Regulatory Impact Statement for the Fourteenth Amendment to Insurance Regulation 64 (11 NYCRR 216)
1. Statutory authority: Financial Services Law §§ 202 and 302 and Insurance Law §§ 301 and 2601.
Financial Services Law § 202 establishes the office of the Superintendent of Financial Services (“Superintendent”).
Financial Services Law § 302 and Insurance Law § 301, in material part, authorize the Superintendent to effectuate any power accorded to the Superintendent by the Financial Services Law, Insurance Law, or any other law, and prescribe regulations interpreting the Insurance Law.
Insurance Law § 2601 prohibits an insurer from engaging in unfair claims practices, including knowingly misrepresenting pertinent facts or policy provisions; failing to acknowledge with reasonable promptness pertinent communications as to claims; failing to adopt and implement reasonable standards for the prompt investigation of claims; not attempting in good faith to effectuate prompt, fair, and equitable claim settlements submitted in which liability has become reasonably clear; and compelling policyholders to institute suits to recover amounts due by offering substantially less than the amounts ultimately recovered in suits brought by the policyholders.
In order to protect insurance claimants, the proposed amendment exercises the Superintendent’s broad authority under Financial Services Law § 302 and Insurance Law §§ 301 and 2601 by setting forth minimum provisions that an insurer must include in a release if the insurer requires the execution of a release, and prohibiting certain other provisions in such a release.
2. Legislative objectives: Insurance Law § 2601 requires insurers to effectuate prompt, fair, and equitable claim settlements. Insurers must use releases in a manner that is fair and equitable to all parties, including third-party claimants. Further, Financial Services Law § 302 and Insurance Law § 301 authorize the Superintendent to prescribe regulations interpreting the Insurance Law, and to effectuate any power granted to the Superintendent under the Insurance Law to prescribe forms or otherwise make regulations.
3. Needs and benefits: Insurers often require a third-party claimant to execute a general release in exchange for settling the claim. However, insurers frequently do not tailor these releases to the specific claim and often use one generic release for different types of claims. The generic language of releases often makes it difficult to ascertain exactly what the parties are settling, how the insurer has calculated the settlement amount, and what the settlement amount represents. As a result, releasors often execute releases that go far beyond the scope of the proposed claim settlement.
Pursuant to 11 NYCRR § 216.2, § 216.6(g) applies to all insurers authorized to do business in New York, provided, however, that § 216.6(g) does not apply to workers' compensation insurance; credit insurance; title insurance; inland marine insurance, unless the insurance is subject to Insurance Law § 3425; and ocean marine insurance. Note that § 216.6(g) does not apply to self-insured entities, such as local governments.
Therefore, the purpose of this amendment is to provide clarity regarding the scope of releases to: provide a level playing field for all authorized insurers; allow the Department of Financial Services ("Department") to more easily enforce this section; and ensure that releases are narrowly tailored to the claim being settled and are easy for all parties to understand.
4. Costs: This rule does not impose compliance costs on state or local governments. The Department does not anticipate that it will incur additional costs; there may be a cost savings due to a reduced number of complaints received by the Department.
The costs to authorized insurers should be negligible. Insurers already have release templates, which they will only need to alter to comport with the draft amendment.
In addition, while an insurer may need to draft two separate releases when a settlement involves both property damage and bodily injury liability claims, the cost to do so should be negligible, as many insurers already use separate releases for property damage and bodily injury liability claims.
5. Local government mandates: This rule does not impose any program, service, duty, or responsibility upon any county, city, town, village, school district, fire district, or other special district.
6. Paperwork: For settlements that involve both property damage and bodily injury liability claims, the draft amendment requires an insurer to use separate releases for the property damage claim and the bodily injury liability claim. As a result, there may be more paperwork in such situations, because an insurer must draft two releases instead of one, but the impact on the insurer and additional paperwork obligation would be minimal.
7. Duplication: This amendment will not duplicate, overlap, or conflict with any existing state or federal rule or other legal requirement.
8. Alternatives: The Department received comments on a September 2009 draft of the rule from a state agency, three insurance trade associations, and three insurers. A trade association and an insurer questioned the rationale of applying the draft amendment to claims where counsel represents the claimant. The Department added a carve-out for a “large commercial claimant,” but does not think a carve-out would be appropriate for non-commercial claimants or small commercial claimants.
A trade association commented that the amendment, which would prohibit an insurer from issuing a check or draft in payment of any settlement where the check or draft contains language that acceptance constitutes a final settlement or release, is too restrictive and will result in fewer settlements. Another trade association remarked that requiring a separate release to be signed would add administrative costs. The Department met with stakeholders of a trade association to discuss their concerns. The Department offered an alternative whereby the insurer could issue a check or draft that contains such language, but the insurer would need to send along with the check a document that complies with section 216.6(g). The Department was advised that the alternative was not feasible. Therefore, the Department did not make any changes.
In April 2010, the Department posted a revised version of the rule on its website and received comments from three insurance trade associations and four insurers. A trade association and an insurer expressed concern about the prohibition against requiring the releasor to keep the terms and conditions of the settlement confidential. The proposed rule has been revised to allow an insurer to require the execution of a release provided that it does not unreasonably restrict the ability of the releasor to discuss the terms and conditions of the settlement. Moreover, the insurer may not prohibit the releasor from discussing the terms and conditions of the settlement with certain persons, such as the releasor's attorney, accountant, or financial advisor or planner.
A trade association also expressed concern with the prohibition against the execution of a release that prohibits the releasor from making disparaging, negative, denigrating, or derogatory statements about the releasee, asserting that an insurer should not be put in a position of offering a fair settlement to a complainant, only to face disparaging remarks or have complainant's counsel recruit other policyholders to pursue similar complaints. The Department revised this section to state that an insurer shall not require execution of a release that unreasonably restricts the ability of the releasor to make statements about the insurer, provided that nothing therein would prevent the insurer from requiring the execution of a release that prohibits the releaser from making false statements about the insurer.
9. Federal standards: There are no minimum standards of the federal government for the same or similar subject areas.
10. Compliance schedule: Insurers will be required to comply with the new requirements no later than 90 days after publication of the Notice of Adoption in the State Register.
Statement setting forth the basis for the finding that the Fourteenth Amendment to Insurance Regulation 64 (11 NYCRR 216) will not impose adverse economic impact or compliance requirements on small businesses or local governments
1. Small Businesses: The Department of Financial Services finds that this amendment will not impose any adverse economic impact on small businesses and will not impose any reporting, recordkeeping or other compliance requirements on small businesses. The basis for this finding is that this amendment is directed at insurers licensed to do business in this State, none of which falls within the definition of "small business" as found in section 102(8) of the State Administrative Procedure Act. The Department bases this conclusion on its review of Reports on Examination and Annual Statements filed by authorized insurers, which shows that none of them constitutes a "small business", because none are both independently owned and have under one hundred employees.
2. Local governments: The amendment does not impose reporting, recordkeeping, or other compliance requirements on local governments.
Rural Area Flexibility Analysis for the Fourteenth Amendment to Insurance Regulation 64 (11 NYCRR 216)
1. Types and Estimated Number of Rural Areas: Authorized insurers do business in every county in the State, including rural areas as defined under State Administrative Procedure Act § 102(13). Some of the home offices of these insurers lie within these rural areas.
2. Reporting, Recordkeeping, and Other Compliance Requirements and Professional Services: Authorized insurers already require the execution of releases for the settlement of third-party claims in many instances. However, for settlements that involve both property damage and bodily injury liability claims, the proposed amendment requires an insurer to use a separate release for both the property damage claim and the bodily injury liability claim. As a result, there may be more paperwork in such situations, because an insurer must draft two releases instead of one.
3. Costs: The costs to authorized insurers should be negligible. Insurers already have release templates, which an insurer will only need to alter to comport with the proposed amendment. Further, with regard to third-party motor vehicle property damage claims, Office of General Counsel ("OGC") Opinion 08-07-01 (July 1, 2008) and OGC Opinion 07-10-02 (October 10, 2007) interpreted the current language set forth in 11 NYCRR § 216.6(g) to prohibit a release from releasing an insurer from all unexpected, unknown, and/or unanticipated property damage claims. Therefore, insurers already should be complying in part with the proposed amendment.
In addition, while an insurer may need to draft two separate releases when a settlement involves both property damage and bodily injury liability claims, the cost to do so should be negligible.
4. Minimizing Adverse Impact: This amendment applies to authorized insurers that issue certain types of policies or contracts. The same requirements that will apply to non-rural entities will apply to rural area entities. Therefore, the amendment does not impose any adverse impact on rural areas.
5. Rural Area Participation: This notice is intended to provide small businesses, local governments and public and private entities in rural and non-rural areas with the opportunity to participate in the rule making process. Interested parties will have the opportunity to comment once the proposal is published in the State Register.
Job Impact Statement For the Fourteenth Amendment to Insurance Regulation 64 (11 NYCRR 216)
This proposed amendment should not adversely impact jobs or employment opportunities in New York State. It is likely to have no impact whatsoever, since the proposed change merely clarifies the Department’s current interpretation of the existing regulation.