DEPARTMENT OF BANKING AND INSURANCE
DIVISION OF INSURANCEOffice of the Insurance Claims Ombudsman
Proposed New Rules: N.J.A.C. 11:25
Authorized By: Karen L. Suter, Commissioner, Department of Banking and Insurance
Authority: N.J.S.A. 17:1-8.1, 17:1-15e and 17:29E-1 et seq.
Proposal Number: PRN 2001-95
Submit comments by April 18 ,2001 to:
Karen Garfing, Assistant Commissioner
Department of Banking and Insurance
20 West State Street
PO Box 325
Trenton, NJ 08625-0325
Fax: (609) 292-0896
The agency proposal follows:
N.J.S.A. 17:29E-1 et seq. ("the Act") established the Office of Insurance Claims Ombudsman within the Department of Banking and Insurance. The Ombudsman is appointed by the Governor with the advice and consent of the Senate and serves at the pleasure of the Governor during his or her term of office. The Act requires the Ombudsman to organize and administer the Office of Insurance Claims Ombudsman by hiring such staff as is necessary to effectuate his/her duties. Among others, the Ombudsman is charged with the responsibilities:
In order to achieve these goals, the Act permits the Ombudsman to establish and organize an office staffed with such persons as are deemed necessary to effectuate the prescribed duties. The Ombudsman is vested with the power to issue subpoenas to compel attendance of persons and to require the production of such documents, records, books, papers, objects or other evidence as may be deemed necessary in furtherance of an investigation.
In the case of disputed insurance claims, that is, those settlement offers that have been rejected in whole or in part by the claimant, the Ombudsman may investigate and make such findings and conclusions as are deemed appropriate. Pursuant to N.J.S.A. 17:29E-13, the decision of the Ombudsman shall be admissible in any court action which is instituted as a result of a claim.
The Ombudsman is also charged with the responsibility of investigating and reporting on an insurerís trade practices, including claims settlement practices and marketing practices which are deemed to be unfairly discriminatory, confusing, misleading or contrary to public policy. In such case, the Ombudsman reports his or her findings and conclusions to the Commissioner with respect to the trade or marketing practices under investigation.
N.J.S.A. 17:29E-3h and 17:29E-9 provide that the Ombudsman is responsible to develop such rules as are necessary to effectuate the purposes of sections 48 through 61 of the Act (N.J.S.A. 17:29E-2 through 15), including the establishment of rules for an insurerís internal appeals procedure. Pursuant to this authority the Department is proposing N.J.A.C. 11:25-2 which establishes the components of an insurerís internal appeals procedure.
The Departmentís recent adoption of N.J.A.C. 11:22-1.8 (see 33 N.J.R. 105(a), 112) requires health care carriers to establish and maintain internal and external appeals procedures for redress of medical provider complaints regarding nonpayment or inadequate payment of clean claims by insurers. Similar to the Department, the Ombudsman will be able to look into patterns and practices that deviate from these and other rules upon proper indication of widespread problems. He or she will not address individual provider complaints about prompt payment as the resources are not available for such volume.
This proposal includes the following new rules as described below:
Proposed N.J.A.C. 11:25-1.1 includes purpose and statutory obligations of the Ombudsman as well as the scope of his or her authority.
Proposed N.J.A.C. 11:25-1.2 includes the definitions to be used in the new subchapter.
Proposed N.J.A.C. 11:25-1.3 sets forth the general provisions pertaining to the Ombudsmanís investigation of disputed claims. Proposed N.J.A.C. 11:25-1.4 establishes the authority of the Ombudsman to engage the services of consultants and other professional experts to aid in the investigation and understanding of any relevant issues.
Proposed N.J.A.C. 11:25-1.5 contains the general provisions applied to the investigation of and hearings on the trade and marketing practices of insurers.
Proposed N.J.A.C. 11:25-1.6 establishes the rules for creation of the central registry of Ombudsmanís records pertaining to investigations, findings and disposition of closed investigations. This central registry is a confidential source of information and is not subject to public access or copying in accordance with N.J.S.A. 47:1A-1 et seq.
Proposed N.J.A.C. 11:25-1.7 will establish the obligation of insurers to make available information about the opportunity to obtain the assistance of the Office of Insurance Claims Ombudsman by announcement in buyerís guides and other documents pertaining to claims settlement.
Proposed N.J.A.C. 11:25-2.1 establishes the purpose and scope of insurersí internal appeals procedures.
Proposed N.J.A.C. 11:25-2.2 creates the definitions used in this subchapter.
Proposed N.J.A.C. 11:25-2.3 establishes the general requirements regarding the internal appeals system.
Proposed N.J.A.C. 11:25-2.4 sets forth the composition of an internal appeals panel.
Proposed N.J.A.C. 11:25-2.5 creates the notice and data maintenance requirements to be followed by insurers.
Proposed N.J.A.C. 11:25-2.6 will impose an obligation on insurers to provide a semi-annual report to the Ombudsman regarding internal appeals handled.
Proposed N.J.A.C. 11:25-2.7 sets forth the general penalties provision for failing to comply with the law regarding internal appeals processes.
The Appendix of subchapter 2 contains the form that is referenced in N.J.A.C. 11:25-2.6.
The proposed new chapter is designed to implement the legislative mandates imposed by the Act. The new chapter, which has two subchapters, will require insurers to adopt procedures to implement an internal appeals procedure for dealing with certain disputed claims. Insurers will be required to interact with the Office of Insurance Claims Ombudsman regarding inquiries pertaining to disputed claims, trade practices and other market conduct questions. Insurers will be subject to the subpoena of personnel and documents needed by the Ombudsman in pursuit of investigations. These obligations will certainly place a burden on insurers; however, important public benefits will justify their imposition. Unsatisfied claimants, consumers and society in general should experience a positive impact from the efforts of the Ombudsman. Improper trade practices or claims disposition can be handled expediently for the benefit of all. Understandable and available buyers' guides and premium comparisons will be more readily available. As a result, the Department expects that the implementation of this new chapter should result in a positive social impact.
The adoption of this new subchapter will impose economic obligations on the Department and insurers. Insurers will be required to adopt an internal appeals procedure to review disputed claims. Insurer employees will be required to participate in internal appeals panels and administrative support will also be required to deal with the assignment of cases and the reporting of results. Insurers will also be required to respond to the inquiries of the Ombudsman and to revise their buyers' guides and other literature to reflect information regarding the services provided by the Office of Insurance Claims Ombudsman.
The Department will also be required to expend funds in the establishment and administration of the Office of Insurance Claims Ombudsman. This will include the employment of investigators, administrative personnel, specialists and professionals as are deemed necessary to comply with the obligations imposed in the Act. As with the expenditures made by insurers, the cost of the efforts undertaken by the Office of Insurance Claims Ombudsman must be borne by the Department.
The Legislature has determined that important rights of consumers will be protected by the efforts of the Ombudsman and justify the expenditures by insurers and the Department. These efforts include review and assistance with disputed consumer claims handled by the Ombudsman and impartial consideration of an insurerís questionable business and trade practices. The potential benefit to be realized by consumers is clear and should provide for a sense of trust and confidence by members of the public in the insurance industry.
Federal Standards Statement
A Federal standards analysis is not required because the proposed chapter relates to the requirements for establishing the Office of Insurance Claims Ombudsman and the implementation of internal appeals procedures in the State of New Jersey. These rules relate to insurance companies, insurance claims and insurer trade practices that are subject to State law and are not subject to any Federal requirements or standards.
The Department does not anticipate that any jobs will be lost as a result of the adoption of this new chapter. The Department, however, does anticipate that jobs will be created by insurers and the Department to comply with the mandates established in the Act.
Agriculture Industry Impact
The Department does not anticipate any impact from the proposed new chapter on the agriculture and related industries in this State.
Regulatory Flexibility Analysis
The proposed new chapter will apply to most insurers, some of which are small businesses as that term is defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq.
To the extent that the proposed chapter will apply to small businesses, they will be required to incur some costs necessary for the establishment of an internal appeals process as well as complying with the obligation to develop proper notice to consumers regarding the Office of Insurance Claims Ombudsmanís availability. This new chapter will also impose a reporting requirement on insurers to accumulate and file information pertaining to their internal appeals procedures. This information is set forth in N.J.A.C. 11:25-2, Appendix Exhibit #1 and will be filed with the Ombudsman semi-annually. The information required for this filing is not complex and relates to a running total of the number of internal appeals undertaken and the results. Insurers should have no difficulty capturing the data and reporting it to the Department at little or no cost. The Department does not anticipate that insurers will have to employ professional services in order to comply with these rules.
Since the underlying legislation, which mandates these obligations, does not allow for any small business exception in the development of these plans, all companies, regardless of size, are required to comply with these requirements. Additionally, all insurers, large and small, are under a continuing obligation to ensure that they comply with the obligations set forth in the Act properly to inform consumers regarding the availability of assistance from the Office of Insurance Claims Ombudsman and to refrain from any unfair claims settlement practices. Thus, the Department believes that all insurers regardless of size should be required to comply.
Existing law already compels many of these expenditures
(buyersí guides and premium comparisons) and results in greater consumer confidence regarding the integrity of the insurance industry. As a result, no distinction in the application of any of these rules should or could be made for small businesses.
Full text of the proposed new rules follows:
OFFICE OF THE INSURANCE CLAIMS OMBUDSMAN
SUBCHAPTER 1 GENERAL POWERS AND DUTIES
11:25-1.1 Purpose and scope
(b) This subchapter shall apply to all claims filed under a policy of insurance issued in accordance with N.J.S.A. 39:6A-1 et seq., or any policy of life or health insurance issued in accordance with Title 17 or Title 17B of the New Jersey Statutes, except any dispute which may be or has been filed or adjudicated pursuant to N.J.S.A. 39:6A-5.1 and 39:6A-5.2 (PIP Alternate Dispute Resolution) and N.J.A.C. 11:22-1.
The following words and terms, when used in this subchapter shall have the following meanings, unless the context clearly indicates otherwise:
"Claim" means any claim filed under a policy of insurance issued pursuant to N.J.S.A. 39:6A-1 et seq., or any policy of life or health insurance issued pursuant to Title 17 or Title 17B of the New Jersey statutes.
"Commissioner" means the Commissioner of the Department of Banking and Insurance.
"Disputed insurance claim" means any offer of settlement made by any insurer which is, in whole or in part, rejected or refused by the claimant.
"Insurance" means any contract of direct insurance written pursuant to N.J.S.A. 39:6A- 1 et seq., or any policy of life or health insurance issued pursuant to Title 17 or Title 17B of the New Jersey statutes.
"Ombudsman" or "Insurance Claims Ombudsman" means the Office of Insurance Claims Ombudsman within the New Jersey Department of Banking and Insurance established in accordance with N.J.S.A. 17:29E-1.
11:25-1.3 General provisions; disputed claims
(a) Upon the request of a consumer, the Ombudsman may conduct a review of any disputed insurance claim settlement where there is reasonable cause to believe that an insurer has failed or refused to settle a claim in accordance with the provisions of the policy or has engaged in any practice that may constitute a violation of N.J.S.A. 17:23A-1 et seq., 17:29B-1 et seq., 17:35C-1 et seq., 17B:30-1 et seq., or 17:35C-11; or,
(b) Consumers seeking review in accordance with (a) above shall file a complaint with the Ombudsman in any form, which indicates that the complainant is seeking review of a disputed claim. All complaints shall be sent to:
The Office of Insurance Claims Ombudsman
20 West State Street
PO Box 329
Trenton, NJ 08625-0329
Telephone: (800) 446-7467
Telefax: (609) 292-2431
data tracking system of the Office of Enforcement and Consumer Protection. The Ombudsman shall retain complaints for further action, or refer them to the Office of Enforcement and Consumer Protection for disposition. The Office of Enforcement and Consumer Protection may likewise refer matters to the Ombudsman.
the office shall notify the complainant of the additional information needed before any further action may be taken.
together with a transmittal letter that advises the respondent that an answer to the complaint must be filed no more than 14 days after the date of receipt of the transmittal letter.
4. The respondent may raise a general denial to the complainantís allegations and may also raise such other legal, contractual or equitable defenses, which explain or justify the actions of the respondent.
5. Thereafter, the complainant shall be advised of the respondentís contentions and given an opportunity to rebut within seven days of receipt of the notice.
6. When deemed appropriate, the Ombudsman may extend all time limits mentioned in this subsection
(c) At the discretion of the Ombudsman, an investigation and hearing may be conducted in person and under oath.
1. In the conduct of an investigation the Ombudsman may in his or her sole discretion:
i. Investigate whether the insurerís actions, determinations and proceedings with respect to the claim were in accordance with the law and the policy;
ii. Make any necessary and appropriate inquiries of the insurer or any other interested person to obtain such information as the Ombudsman deems necessary to the investigation;
iii. Hold a hearing on the disputed claim;
iv. Inspect any books and records that relate to the claim, and
v. Issue subpoenas to compel the attendance of any person at a specific time and place, as well as require the production of any documents, books, records, papers, objects and other evidence deemed necessary and relevant to the claim under investigation.
2. The Ombudsman may elect not to investigate a complaint if it is determined that:
i. The complaint is trivial, frivolous, vexatious or not made in good faith;
ii. The complaint has been too long delayed to justify further investigation;
v. The subject is already under investigation by the Department or the Office of Insurance Fraud Prosecutor.
11:25-1.4 Consultants and experts
When deemed necessary to any inquiry undertaken pursuant to this subchapter, the Ombudsman may, in accordance with N.J.S.A. 17:29E-3b, engage the services of consultants and other professionals to assist in the investigation or understanding of any relevant issue, pursuant to all applicable laws regarding same.
11:25-1.5 Trade and marketing practices; investigations, hearings and complaints
11:25-1.6 Registry of closed claims and confidentiality of information
11:25-1.7 Publication of information
(d) Any document described in (a), (b) and (c) above shall list the following information for contacting the Ombudsman:
Office of Insurance Claims Ombudsman
Department of Banking and Insurance
PO Box 472
Trenton, NJ 08625-0472
TELEPHONE: (800) 446-7467
TELEFAX: (609) 292-2431
SUBCHAPTER 2. INTERNAL APPEALS PROCEDURE
11:25-2.1 Purpose and scope
(b) This subchapter shall apply to all disputed consumer claims with the exception of those to which the provisions of N.J.S.A. 39:6A-5.1 and 5.2 apply (that is, disputes arising out of personal injury protection coverage claims) or the process established in N.J.A.C. 11:22-1.
The following words and terms, when used in this subchapter, shall have the following meanings unless the context clearly indicates otherwise.
"Claimant" means a first-party claimant, a third-party claimant, or a designated representative.
"Claims settlement" means all activities of an insurer relating directly or indirectly to the determination of the extent of liabilities due or potentially due under the coverage afforded by the policy, and which can or does result in a claim payment or acceptance, compromise or rejection.
"Insurer" means any entity authorized or admitted to transact the business of a property/casualty and life insurance in accordance with Titles 17 and 17B of the New Jersey Statutes.
"Internal appeals" means any notification, whether in writing or otherwise, that advises the insurer that the final offered claim settlement remains unacceptable to the claimant.
11:25-2.3 Complaint and internal appeals system Ė general requirements
Every insurer shall establish and maintain an internal appeals system to provide for the presentation and review of complaints brought by a consumer. All internal appeals procedures shall, at a minimum, include the following components:
11:25-2.4 Composition of internal appeals panel
The internal appeals review shall be conducted by a panel of at least three of the insurerís employees who possess experience and expertise in claims procedures but are not assigned to day-to-day claims payment and adjustment.
11:25-2.5 Notice to insureds and maintenance of data
(a) All insurers shall provide policy holders with a written explanation of the insurerís internal appeals system which is consistent with this subchapter and which shall become a part of the policyholdersí contract of insurance.
(b) The insurer shall maintain continuously updated records regarding all internal appeals processed in accordance with this subchapter and shall make the data available, upon request, to the Department or to the Office of the Insurance Claims Ombudsman. The data shall include, but not be limited to:
Insurers shall provide a written report to the Office of Insurance Claims Ombudsman semi-annually on each July 31 for the period of January 1 through June 30 and each January 31 for the period July 1 to December 31 on the form set forth as Exhibit 1 of the Appendix to the subchapter and incorporated by reference herein.
Failure to comply with the provisions of this subchapter shall subject the insurer to penalties as provided by N.J.S.A. 17:29E-14.
Internal PCL Claims Appeals Report Form
Period Reported: mm/dd/yyyy to mm/dd/yyyy
11:25 Appendix Exhibit #1
NAIC Group #
NAIC Company Code
Type of Coverage
Type of Claim
Compromised & Resolved
Aggregate Additonal Payments Made as a Result of Appeals