Duty to Pay No-Fault Benefits When Belief of Fraud

The Office of General Counsel has issued the following informal opinion on April 12, 2000 representing the position of the New York State Insurance Department.

Duty to Pay No-Fault Benefits When Belief of Fraud
Question Presented:

May an insurer delay payments under the No-Fault portion of its insured's policy due to the insurer's suspicion of fraud which results in an ongoing investigation?

Conclusion:
No. Pursuant to New York Ins. Law 5106 (McKinney 1999-2000), within 30 days after the receipt of proof of claim, the insurer should either pay the claim or deny it on the basis that the claimed loss was not proven.

Facts:
XYZ Insurance Co. ("XYZ") states that it received a report of a hit and run automobile accident. The report contained three no-fault claims under their insured's policy. Based upon XYZ's "good faith belief" that this alleged accident never occurred, it referred the matter to its own Special Investigations Unit, which is investigating the matter and has reported it to the "N.Y.S. Frauds Bureau." XYZ inquired whether, if it notifies the insured's attorney of the investigation, it may delay any and all payments under the no-fault portion of its insured's policy pending the outcome of its own investigation.

Analysis:
Payment of No-Fault claims are governed by New York Ins. Law 5106 (McKinney 1999-2000). Section 5106(a) provides, in pertinent part:

Payments of first party benefits and additional first party benefits shall be made as the loss is incurred. Such benefits are overdue if not paid within thirty days after the claimant supplies proof of the fact and amount of loss sustained. If proof is not supplied as to the entire claim, the amount which is supported by proof is overdue if not paid within thirty days after such proof is supplied.

Accordingly, the payment of first party benefits under the No-Fault portion of the policy are not due until thirty days after the claimant supplies proof of the loss sustained. If the claimant has failed to supply such credible proof, a denial should issue. The insurer might determine, based upon suspicion of fraud, that the insured has failed to prove the claim. However, there is no provision of the No-Fault Law for an insurer to delay payment while conducting an investigation simply by providing notice to the insured's attorney of such. It is ultimately for an arbitrator or court to determine whether or not such claim has been proven.

The above opinion is informal and is not binding on any court. For further information, you may contact Senior Attorney David Rubinton at the New York City office.