OGC Op. No. 10-09-05

The Office of General Counsel issued the following opinion on September 14, 2010 representing the position of the New York State Insurance Department.

Re: Accrual of Interest on Overdue No-Fault Claims

Questions Presented:

1. Does the tolling provision set forth in Section 65-3.9(c) of the N. Y. Comp. Codes R. & Regs. (“NYCRR”) tit. 11, Pt 65 (Regulation 68-C) apply to a no-fault claim where the claimant fails to timely request arbitration or commence a lawsuit regardless of whether the denial of claim form was timely issued?

2. Is interest tolled pursuant to 11 NYCRR § 65-3.9(c) during the period after the claim becomes overdue up through the date that a denial of claim form is received, if the claimant subsequently failed to request arbitration or commence a lawsuit within 30 days of its receipt of the denial of claim?

Conclusions:

1. Yes. The tolling provision set forth in 11 NYCRR § 65-3.9(c) applies where a claimant fails to commence a lawsuit or request arbitration within 30 days after the receipt of a denial of claim. Interest is tolled from the date of receipt of the denial of claim until arbitration or a lawsuit is filed.

2. No. Interest is not tolled during the period that a claim becomes overdue until the insurer issues to the insured a denial of claim. Interest is only suspended or tolled from the date the claimant fails to commence an action within 30 days of the receipt of the denial of claim form until an action is actually commenced.

Facts:

The inquiry is of a general nature, without reference to particular facts.

Analysis:

Insurance Law § 5106(a), which addresses the fair settlement of claims under the no-fault law, is relevant to the inquiry. It requires that interest shall accrue on any claim that is not paid within 30 days after a claimant provides proof of fact and the amount of loss sustained. That provision reads, in pertinent part, as follows:

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. All overdue payments shall bear interest at the rate of two percent per month. . . .

11 NYCRR § 65-3.9(a) is also relevant to the inquiry, and states that interest shall accrue on overdue no-fault claims. That provision reads in relevant part as follows:

All overdue mandatory and additional personal injury protection benefits due an applicant or assignee shall bear interest at a rate of two percent per month, calculated on a pro-rata basis using a 30-day month. . . .

Thus, where an insurer fails to pay or deny a claim within the requisite 30-day period, the claim becomes overdue and interest begins to accrue at that point. Interest continues to accrue on an overdue claim until the claimant receives payment or a denial of claim form.

If the claimant fails to request arbitration or commence a lawsuit within 30 days after the receipt of the denial of claim form for payment of benefits, accrual of interest is tolled from the date that the claimant fails to request arbitration or commence a lawsuit until an action is commenced. See 11 NYCRR § 65-3.9(c), which states in pertinent part as follows:

If an applicant does not request arbitration or institute a lawsuit within 30 days after the receipt of a denial of claim form or payment of benefits calculated pursuant to Insurance Department regulations, interest shall not accumulate on the disputed claim or element of claim until such action is taken. . . .

1. Accrual of interest regardless of the timeliness of the denial

The inquirer seeks clarification as to whether the Court of Appeals in LMK Psychological Servs., P.C., et al. v. State Farm Mut. Auto. Ins. Co., 12 N.Y.3d 217 (2009) held generally that the accrual of interest on no-fault claims is tolled regardless of whether the insurer issued a timely denial. In LMK, the Court of Appeals was asked specifically to decide whether the lower court erred in holding that the insurer could not avail itself of the tolling of interest provision where the claimant failed to timely request arbitration or commence a lawsuit because the insurer issued an untimely denial of claim form. In answering that question, the Court held that the accrual of interest is tolled, regardless of the timeliness of the denial, if the plaintiff fails to request arbitration or commence a lawsuit within 30 days of the receipt of the denial, pursuant to 11 NYCRR § 65-3.9(c). See LMK, 12 N.Y.3d at 223. In so holding, the court rationalized that the ultimate goal of the no-fault law is to ensure that claimants still act to resolve disputes quickly, even if denials are untimely issued. Id. at 223-24.

2. Accrual of interest on an overdue claim where claimant fails to commence an action

The inquirer further asks whether interest is tolled from the time that a claim becomes overdue when the claimant fails to request arbitration or commence a lawsuit. The court in LMK did not address whether interest accrues between the time that a claim becomes overdue and the time that the denial was issued where the claimant subsequently fails to request arbitration or commence a lawsuit within 30 days of its receipt of the denial of claim. Insurance Law § 5106(a) and 11 NYCRR § 65-3.9(a) prescribe that interest will accrue during the time that a claim is overdue until the claim is paid or a denial is issued. However, the accrual of interest is suspended from the date that a claimant fails to timely request arbitration or commence a lawsuit after the claimant receives the denial of claim form, and the accrual of interest will not resume until the claimant actually requests arbitration or commences a lawsuit pursuant to 11 NYCRR § 65-3.9(c). See also Brooklyn Chiropractic Assocs. v. Progressive Cas. Ins. Co., 844 N.Y.S.2d 554, 556 (App. Term Kings County 2007), where the court found that interest began to accrue 30 days after the insurer received the claim but failed to timely pay or deny the claim, but interest was tolled upon claimant’s receipt of the denial of claim until the claimant commenced an action against the insurer. Id. Accordingly, interest is not tolled during the period that a claim becomes overdue until the date that the insurer issues to the insured a denial of claim.

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