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STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

David A. Paterson
Governor

Eric R. Dinallo
Superintendent

OGC Op. No. 08-12-04

The Office of General Counsel issued the following opinion on December 26, 2008, representing the position of the New York Insurance Department.

Re: Settlement of No-Fault cases

Questions Presented:

1. Does an insurer violate any provision of the Insurance Law or regulations promulgated thereunder by settling a group of no-fault claims with an attorney (“Attorney A”) for a lower settlement amount and no interest, in order to avoid settling the same claims with another attorney (“Attorney B”), who is the attorney of record and who demands a higher settlement amount including interest?

2. If the insurer has violated the Insurance Law, what are the legal consequences to the insurer, Attorney A, and Attorney B:

a. Must the cases be “unsettled?”

b. Must Attorney B “discontinue the cases?”

c. Must the insurer pay attorney’s fees and interest?

Conclusions:

1. Nothing in the Insurance Law or regulations promulgated thereunder addresses whether an insurer may settle no-fault cases with one attorney when the insurer is specifically aware that another attorney is the attorney of record.

2. Because, under the circumstances described, there is no per se violation of the Insurance Law or regulations promulgated thereunder, the Insurance Department will not comment on the legal consequences of the insurer’s actions.

Facts:

The inquirer reports that Attorney A and an insurer were negotiating the settlement of a group of no-fault claims on behalf of a single client who is a no-fault provider. Both parties agreed to settle the claims for a percentage of the principal without interest. At the same time, the insurer was engaged in negotiations with Attorney B to settle the same group of claims. Attorney B had demanded a higher percentage of the principal plus interest. The inquirer states that during negotiations with Attorney B, the insurer announced its intention to settle with Attorney A a group of claims from one particular provider. Attorney B contested the settlement, contending that Attorney A did not file those claims with the court, did not have copies of those claimants’ files, and did not file a change of attorney form with the court so as to allow him to settle the claims. However, the inquirer states that Attorney B concedes that Attorney A may settle any claims from that specific provider over which Attorney A has control, but may not settle any claims over which Attorney B has control, unless Attorney A files a change of attorney form.

Further, the inquirer reports that the insurer requested from Attorney B a list of the claims that Attorney B filed in court. That list comprised of 30 to 40 claims. After reviewing those claims, along with the settlement amount that Attorney B demanded, the insurer discontinued negotiations with Attorney B, asserting that the insurer did not pay interest on “bulk settlements,” and that the percentage of the principal that Attorney B demanded was “too high.” A few weeks later, Attorney B was informed that Attorney A had settled all of Attorney B’s claims. Subsequently, the insurer sent to Attorney B a $65 filing fee for all of attorney B’s cases that were filed in court and requested discontinuance on all the “settled” cases. However, Attorney B did not receive any attorney’s fees.

Finally, the inquirer states that as part of the settlement agreement between the insurer and Attorney A, Attorney A would have to settle all the claims, including those of Attorney B. In this regard, the client, who desired settlement of the claims, granted Attorney A written permission to negotiate with the insurer the settlements of all the claims (including those of Attorney B). Attorney B received a copy of this written permission after Attorney B refused to discontinue the claims.

In light of the scenario described above, the inquirer asks whether the insurer violated the Insurance Law or regulations promulgated thereunder in settling the claims for which Attorney B is the legal representative. Further, if the insurer has violated the Insurance Law, the inquirer asks about the legal consequences of the insurer’s actions, as well as the validity of the settlements.

Analysis:

Nothing in the “no-fault law”, which is codified in Article 51 of the Insurance Law, or the regulations promulgated thereunder, addresses the issues presented by the inquiry. Indeed, inasmuch as the client apparently unilaterally consented to the settlement, it is unclear whether any wrongdoing in fact occurred.

The inquiry seemingly involves legal issues beyond the purview of the Insurance Department, and which may be appropriately resolved by a court of competent jurisdiction. If a court clearly determines that the insurer’s conduct as described above is unlawful or unethical, the Department at some later date may take appropriate action.

For further information, you may contact Senior Attorney Camielle A. Campbell at the New York City office.