LOSS TRANSFER AND PRIORITY OF PAYMENT TRAINING: MENACING TERMINOLOGY, BUT IT IS REALLY NOT THAT BAD

PARDALIS & NOHAVICKA LLP, ASTORIA NY -- 718.777.0400

LOSS TRANSFER AND PRIORITY OF PAYMENT TRAINING: MENACING TERMINOLOGY, BUT IT IS REALLY NOT THAT BAD © 2015

718.777.0400

NEW YORK INSURANCE COMPANY ASSET RECOVERY TRAINING SERIES INSTALLMENT 1

“ANOTHER KIND OF LAWFIRM”


Loss Transfer and Priority of Payment, are terms of art in the New York Insurance Industry. Simply put, when two insured vehicles are involved in an accident, the insurer for each vehicle will pay out No-fault benefits in the form of medical payments or lost earnings up to $50,000 for each claimant. The people who are injured can sue the driver and owner responsible for personal injuries. But, generally, the insurer that pays out the benefits under the auto policy that was not at fault cannot sue the driver or owner of the at-fault vehicle. But under certain circumstances the insurer of the innocent vehicle can recover from the insurer of the at-fault insurer. The process is called Loss Transfer. Priority of Payment is different but handled similarly. A passenger in the at-fault vehicle has the option of putting a claim in for No-Fault benefits to the insurer for either of the two vehicles. However, if the claimant recovers benefits from the vehicle that they were not in at the time of the accident, the insurer of that vehicle has a Priority of Payment claim against the insurer of the host vehicle. The assets recovered go right to the insurer’s (or self-insurer’s) bottom line. So let’s master this:


Loss Transfer

Hypothetical:

The driver of vehicle one runs a stop sign and collides with vehicle two. Both drivers are injured and require medical treatment. Each is entitled to no-fault benefits (also called first-party benefits) from their respective insurers regardless of which driver was at fault.


THE INSUREDS CANNOT SUE OR BE SUED FOR NO-FAULT BENEFITS PAID OUT

The Insurance Law does not permit the innocent driver in this model to recover first-party benefits from the offending driver. Nor can the innocent driver's insurer maintain an action against the offending insured driver to recover first-party benefits paid to their insured.


LOSS TRANSFER STATUTE: NEW YORK INSURANCE LAW SECTION 5105

Insurance Law §5105, permits an INSURER that pays first-party benefits to recover the amount paid from the insurer of the offending driver’s INSURANCE COMPANY so long as at least one of the motor vehicles involved weighs more than 6,500 pounds unloaded or …


OVER 6500 LBS. OR VEHICLE FOR HIRE

…is used principally for the transportation of persons or property for hire.

The phrase "a motor vehicle used principally for the transportation of persons or property for hire" refers to vehicles hired to transport people, and livery vehicles hired to transport property.


FAULT IS IRRELEVANT FOR PURPOSES OF LOSS TRANSFER QUALIFICATION

For the determination of whether the incident qualifies for Loss Transfer, it is not necessary that the at-fault vehicle fits within the Insurance Law §5105 exception. Just as long as there is a qualifying vehicle that was involved in the accident, you are good to go.


Mandatory Arbitration Under Insurance Law § 5105 – Loss Transfer In Legalese

As part of the No-Fault Law, the Legislature enacted section 674 (now section 5105) adopting the procedure that authorizes first-party benefits with a resulting equitable adjustment between insurers without the need for the formalities applicable to litigation of claims. Matter of City of Syracuse v Utica Mut. Ins. Co., 61 N.Y.2d 691, 460 N.E.2d 1085, 472 N.Y.S.2d 600 [1984]; see generally Joseph D. Nohavicka, “Loss Transfer of No-Fault PIP Benefits: Statute of Limitations,” New York Law Journal (Jun 11, '04 ). Section 5102(g) of the Insurance Law defines an insurer as follows: "The insurance company or self-insurer, as the case may be, which provides the financial security required by article six or eight of the vehicle and traffic law." Where first-party benefits are paid, the insurer's right to transfer the loss to the insurer of the owner and operator of the other vehicle depends on the application of Insurance Law section 5105 and 11 NYCRR section 65.10 of the Regulations of the Superintendent of Insurance, which provide for mandatory arbitration of certain priority of payment or joint coverage situations. As well, an insurer can present a claim to recover basic economic loss from the insurer of another covered person, if (a) one of the motor vehicles involved in the accident weighs more than 6, 500 lbs. unloaded; or (b) is a motor vehicle used for the transportation of persons or property for hire. Under those circumstances, arbitration is mandatory.

That statute reads, in part, as follows:

Settlement between insurers. (a) Any insurer liable for the payment of first party benefits to or on behalf of a covered person and any compensation provider paying benefits in lieu of first party benefits which another insurer would otherwise be obligated to pay pursuant to subsection (a) of section five thousand one hundred three of this article or section five thousand two hundred twenty one of this chapter has the right to recover the amount paid from the insurer of any other covered person to the extent that such other covered person to the extent that such other covered person would have been liable, but for the provisions of this article, to pay damages in an action at law. In any case, the right to recover exists only if at least one of the motor vehicles involved is a motor vehicle weighing more than six thousand five hundred pounds unloaded or is a motor vehicle used principally for the transportation of persons or property for hire.* * *(

b) The sole remedy of any insurer or compensation provider to recover on a claim arising pursuant to subsection (a) hereof, shall be the submission of the controversy to mandatory arbitration pursuant to procedures promulgated or approved by the superintendent. Such procedures shall also be utilized to resolve all disputes arising between insurers concerning their responsibility or the payment of first party benefits."


Arbitration Forums, Inc. – The Sponsoring Agency

Arbitration Forums, Inc., (“AFI),” is a company that administers no-fault mandatory arbitrations in New York. See Matter of Utica Mut. Ins. Co. v. Selective Ins. Co. of Am., 2006 NY Slip Op 2261, 2006 N.Y. App. Div. LEXIS 3559 (3d Dep’t 2006).

All loss transfer arbitrations are conducted by appointed volunteer arbitrators in accordance with the aforementioned procedures established by AFI and approved by the Superintendent of the new York State Insurance Department.

Arbitrators are “appointed by Arbitration Forums from full-time salaried representatives of insurers, on the basis of their experience and qualifications, and shall serve without compensation.”


LET’S TRY A CLAIM

In the photograph we see two autos in an intersection accident: question of lights – operator of vehicle one (woman’s vehicle on the left) states that she had a steady green light; operator of vehicle two (man’s vehicle on the right),states that he accidentally ran a red light. Woman begins treatment for injuries caused by the accident; woman’s insurer pays her medical benefits in the amount of $5,000.

Is there a viable Loss Transfer claim here by the woman’s insurer?

Absolutely correct! No vehicle over 6500 lbs. involved, no vehicle for hire involved, no Loss Transfer available.


ANOTHER SCENARIOLimousine versus pickup. Liability is 100% against the pickup. Limo weighs 6300 lbs. and the pickup weighs 4300 lbs. You are the No-fault Specialist for the Limo’s carrier. You just paid out $50,000 to the hospital for one of the claimants. What do you do next? Loss Transfer?

Yes! Although neither of the vehicles weighs more than 6500 lbs., your insured’s vehicle is one that is principally used for hire. Because liability is 100%, your company gets back the full $50,000 from the carrier for the pickup. So, send out the letter putting the pick-up’s carrier on notice along with any proofs you have regarding liability along with a printout of the payment made to the hospital.


MORE PRACTICEBus versus compact. Liability is 100% against the compact. Compact weighs 2300 lbs. You are the No-fault Specialist for the compact’s carrier. You just paid out $50,000 to the hospital for one of the claimants. What do you do next? Loss Transfer?

No! Although one of the vehicles weighs more than 6500 lbs., your insured’s vehicle is one that is completely at fault. Because liability is 100%, your company gets back nothing from the bus. If there had been any fault at all to apportion to the bus, you would send out the letter putting the bus company (assuming it is self-insured) on notice along with any proofs you have regarding liability along with a printout of the payment made to the hospital.


ANOTHER ONERed tractor trailer v. silver Smart Car v. black Dump Truck.

The Smart car has 0% liability. 50% on the red trailer for a hit in the rear, and 50% on black dump truck for backing up in an unsafe manner. Remarkably, the driver of the Smart Car walked away without a scratch. The passenger in the red trailer, however, needed $50,000 worth of treatment. You are the Specialist for the trailer. You paid out $50k. Loss Transfer?

Yes! Even though 50% liability was apportioned to your vehicle, you still have a Loss Transfer claim against the dump truck.


MAKE SURE YOU DETERMINE THE TYPE AND WEIGHT OF ALL VEHICLES INVOLVED IN THE ACCIDENT

THESE VEHICLES DO NOT QUALIFY FOR LOSS TRANSFER


IF LOSS QUALIFIES, ASSESS LIABILITY


PUT THE ADVERSE CARRIER OR SELF-INSURED ON NOTICE OF THE CLAIM AS SOON AS YOU HAVE DETERMINED THAT THE CLAIM QUALIFIES FOR LOSS TRANSFER OR PRIORITY OF PAYMENT ARBITRATION. IF THE ADVERSE CARRIER IS ON THE BALL AND THEY REALIZE THEY HAVE EXPOSURE ON A LOSS TRANSFER CLAIM, THEY MAY WANT TO ASSUME COVERAGE AND START TAKING STEPS FOR COST CONTAINMENT (EXAMINATIONS UNDER OATH, INDEPENDENT MEDICAL EVALUATIONS, FRAUD INVESTIGATION), WHICH ARE EXPENSES AND NOT RECOVERABLE AS PART OF LOSS TRANSFER RECOVERY. IF YOUR CARRIER DETERMINES THAT LOSS TRANSFER WILL YIELD 100% OF PAYOUTS , WHAT IS THE INCENTIVE TO INCUR EXPENSES? ANSWER: NONE.


AS SOON AS A PAYMENT IS ISSUED BEGIN TAKING STEPS TOWARD RECOVERY.

You have three years to file for arbitration from the date of each payment. The date of loss has nothing to do with the statute of limitations on a Loss Transfer Claim. This is very important. You must treat each check issued as a separate claim for purposes of loss transfer.

See Joseph D. Nohavicka, “Loss Transfer of No-Fault PIP Benefits: Statute of Limitations,” New York Law Journal (Jun 11, '04 ).


CHEAT SHEET

Any vehicle involved weigh over 6500 lbs.?

Any vehicle involved a commercial vehicle used for purposes of transporting people or things? Taxi, limo, tow truck, bus?

How is your insured’s liability? Even if you can apportion a small amount of liability to the adverse vehicle, you can use the claim to offset the Loss Transfer claim that is coming against your carrier. But you must make a determination as to whether you want to wake up the other side as to their claim.

File for arbitration three years from date of payment, or you (or the adverse carrier), are out of luck.


LOSS TRANSFER POTENTIAL SHOULD BE ON YOUR MIND FROM THE BIRTH OF THE CLAIMIf you have made a positive determination, put the case on the radar and start making separate copies of move copies of the following documents to a Loss Transfer File: first reports, interview, accident reports, MV104, witness statements, etc. Remember, this is arbitration and the rules of evidence are relaxed dramatically. If liability is clear, contact the adverse carrier and let them know you will be setting up a Loss Transfer Arb File even before a payment is made.


LAST LOOK. AND GOOD LUCK WITH YOUR LOSS TRANSFER OR PRIORITY OF PAYMENT RECOVERY1. 6500 LBS.2. Vehicle for hire.3. Liability assessment.4. Assemble all proofs5. Notice to adverse carrier.6. File for Arbitration within three years from date of each payment (not date of loss – for example, date of accident is January 1, 2007, you had until January 1, 2010 to file a complaint). If a No-fault payment for medical benefits was made for treatment of injuries suffered in that 2007 accident is made on January 1, 2012, you had to have filed for arbitration by January 1, of this year – 2015.

FROM PARDALIS & NOHAVICKA, GOOD LUCK ON YOUR RECOVERY EFFORTS.


NEW YORK INSURANCE COMPANY ASSET RECOVERY TRAINING SERIES INSTALLMENT 1

P&N, LLP, handles an eclectic caseload comprised of civil and criminal litigation including commercial disputes, construction, torts, insurance coverage, corporate disputes, employment law, real estate, and criminal matters. The firm has a strong presence in all the state and federal trial courts in New York City, Westchester County and Long Island, and has recently litigated a commercial matter to a successful verdict in the United States District Court for the Central District of California. The firm had three matters litigated in the Appellate Divisions for the Third, Second and First Departments; all were successful.

P&N, also handled matters successfully in the following tribunals: New York State Department of Licensing; New York State Unemployment Insurance Appeals Board; New York State Division of Human Rights; New York City Department of Buildings; New York City Environmental Control Board; New York City Commission on Human Rights; U.S. Equal Employment Opportunity Commission. Our firm has also represented individuals during investigations conducted by the United States Securities and Exchange Commission and the New York State Department of Insurance.

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LOSS TRANSFER AND PRIORITY OF PAYMENT TRAINING: MENACING TERMINOLOGY, BUT IT IS REALLY NOT THAT BAD

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