N.Y. Court: Insurer Must Pay Cheats

By Daniel Hays

NU Online News Service, May 7, 3:39 p.m.EST?Insurers who catch a motorist trying to pad an autoinjury claim still have to pay the valid portion of his bills eventhough he tried to defraud them, a New York appeals court hasruled.

The April 22 decision has drawn a protest and a call for reformlegislation from Bernard Bourdeau, president of the New YorkInsurance Association in Albany, N.Y. He labeled the ruling "anopen invitation" for fraud.

The NYIA said a "loophole" in New York State's no-fault law hadbeen revealed in the decision from the Appellate Division (SecondDepartment) of the State Supreme Court in Brooklyn.

"This ruling is another example of why fraud is rampant in NewYork's no-fault auto insurance system," said Mr. Bourdeau. "Reformcannot come soon enough."

NYIA noted that insurance fraud adds an estimated $200 to $300to the cost of insurance policies in New York, according to the NewYork Alliance Against Insurance Fraud.

The court found in Utica Mutual Insurance Company v. DuaneTimms, et al. that even though a judicial hearing officer haddetermined the policyholder (Mr. Timms) had falsely claimed therewas a passenger in his vehicle at the time of an accident in theBronx, his insurance company (Utica Mutual) was still obligated toprovide him with no-fault coverage benefits to pay his personalmedical costs.

The appellate court ruled that the defendant's fraudulentconduct did not vitiate the no-fault portion of the policy because"the no-fault endorsement is internally complete and a distinctpart of the policy."

In its ruling upholding an April 20, 2001, lower court decisionin Westchester County, the appellate court pointed out that thefraudulent conduct applied to the liability portion of thepolicy.

At the same time, the court endorsed the lower court's call fora change and said it noted "with approval, the Supreme Court'ssuggestion that the Legislature study and review this loophole inthe no-fault law that permits an insured who attempts to commitfraud to reap the benefits of his insurance policy."

State Supreme Court in New York is a county-level trialcourt.

Mr. Bourdeau observed that a package of no-fault reformsproposed by Gov. Pataki remains stalled in the legislature. "Thisdecision is more evidence that New York's no-fault system favorsinsurance criminals over honest policyholders and their insurancecompanies," he said.

The New York Insurance Association is a trade association of 75insurance companies that insure the autos, homes and businesses ofthe people of New York.

An official with Utica Mutual said an appeal of the latestruling is under review.