N.Y. Senate Hears Testimony on No-fault Frauds

February 11, 2004

The New York Senate’s Standing Committee on Insurance, heard from a number of interested parties, including various industry groups, regarding growing concerns about insurance fraud, particularly staged accidents, that abuse the state’s no-fault auto insurance system.

Committee Chairman James L. Seward, R-District 51, led the hearing, held Monday, Feb. 9, with other committee members in attendance. Supervising Investigator August D’Aureli of the New York State Insurance Department’s Insurance Frauds Bureau began the day’s testimony with what he termed a “street level look at the no-fault problem.”

D’Aureli indicated that the center of the no-fault problem lies with the medical facility or the provider. “No-fault fraud is provider-driven,” he stressed. He also noted that ‘runners’- individuals who orchestrate or stage accidents-are increasing in number and get paid anywhere between $1,500-$2,500 per job.

Insurance company representatives, who testified on how their companies investigate and manage claims they suspect are bogus, seemed to agree with D’Aureli. Representatives included Liberty Mutual’s New York Special Investigations Manager John Huber, Claims Team Manager for State Farm Insurance Co. Jim Urban and Steve Englert, head of Allstate’s New York SIU. They suggested that de-certification of medical providers and attorneys who sell their licenses for a fee would be one good way to curb the no-fault problem. They also suggested establishing a system of certified and approved medical protocols for no-fault medical treatment to help reduce the number of phony tests, treatments and procedures that equate to premium increases for policyholders.

D’aureli pointed out that the no-fault system is paying up to $50,000 for each person involved in an accident, making it a “billion dollar per year problem.” He also told the committee that runners’ rings are becoming increasingly territorial, and this, coupled with New Jersey’s tightening of its fraud-fighting laws, has flooded downstate New York with such criminals. The rings are also spreading into upstate New York, where people are unfamiliar with their operations. To try and halt the spreading problem, he urged the passage of a felony runners’ bill, increasing the penalties from a misdemeanor to a felony. He also suggested examining the laws regarding how medical facilities are formed as corporations to reduce the number of so-called “medical mills” providing “treatment” to victims of no-fault accidents.

Gerald Zimmerman, assistant vice president and regional manager for the Property Casualty Insurers of America Association agreed that “No-fault fraud is costing New York drivers more than $1 billion a year in increased premiums.” This essentially adds “an estimated $177 to every auto policy in the state.” He urged the legislature to “stop nibbling around the edges of this serious problem and take aggressive action to stop the fraud epidemic in New York.”

The committee also heard from Don Peters, the brother of Alice Ross-a Queens resident who was fatally injured as a result of a staged accident. The no-fault problem doesn’t just affect people’s pocketbooks, it affects their lives, Peters stressed. He vocalized his support for the felony runner’s bill, and asked that it be called “Alice’s Law,” as a memoriam to his late sister.

Gerard Brave, bureau chief of the Queens District Attorney’s Office’s Rackets and Organized Crime Bureau, noted the reinstitution of Regulation 68 has helped reduce the no-fault fraud problem. He said his office continues to prosecute offenders aggressively from various points on the “food chain” in the staged accident ring, including doctors, lawyers, runners, etc. He suggested the Legislature consider tackling the no-fault problem by including amendments to certain judiciary laws that would stiffen penalties for participants at all levels [of the perpetrated fraud], providing his office further leverage in catching such criminals.

Zimmerman restated the PCI’s long standing call for legislative action to help stem no-fault fraud. He stressed the association’s strong support for the adoption of the following proposals:
— Establishing a system of certified and approved protocols for auto no-fault medical treatment to help reduce the number of phony tests, treatments and procedures that currently cost New York drivers millions in premium increases.
— Establishing a decertification process to bar fraudulent medical mills and health care providers that abuse the system from treating no-fault accident cases.
— Reforming the current system, which allows insurers only 30 days to raise legitimate defenses, including the withholding of payment due to suspected fraud. Under the current system, an insurer cannot deny payment if a fraudulent claim is discovered more than 30 days after it is submitted. If an insurer is found to have improperly withheld payment, the claim must be paid with annualized interest of 24 percent and attorneys’ fees.
— Providing for mandatory arbitration of disputed no-fault medical claims.
— Criminalizing the act of serving as a “runner,” or steering participants into staged accidents and to unscrupulous attorneys and medical mills. Runners should face a felony indictment.
— Establishing a flex-rating plan for auto insurance premiums, which would make it easier for insurers to adjust rates.

“Elements of these recommended reforms are pending before the legislature in several different bills,” Zimmerman noted. “By adopting one or all of them, New York lawmakers would be dealing fraud a serious blow and reducing the ‘fraud tax’ that all drivers now pay.”

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