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No-Fault Car Insurance defined and explained

The term "no-fault" car insurance is often used loosely to denote any car insurance program that allows policyholders to recover financial losses from their own insurance company, regardless of fault. But in its strictest form no-fault applies only to state laws that both provide for the payment of no-fault first-party benefits and restrict the right to sue, the so-called “limited tort” option. The first party (policyholder) benefit coverage is known as personal injury protection (PIP). 

Under current no-fault laws, motorists may sue for severe injuries and for pain and suffering only if the case meets certain conditions. These conditions, known as a threshold, relate to the severity of injury. They may be expressed in verbal terms (a descriptive or verbal threshold) or in dollar amounts of medical bills, a monetary threshold. Some laws also include minimum requirements for the days of disability incurred as a result of the accident. Because high threshold no-fault systems restrict litigation, they tend to reduce costs and delays in paying claims. Verbal thresholds eliminate the incentive to inflate claims that may exist when there is a dollar "target" for medical expenses. However, in some states the verbal threshold has been eroded over time by broad judicial interpretation of the verbal threshold language, and PIP coverage has become the target of abuse and fraud by dishonest doctors and clinics that bill for unnecessary and expensive medical procedures, pushing up costs. 

Currently 12 states and Puerto Rico have no-fault auto insurance laws. 
Florida, Michigan, New Jersey, New York and Pennsylvania have verbal thresholds. 
The other seven states—Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota and Utah—use a monetary threshold. Three states have a "choice" no-fault law. In New Jersey, Pennsylvania and Kentucky, motorists may reject the lawsuit threshold and retain the right to sue for any auto-related injury.


States: New York: At the end of April 2011, the New York State Senate Insurance Committee held a hearing to consider way to reduce auto insurance fraud. One new idea that emerged from the hearing was the creation of a task force of district attorneys, the state’s insurance department, the attorney general’s office and others to make prosecuting no-fault fraud a more cooperative and coordinated effort. In 2010, according to a coalition dedicated to reducing auto insurance fraud in New York State, 83 percent of all questionable claims were associated with personal auto insurance, and faked and exaggerated injury, followed by excessive treatment topped the list of types of suspicious claims.

In February State Sen. James Seward, chairman of the Senate’s insurance committee, introduced a bill (SB 2816) designed to reduce fraud and abuse in the state’s no-fault system. Reform measures include tougher penalties for no-fault fraud; modification of the 30-day claims payment rule to allow insurers more time to carry out more thorough fraud investigations, see below; combating unnecessary and often excessive medical charges; decertifying medical providers who commit insurance fraud; and encouraging fair and faster settlements by requiring disputes to be resolved by an arbitrator.

Medical payments under New York’s no-fault’s PIP, or personal injury protection, the coverage part that pays for medical care and other benefits if the policyholder has an auto accident, are rising dramatically, in part due to fraud and abuse. PIP average claims costs in 2010 stood at $8,664, the third highest in the country, the first being Michigan and the second being New Jersey. From 2004 to 2010, claims costs rose an astounding 48 percent. No-fault fraud and abuse cost consumers and insurers about $204 million in 2010, a cost that was imposed on all drivers in the form of higher premiums.

A study on New York’s no-fault system by the Insurance Research Council (IRC) shows how prevalent fraud is in the New York City area. About one in every five claims settled appears to have some element of fraud and as many as one in three appears to be inflated, according to the IRC. Over the period 2007 to 2010, the percentage of no-fault claims that were fraudulent or were inflated (built-up) by excessive billing by unscrupulous medical care providers or by unnecessary medical services rose from 29 percent to 35 percent. In the fall of 2010 alone, fraud was found in 22 percent of all New York City metropolitan area no-fault auto insurance claims and build-up in another 14 percent. By comparison, outside the City, fraud was found in only 4 percent of no-fault claims settled and build-up in other four percent.

According to the New York Alliance Against Insurance Fraud, during the first six months of 2010 questionable liability claims involving excessive medical treatment surged 42 percent, from 304 during the same period in 2009 to 431. Many involved no-fault auto insurance claims submitted by medical mills. The most common were in which the healthcare provider purposely miscoded diagnoses to extract more money from the insurer.

At a Senate hearing on no-fault fraud held in Albany at the beginning of February 2010, a New York insurance department official testified that 85 percent of the rate changes being filed with the department were for increases in no-fault rates. The requested increases were averaging 6.5 percent. He said that this situation is likely to continue based on the dramatic increase in referrals to the fraud bureau.

Corrupt medical professionals, attorneys and street-level criminals who work on their behalf, particularly in New York City, have been able to exploit the system because of loopholes in the law. An analysis of PIP claims from insurers representing 50.1 percent of the state’s auto insurance market, found that between 2007 and 2009 more than four in 1o no-fault claims resulted in lawsuits and almost all of the plaintiffs in lawsuits relating to PIP were healthcare providers. Only 0.4 percent of injured claimants filed lawsuits over that period.

Due to the increase in no-fault lawsuits–there were 200,000 no-fault filings in the state in 2009 alone–New York City is creating a specific no-fault division to manage the surge in no-fault claim cases. Nearly half of no-fault claims now result in litigation. If a claim is not paid within a specific time period, medical providers can file individual lawsuits for each bill included in the claim. 

New York’s Superintendent of Insurance, James Wrynn, has proposed revisions to Regulation 68, which implements New York’s no-fault law. The changes would more effectively combat fraud and abuse, he says. One proposal would require claimants to provide additional information on forms filed to help ensure that the treatments being claimed for were medically necessary. Another proposal would simplify the procedures required for insurers to suspend payment of claims to a medical clinic while an investigation of the clinic’s licensing status was underway. The Superintendent also called for legislative action, including modifications to the rule that insurers who do not deny a claim within 30 days must pay that claim. This encourages unscrupulous individuals and medical providers to file numerous claims for the same case, sometimes overwhelming employees investigating the claim, knowing that the insurer will have to pay the claim if it is not denied within the time period.  Continued      
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