OGC Op. No. 08-12-09
The Office of General Counsel issued the following opinion on December 31, 2008, representing the position of the New York State Insurance Department.
RE: Notice of Rights Letter and Collision Coverage
1. Must an insurer directly negotiate with an insured prior to issuing a notice of rights letter when, subsequent to the insurer’s negotiation with a motor vehicle repair facility, the insurer was unable to reach a settlement with the facility?
2. Must an insurer issue a notice of rights letter to an insured when choice of repair facility was not a part of the insurer’s negotiation with the motor vehicle repair facility?
3. Is an insurer required to alter its initial negotiating position on labor rates, or any other negotiable issue, before issuing a notice of rights letter?
1. Yes. An insurer must negotiate directly with an insured prior to issuing a notice of rights letter when the insurer has negotiated with a repair facility that has not been designated by the insured, and was unable to reach a settlement with that facility.
2. Yes. Pursuant to Section 216.7(b)(14)(i) of the New York Comp Codes R. & Regs. (“NYCRR”) Tit. 11, Part 216 (Regulation 64), an insurer must issue a notice of rights letter to an insured if “after negotiations an agreed price cannot be reached.” Thus, the insurer’s letter must be issued when choice of repair facility was not explicitly a subject of negotiation with the motor vehicle repair facility.
3. No. An insurer in a negotiation is not required to shift from its initial negotiating position on labor rates, or any other negotiable issue, so long as its initial position is taken in good faith.
The inquiry poses two hypothetical situations. The first situation involves an adjuster who seeks to negotiate an agreed price for the repair of a vehicle with a repair shop pursuant to 11 NYCRR § 216.7(b)(7) without a signed Designated Representative Form from the insured pursuant to 11 NYCRR § 216.7(a)(2). The insurer then proceeds, in the absence of an agreed settlement, to provide the insured with a prescribed notice of rights letter (known as NYS APD 1; See 11 NYCRR § 216.12 for a copy of the form) pursuant to 11 NYCRR § 216.7(b)(14)(i). The inquirer asks whether the insurer must directly negotiate with the insured rather than provide the APD 1 after no agreement is reached with the repair shop. The inquirer further asks why an APD 1 would be provided at all because the insured choice of a repair facility was not part of the negotiations.
The second situation involves a repair shop posting a set labor rate of $75.00 an hour and the insurer representative stating that the insurer will only pay a lesser amount. The inquirer asks whether this constitutes a good faith negotiation pursuant to 11 NYCRR § 216.7(b)(7) and if the insurer must send the APD 1 to the insured if a settlement is not reached after the negotiation.
Insurance Law § 2610(b) is relevant to the inquiry. That statute reads as follows:
In processing any such claim (other than a claim solely involving window glass), the insurer shall not, unless expressly requested by the insured, recommend or suggest repairs be made to such vehicle in a particular place or shop or by a particular concern.
However, pursuant to 11 NYCRR § 216.7(b)(14)(i), an insurer may make such a recommendation after an insurer provides an insured with a APD 1. The APD 1 indicates that the insurer may not provide the identity of a repair shop that would repair the motor vehicle at the insurer’s estimate unless expressly requested by the insured. The APD 1 is accompanied by an attached “Section 2610 of the Insurance Law Disclosure Statement” that includes a request recommendation. Once the insurer receives the completed APD 1 with the attached Disclosure Statement, 11 NYCRR § 216.7(b)(14)(ii) requires the insurer to “furnish the insured or the designated representative, at the express request of either, with the name and address of a New York State registered motor vehicle repairer, properly equipped to complete the repairs on the damaged motor vehicle (back-up shop), at a location reasonably convenient to the insured, who will repair the damaged motor vehicle at the insurer’s estimated cost of repair.” See Office of General Counsel (“O.G.C.”) Opinion No. 06-08-18 (August 25, 2006).
An APD 1 may not be proffered by an insurer unless the insurer and the insured, or the insured’s designated representative, are unable to reach an agreed settlement. 11 NYCRR § 216.7(b)(1) reads as follows:
If, upon notification of a loss, the insurer intends to exercise its right to inspect damages prior to repair, it shall have six business days following receipt of notice of claim to inspect damages prior to repair, it shall have six business days following receipt of notice of claim to inspect the insured’s damaged motor vehicle, which is available for inspection, during normal business hours at a place and time reasonably convenient to the insured. In addition, negotiations shall commence and a good faith offer of settlement, sufficient to repair the vehicle to its condition immediately prior to the loss, shall be made within the aforesaid six-day period to the designated representative, and it may also be made to the insured. If there is no designated representative, the offer shall be made to the insured within the six-day period.
Further, 11 NYCRR § 216.7(b)(7) provides:
Negotiations must be conducted in good faith, with the basic goal of promptly arriving at an agreed price with the insured or the insured’s designated representative. If the insured’s intended repair shop is not a designated representative of the insured, the insurer may also reach an agreement with that repair shop on the cost to repair the damaged vehicle, but that agreement shall not be binding upon the insured or the designated representative. Early in negotiations, the insurer must inform the insured’s designated representative or, if there is no designated representative, the insured of all deductions that will be made from the agreed price. If an insurer shall require proof of loss, its offer shall be communicated to the insured via a proof of loss. The insurer shall also communicate the offer to the designated representative.
Thus, 11 NYCRR § 216.7(b)(1) requires that when an insurer exercises its right to inspect physical damage of a motor vehicle, “negotiations shall commence and a good faith offer of settlement, sufficient to repair the vehicle to its condition immediately prior to the loss shall be made…to the designated representative, and it may also be made to the insured.”
In response to the first query, 11 NYCRR § 216.7(b)(7) allows the insurer to reach a non-binding agreement with the insured’s intended repair shop even if the shop is not a designated representative of the insured. However, should no agreement be reached with the non-designated repair shop, the insurer is obligated to negotiate in good faith with the insured and, if no settlement is reached with the insured, must issue an APD 1.
In response to the second and third queries, an insurer must issue an APD 1 pursuant to 11 NYCRR § 216.7(b)(14)(i), if “after negotiations an agreed price cannot be reached.” The APD 1 must be issued regardless of whether choice of repair facility was explicitly the subject of the negotiations, because the criteria used for the issuance of the APD 1 is failure to agree upon a price after negotiations.
11 NYCRR § 216.7(b)(7) requires that the negotiations be conducted in good faith, but neither the Insurance Law nor the regulations promulgated thereunder define what constitutes a “good faith negotiation.” O.G.C. has opined that a good faith negotiation need not result in an ultimate agreement on a settlement amount, provided that a repair shop, reasonably convenient to the claimant, is able to repair the vehicle for the amount the insurer offers in settlement. See O.G.C. Opinion No. 08-07-09 (July 16, 2008).
A negotiation is defined as “mutual discussion and arrangement of the terms of a transaction or agreement.” See RANDOM HOUSE WEBSTER’S COLLEGE DICTIONARY 884 (2nd Ed. 1999). Pursuant to that definition, there is no requirement that either side move off its respective initial position in a negotiation, and an insurer is not required to alter its initial negotiating position on labor rates, or any other negotiable issue, provided that its position is taken in good faith.
For further information you may contact Associate Counsel Alexander Tisch at the New York City Office.