offers physical damage insurance subject to the provisions of this section shall also offer physical damage coverages with co-insurance or deductible provisions or combinations thereof as the superintendent may prescribe, including but not limited to deductibles of two hundred fifty dollars, five hundred dollars and one thousand dollars.
Insurance Law § 3411(k) thus establishes that the standard deductible for physical damage insurance shall be $200 for each occurrence. Although lower deductibles may be sold, an insurer may not eliminate the deductible entirely, except with respect to window glass coverage. Although Insurance Law § 3411 pertains to deductibles, it has no relevance here because the automobile collision repair facility is not acting in concert with or on behalf of an insurer, and the facilities activities have no impact on the deductible amount in the policy.
For further information, one may contact Susan Dess Senior Attorney at the New York City office.