The Office of General Counsel issued the following opinion on March 12, 2008 representing the position of the New York State Insurance Department.
RE: Workers’ Compensation Claims Adjuster Conflict of Interest
May an independent insurance adjuster who is employed by a workers’ compensation insurer also serve as a network provider of medical diagnostic and/or radiological testing on claims that the adjuster is adjusting?
No. This relationship creates an inherent and impermissible conflict of interest.
An insurer contracts with a number of medical diagnostic and radiological testing networks. When the insurer receives a request for medical diagnostic or radiological testing in furtherance of a claim an insurance adjuster chooses which testing center to use.
The adjuster chooses testing centers by factoring in the requesting physician’s preference for a specific testing center, the proximity of a testing center to the claimant’s home or work address, and the volume of claimants that the adjuster has previously referred to a testing center. The testing centers that the adjuster chooses are often members of one or more testing networks with which the insurer has contractual relationships.
An adjuster is in the process of creating her own medical diagnostic and radiological testing network. She and an insurer have come to an agreement that will allow her to provide her testing network services to the insurer while continuing in her role as an independent adjuster for the insurer. Under such agreement, the adjuster will charge a set fee per procedure to insurers that will be determined by the diagnostic or radiological procedure performed. The adjuster’s profit in this proposed endeavor will be the difference between the fee charged to the insurer and the fee paid to the testing center to perform the procedure. The fee paid to the testing center will vary from center to center.
The adjuster inquired whether the proposed agreement presents an impermissible conflict of interest.
Where the discretionary evaluations of a party licensed by the Insurance Department are potentially influenced by personal gain, there exists an inherent conflict of interest. In the role of an adjuster, one exerts influence and, to a certain degree, discretionary control over which medical diagnostic and radiological testing centers claimants visit. Currently, the manner in which this control is exerted has no bearing on the adjuster’s compensation, because preferential treatment towards a particular testing center or testing network confers no benefit to her. This allows her to perform her adjuster services impartially, which enables her to choose the best testing center for a claimant based on the physician’s preference, proximity to the claimant’s home or workplace, and cost efficiency to the workers’ compensation system. Under the proposed agreement, however, the adjuster’s impartiality would be compromised by the fact that profit to the adjuster will be added into the criteria used for selecting testing centers and testing networks.
On November 5th, 2007 Insurance Superintendent Eric R. Dinallo released a draft regulation that set forth ten principles for the insurance industry. Principle seven states that “A licensee shall manage conflicts of interest fairly, both between the licensee and its clients and between clients.” In the management of conflicts of interest, a licensee should diligently evaluate the necessity of a conflict of interest to a licensee’s licensed function, and should strive to avoid or remove unnecessary conflicts of interest whenever reasonably possible. As a licensee of the Insurance Department, certain enumerated conflicts of interest may be unavoidable due to the nature of a licensee’s function under the law. If an unavoidable conflict of interest arises, a licensee should, pursuant to principle seven, ensure that such conflicts are managed fairly, and, as stated in principle eight, “…take reasonable care to ensure the appropriateness or suitability of its advice and discretionary decisions for any person or other entity that is entitled to rely upon such.” The conflict of interest presented by the arrangement about which the adjuster asks, however, presents a clearly avoidable and unnecessary conflict of interest. Accordingly, it is therefore impermissible.
Furthermore, to allow an independent adjuster to serve as a network testing provider would frustrate the purpose of the 2007 amendment to the Workers’ Compensation Law. Chapter 6 of the Laws of 2007 amended Workers’ Compensation Law § 13-a to enable workers’ compensation insurers to contract with medical diagnostic and radiological testing networks. As stated in the Memorandum in Support of Assembly Bill A06163 (Silver), one of the purposes of this amendment was to reduce costs to the worker’s compensation system. Presumptively, allowing insurers to contract with testing networks would reduce costs to the worker’s compensation system by creating price competition between diagnostic and radiological testing providers. But to permit an adjuster to provide testing network services and make decisions about the appropriate testing network or testing center removes the very competition that this portion of the amendment was enacted to encourage.
All licensees also should be aware that failing to prevent or permitting the persistence of an impermissible conflict of interest could lead the Superintendent to conclude that the licensee is “untrustworthy,” which, pursuant to Insurance Law § 2110(a)(4)(C), could result in the revocation or suspension of an insurance producer’s, consultant’s, or adjuster's license. Furthermore, impermissible conflicts of interest or conflicts of interests that are not managed pursuant to the principles cited above may be the basis for additional violations imposed pursuant to Insurance Law § 2110(a).
For further information you may contact Supervising Attorney Michael Campanelli at the New York City office.