Tag: reinsurance

How Technological Advances Possibly Affect Automobile Insurance Policy Holders in New Jersey

In the 1970’s, “no-fault” insurance laws were enacted in New Jersey and several other states in response to criticism regarding the time-consuming and costly process of determining who was at-fault when an accident occurred. 

No fault insurance laws sought to streamline the claims process.  One key feature allowed insurers to pay for medical treatment of their injured policyholders.  This allowed for timely treatment and provider payment.  NJ automobile insurance policies offered up to $250,000 in coverage for medical treatment.  Recent changes in law now allow insureds to choose less coverage for medical treatment.

Further, recent technological advances change the way insurance customers choose coverage online.  While customers are served by the ease, flexibility, and pricing of policies through internet platforms, some adverse consequences naturally flow.  In this article, we discuss the changes, the consequences and subsequent response from participants and 3rd parties to address these outcomes.

Background

In the 1960’s, many more vehicles were entering into American roadways than in previous decades.  Baby boomers were coming of age and more cars were sold than ever before.  A natural consequence was automobile accidents and as a result, the necessary adjudication of which party caused the collision.

Insured and insurers alike expressed criticism of the process which consisted of petitioning the civil court system to resolve disputes.  In response, state legislatures adopted laws designed to streamline the process, and the 1970’s, many states adopted policies allowing injured accident victims to recover damages from their own auto insurance policies.

Almost half of the United States now have similar laws where policyholders are entitled to “benefits” from their own policies.  This of course means insurers are on the hook for more compensation, a fact they obviously utilized to lobby legislatures to place certain restrictions on the right to sue for damages not only against the insurer but against the tortfeasor as well.

One of the “trade-offs” made by the legislation was injured parties giving up some of their rights to sue under certain circumstances.

New Jersey No-Fault Law and Application

New Jersey’s no-fault laws have been amended throughout the years.  One of the most profound changes to the law occurred in 1998 with the passage of the Automobile Insurance Cost Reduction Act (“AICRA”).  This change in law gave NJ residents the opportunity to purchase a standard or basic policy.

The standard policy is much like a typical no-fault policy containing Personal Injury Protection (PIP) which pays for medical treatment (more on this in a moment); liability coverage for injury or property damage to another; and uninsured/underinsured coverage which kicks in if the at-fault driver has no or insufficient coverage.

A basic policy provides minimum coverage in certain areas such as personal liability, property damages, and medical benefits.  Because having automobile insurance is mandatory, the purpose of the basic policy was essentially to afford an option to those who simply wanted to follow State mandates.

With regard to the right to sue restrictions, a New Jersey insured was and still is offered a choice – give up the right to sue for “non-permanent” injuries (those with no objective medical evidence of permanency) and have the premium reflect a savings or retain the right to sue (zero threshold) and pay a much higher premium to offset the cost.  Further, one of the things insurers had to trade was that victims would have $250,000 worth of PIP coverage to pay for medical expenses.

Changes to NJ No-Fault Insurance and Consequences

The AICRA changes have been in effect for years.  Since that time, the internet altered the manner in which policyholders interact with insurers when choosing coverages.

The internet streamlines the sales process for many businesses.  Insurance is no different.  What is troubling about this streamlining is the lack of guidance users receive from insurance companies regarding their choice of coverage.

For example, one website asks you to choose between:

  • More Affordable
  • Popular Coverage
  • More Coverage

It is not so much that the choices are misleading – they aren’t.  However, other than these descriptions, there is little explanation of their consequences.  If you choose the “more affordable” option, you’re led to a screen that explains the coverages in more detail.

Do people read all the information?

Can they understand the language even if they do decide to read it?

Could it be that the ease of picking the cheapest option is too much to overcome?

Consider this description from a law firm in Maryland:

“PIP is easy to overlook, especially in this age of online insurance applications. It’s one box out of 200 that you can check. The application will say something like, “Waive PIP and save $57.” The applicant clicks and saves 57 bucks…when in reality, they’ve lost $2,500 if they get in an auto accident. Too many Maryland policyholders waive their PIP coverage. It’s really a good coverage not to waive. “

Likewise, in New Jersey’s Standard Coverage Selection Form, used by insurance companies as a questionnaire to draft a proposed policy, the PIP limits selection form actually lists the savings from choosing lower limit PIP coverage.  Remarkably, no such comparison exists on the Form for reductions in Bodily Injury/Liability limits.

In the old days, an insurance agent was tasked to explain various coverages.  A real human being who would answer questions depicting real word scenarios involving accidents.  This obviously allowed for more informed choices.

Now, a great deal of selling is done online.  Many cost-aware customers might respond only to a difference in price.  Many can and do simply choose the cheaper alternative.  This could cause problems later if an accident occurs and a claim is made.

A Potential Problem with Minimal Coverages

Consider a situation where the insured has the minimum coverages for PIP – $15,000.  The insured sustains a back injury and begins treatment.  The Emergency Room visit totals $6,000 complete with 3 level CT scans which reveal problems with the upper and lower back.  The insured then follows up with an orthopedic who requests MRI scans on the back which equal another $2,500.  Add in some physical therapy and the $15,000 PIP limits are exhausted in a couple of months.

None of this is a problem if the scans fail to reveal a major issue.  A soft tissue injury is serviceable under this scenario in that the insured gets treatment and is on the way to recovery.  If the scans reveal problems, such as multiple herniated discs and impingement on the spinal cord, treatment options become a tricky proposition.

The treatment is tricky because the benefits are gone.  Now the injured party must seek other options – some of these can be costly.

Responding to the Need

In response to the above, providers, lawyers and other market participants stepped in to serve the need for accident victims to secure medical treatment.  The following are some of those alternative payment methods.

Letters of Protection

Letters of protection (LOP’s) are agreements between the injured party’s attorney and a medical provider that the medical bills will be “protected” by the proceeds of any settlement received.  In return for the attorney’s promise to honor the lien against file, medical providers will perform a variety of treatments to the plaintiff, including surgery.  Surgery is often a deciding factor in the plaintiff’s ability to secure the treatment because normally, the case’s settlement value is increased after the procedure.

Use Existing Health Insurance to Pay Bills After PIP is Exhausted

In some instances, plaintiffs can use their own health insurance to pay for accident medical bills.  In NJ, insureds can choose which coverage is primary.  However, some health insurance policies exclude coverage for car accidents.  The standard health insurance limitations apply as well.  These include the need to pay deductibles, co-payments and sometimes co-insurance.  Further, there may be limits on the choice of medical provider.  Some policies require doctors to be “in network”.

Litigation Funding

In many cases, litigation funding is used to pay for much-needed medical treatment.  Originally utilized to bridge the gap between accidents and settlement, litigation funding sought to alleviate the need for plaintiffs to accept low-ball settlement offers simply because they were struggling financially.  Because lawsuit funding is the sale of a portion of the future proceeds of a personal injury case, they are sometimes used to pay for surgical or other procedures when there is no coverage available.

Technological Advances and Practical Trade-offs

Technology has certainly made life more convenient over the years.  Conveniences exist today that weren’t in our collective consciousness 20 years ago.  Consider being able to speak via video conference to someone on the other side of the world for FREE, when the toll charges for an overseas telephone call were many dollars only a short time ago.

But technology can cut both ways.  The ease with which insurance consumers can pick coverages that may or may not be in their best interest may be one such trade-off.  Thankfully, market participants (doctors, lawyers, litigation finance companies) step in and address the outcomes which naturally arise.  Free markets usually perform this function admirably.

Article By Paul M. Coppola of Fair Rate Funding

For more insurance and reinsurance legal news, click here to visit the National Law Review.

© Copyright 2022 Fair Rate Funding

From Adele to the NFL, Large-Scale Event Disruptions Show the Need for Policyholders to Have a Strategy to Recover in the Event of a Loss

The ongoing Covid-19 pandemic and supply chain issues have caused several major event organizers to cancel or postpone concerts, sporting events, and awards shows, among many other large-scale events. For example, this week, Elton John postponed tour concerts after testing positive for Covid-19; last week, Adele put on hold her much-anticipated Las Vegas residency over “delivery delays” and Covid-19 diagnoses among her team; last month, the NHL, NBA, and the NFL rescheduled major games, with the NHL citing concerns about “the fluid nature of federal travel restrictions,” and the NFL citing “medical advice” after “seeing a new, highly transmissible form of the virus;” and the Grammys postponed its January 31 awards show in Los Angeles—to now take place on April 3 in Las Vegas. The cancellations and postponements of these types of events often have major financial effects on its organizers and producers. Given the risk of substantial losses following the cancellation of big-ticket events, businesses should be aware that they can tap into event cancellation insurance to mitigate and protect against these risks.

“Specialty” Event Cancellation Coverage

Contrary to general liability insurance coverage—which protects against third-party bodily injury or property damage claims—event cancellation insurance is an elective, specialty-type insurance coverage designed to protect a policyholder’s loss of revenue and expenses following the cancellation, postponement, curtailment, relocation, or abandonment of an event for reasons outside the policyholder’s control.

As a threshold matter, for there to be coverage under an event cancellation policy, there must first be a triggering cause covered under the policy. Some event cancellation policies are written as “all cause”/“all-risk” policies. These policies provide coverage for any cause that is not specifically excluded by the policy. Other event cancellation policies, however, provide more limited coverage and are written to insure event cancellations or postponements following a narrow set of causes, which are typically listed within the policy.

Potential Coverage Issues

Although event cancellation policies typically provide broad coverage, businesses must be wary of certain obstacles insurers may raise in trying to avoid paying claims. Insurers might seek to disclaim or limit coverage for various purported reasons, including alleged non-disclosure at the policy-application stage, failure to satisfy certain conditions after the loss, application of policy exclusions, timely notice, and questions about whether an event was cancelled for a covered cause of loss. By way of example, insurance companies have denied coverage for event cancellations during the Covid-19 pandemic arguing, in part, that the “proximate cause” of the policyholder’s loss was the Covid-19 pandemic (a “communicable disease” excluded by the policies) and not the government orders prohibiting large gatherings (a covered cause of loss under the policies).

Steps to Secure Coverage

If an event is cancelled or postponed that might be covered by event cancellation coverage, policyholders must know that they might have a claim for coverage to protect against the resultant losses and extra costs. To secure coverage, policyholders are well-advised to:

  1. review the event cancellation policy at issue for potential coverages (as well as all other insurance policies that might provide coverage);
  2. provide immediate notice of the potential event cancellation claim to all applicable insurers; and
  3. keep detailed, up-to-date accounting records of all losses and costs at issue, including lost revenue and profits, as well as extra expenses.

Article By Jorge R. Aviles and Andrea DeField of Hunton Andrews Kurth

For more insurance and reinsurance legal news, click here to visit the National Law Review. 

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.

Reinsurance and the Death Master File

In a traditional life insurance and reinsurance relationship, a life insurance company issues a policy to a policyholder and reinsures the policy (usually via a block of business consisting of the same or similar policies) with its reinsurer either by coinsurance or on a yearly renewable term basis (or otherwise).  When the insured person dies, a death certificate is presented to the policy issuing company and the policy benefits are paid to the beneficiary.  That triggers an indemnity claim under the reinsurance contract and the reinsurer is obligated to pay its share of the policy benefits to the ceding company. Simple.

But what happens if the insured person dies, but no one files a death certificate and makes a claim against the policy?  Who gets the policy benefits?  Does the insurer get to avoid paying any benefits out on the policy or does the state have an interest in this abandoned property?  This has been a huge issue over the past several years, with regulators entering into settlements with life insurance companies about searching the Social Security Administration’s Death Master File or using some other method to determine death.  Of course, all these abandoned life insurance benefits escheat to the state when no one claims the benefits, which is why state regulators were so keen to press this issue.

In a recent case, a New York federal court had to address these issues in a petition to confirm a reinsurance arbitration award.

In Park Avenue Life Ins. Co. v. Allianz Life Ins. Co. of N.A., No. 19-cv-1089 (JMF) (S.D.N.Y. Sep. 25, 2019), the dispute was over a life reinsurer’s obligations to pay for costs and claims arising out of an agreement with regulators to pay death benefits that would be escheated to the government after a Death Master File search indicated that the insured person died.  By majority, the arbitration panel mostly found for the reinsurer (the award, which is now public on PACER, found that the reinsurer was not responsible under the coinsurance agreement for the costs and expenses associated with the Death Master File searches or regulatory dispute).  In a paragraph addressing the reinsurer’s continuing obligations, the majority made the following pronouncement:

[The reinsurer] shall continue to be obligated to indemnify [the cedent] for all death benefits paid under the terms of the [policies] covered by the Coinsurance Agreement.  Notice of any deaths can arise pursuant to claims made by Policy owners or beneficiaries, or by way of periodic searches of the Death Master File or any other death data base search tool by [either party].

The reinsurer argued that the award required reimbursement of only those death benefit payments that arise from claims made by beneficiaries.  The cedent argued that the award continued to require the reinsurer to reimburse payments that arise from claims made either by designated beneficiaries or by escheatment. Both asked the court to confirm the award based on each side’s different interpretation.

The court found that the award was susceptible of two meanings and was unable to say that one or the other of the two interpretations presented was definitively correct.  The court remanded the matter back to the arbitration panel to clarify certain questions addressing escheatment claims, but suggested that the panel should “broadly aim to underscore the meaning and effect of the award so that the court will know exactly what it is being asked to enforce.”

Notably, and consistent with the recent trend in many courts, the court denied the parties’ request to keep the arbitration award and related materials under seal.

© Copyright 2019 Squire Patton Boggs (US) LLP

For more on the topic, see the Insurance, Reinsurance & Surety law page on the National Law Review.