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January 2004 IN APIP CLAIM, COURT APPLIES PENALTY The no-fault insurance law is designed to provide claimants prompt reimbursement for claims. Insurance Law ' 5106 demands that payments of first party benefits and additional first party benefits shall be made as the loss is incurred. If payments are not made within thirty days after the claimant supplies proof of loss, the benefits are considered overdue. All overdue payments are subject to an interest rate of 2% per month. In addition, the plaintiff is entitled to recover fees, such as attorneys fees, for services performed in connection with securing payment of an overdue claim. In Cardinell v. Allstate Insurance Co., 302 A.D. 2d 772, 754 N.Y.S.2d 777 (3rd Dept., 2003), an award of $41,150 grew to $389,434 after the application of interest. The plaintiff was injured in an automobile accident in April, 1989. In February, 1992, the plaintiff sought to recover lost wage benefits under an additional personal injury protection provision of his automobile policy with the defendant. The defendant disclaimed based on issues of notice, proof of disability and that the full extent of plaintiff=s claim for lost wages was included within basic economic loss. The plaintiff brought suit. The Supreme Court, St. Lawrence County, after a non-jury trial, ultimately determined that the plaintiff was entitled to $41,150 in additional personal injury protection benefits. Further, the plaintiff was entitled to interest at a compounded monthly rate of 2%. During the pendency of this action, the plaintiff settled the underlying personal injury action for $50,000. The plaintiff did not preserve the defendant=s subrogation rights. As such, the Court ruled that the defendant was entitled to a $50,000 setoff. After applying the setoff to the amount owed to the plaintiff, the Court determined that the plaintiff was entitled to a net recovery of $389,434. The defendant appealed, arguing that the setoff should have been applied to the lost wage award of $41,150 before the calculation of interest. The Appellate Division, Third Department, affirmed the lower court=s ruling. The Court stated that the plain language of Insurance Law ' 5106 (a) and its underlying rationale clearly require the insurance company to pay benefits within 30 days or incur interest at the rate of 2% per month. Further, and, as the court states, more importantly, Athe objective of the statute...is to assure prompt and full payment of economic claims.@ The interest rate is designed to serve as a penalty to insurers who do not pay claims promptly. The court reasons that applying a setoff before calculating interest would frustrate the purpose of the statute. It is important to note that interest assessed on personal injury protection claims is no longer compounded. 11 NYCRR 65-3.9(a) has been revised since Cardinell to calculate interest pursuant to Insurance Law ' 5106 at simple interest. The revision of the regulation was upheld in Medical Society of the State of New York v. Serio, 2003 WL 22387581 (N.Y.). The court determined that because Insurance Law ' 5106 (a) is silent as to whether interest is simple or compounded, the revised regulation does not conflict with the statute. Even so, calculating simple interest on the award of $41,150 in Cardinell would have resulted in an award of around $140,000, prior to the setoff. The lesson to be learned from Cardinell is to be diligent in a challenge to the denial of personal injury protection benefits. Be certain to deny claims promptly and according to the statute. This forces the claimant to take affirmative action to challenge the denial. Interest will not accrue if the claimant delays more than 30 days in challenging a proper denial. 11 NYCRR 65-3.9(c). If a claimant does challenge a denial, efforts should be made to ensure that the matter does not languish. For example, if appropriate, serve claimant with a 90 day demand to resume prosecution. Because 2% interest per month is a steep price to pay, prompt resolution of disputes is imperative. Scott W. Kroll |