News & Updates

New York Drops Insurance Edict

July 21, 2006

Partner Richard Quadrino was featured in a follow up story regarding the action by the New York Insurance Department on discretionary clauses in group insurance policies.  A copy of the article in Long Island Business News appears below:

The state’s insurance regulator has pulled back on a new rule intended to give employees a fairer shot at securing coverage payments from their health insurers.  

Late last month, New York's Insurance Department distributed a letter withdrawing an edict issued in March forbidding health-maintenance organizations and other insurers from writing discretionary clauses into their policies. The original order drew applause from employee advocates, who said discretionary clauses give insurance companies too much latitude to deny claims. Insurance industry supporters said discretionary clauses cap rising premiums.

The department has instead said it will seek to ban discretionary clauses by drafting an administrative rule, a more formal process than the quietly distributed circular letter issued in March. The rule-making process will take as long as six months and opens the rule to public comment and greater scrutiny.

Representatives from the Insurance Department could not be reached for comment.

Richard Quadrino, a partner at Quadrino & Schwartz in Garden City who represents employees, said the Insurance Department isn’t backing away from its opposition to discretionary clauses. The June 29 letter includes the same strong language denouncing discretionary clauses as a tool insurance companies wield to deny claims, and the letter urges insurers not to write discretionary clauses into their policies during the rulemaking process.

“I don’t view this as a retreat,” Quadrino said. “This really has a lot more to do with procedure and not a lot with substance.”

In fact, the insurance commissioner is likely undertaking a more rigorous review to bolster the department’s position and insulate the new policy from attack, according to Justin Frankel, partner with Frankel & Newfield in Garden City.

“A regulation is more concrete than an advisory statement,” Frankel said, adding a formal rule would better survive a judicial challenge.

Norman Tolle, a former insurance company executive and now partner at Rivkin Radler in Uniondale , said the Insurance Department was wise to seek an administrative rule.

“Circular letters do not have the force of law, and the Insurance Department obviously recognizes this,” Tolle said.

The rulemaking process will allow for comments and possibly hearings, and Tolle said the Insurance Department’s rule could “end up very different” when the dust settles.

When the insurance commissioner struck down discretionary clauses in March, New York joined a growing wave of states taking aim at the clauses – contract provisions that are common features in most employer-based benefit plans. The regulators claim that discretionary clauses allow insurance companies to interpret their own policies and determine benefits with little judicial oversight.

The insurance industry, on the other hand, contends that judges do review insurance company claim decisions, and the discretion to limit claims helps keep costs down. Industry officials have also asserted that premiums would rise by as much as 30 percent without discretionary clauses, and questioned whether the state even has the jurisdiction to get involved, since employee benefits are governed by federal law.

Insurance industry groups sued California ’s insurance commissioner after that state struck the contract provisions. Earlier this week, California also reversed course and decided to pursue an administrative rule, pleasing insurance companies.

At the request of insurers, New York twice extended the deadline to delete discretionary clauses from contracts.

 

 

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