WSR 97-03-090

PROPOSED RULES

INSURANCE COMMISSIONER'S OFFICE

[Filed January 16, 1997, 12:00 p.m.]

Supplemental Notice to WSR 97-01-059.

Preproposal statement of inquiry was filed as WSR 96-17-028.

Title of Rule: Personal injury protection.

Purpose: To establish minimum standards for the termination, limitation, or denial of personal injury protection (PIP) claims review in automobile liability insurance policies; and to establish minimum standards for PIP arbitration clauses.

Other Identifying Information: Insurance Commissioner Matter No. R 96-6.

Statutory Authority for Adoption: RCW 48.02.060, 48.22.105, 48.30.010.

Statute Being Implemented: RCW 48.01.030, 48.22.005, 48.22.085, 48.22.100.

Summary: This rule is proposed as a substitute to the PIP rule filed on October 23, 1996. The rule requires an insurer to advise an insured that it may deny, limit, or terminate an insured's medical and hospital benefits as soon as possible after the insured presents a PIP medical claim. The rule requires an insurer to deny, limit, or terminate claims in writing and to provide the "true and actual" reason for the denial in terms that explain the reasons for the insurer's action. The insurer must provide a means for a professional reconsideration of such actions upon request of the insured. Medical and health professionals that review records must be currently licensed, certified, or registered in the same health field or specialty as the insured's treating professional. Insurers must maintain information in the insured's claims file to verify the credentials of the reviewer. Insurers may not deny property damage claims of insureds that do not participate in "independent medical examinations." And, finally, minimum standards for PIP arbitration clauses are set forth.

Reasons Supporting Proposal: The commissioner has received over seven hundred complaints in less than five years about the way insurers deny, limit, or terminate PIP benefits after review of the insured's treatment records or "independent medical examinations." Insurers are entitled to disclosure prior to the loss of benefits and to a reconsideration of the action by a second professional reviewer. After consideration of the public testimony in favor of or in opposition to the rule as proposed on October 23, 1996, several changes were made and the rule is being reset for public comment. The most significant change is the requirement that the reviewing professional have the same license as the professional being reviewed.

Name of Agency Personnel Responsible for Drafting: Melodie Bankers, Olympia, Washington, (360) 586-3574; Implementation and Enforcement: Greg Scully, Olympia, Washington, (360) 664-3785.

Name of Proponent: Deborah Senn, Insurance Commissioner, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: This rule requires an insurer to disclose to an insured that it may deny, limit, or terminate an insured's medical and hospital benefits as soon as possible after the insured presents a PIP medical claim. The rule requires an insurer to deny, limit, or terminate claims in writing and to provide the "true and actual" reason for the denial in terms that explain the reasons for the insurer's action. The insurer must provide a means for a professional reconsideration of such actions upon request of the insured. Medical and health professionals that review records must be currently licensed, certified, or registered in the same health field or specialty as the professional that is treating the insured. Insurers must maintain information in the insured's claims file to verify the credentials of the reviewer. Insurers may not deny property damage claims of insureds that do not participate in "independent medical examination." And, finally, minimum standards for PIP arbitration clauses are set forth.

Proposal does not change existing rules.

A small business economic impact statement has been prepared under chapter 19.85 RCW.

(a) Is the rule required by federal law or federal regulation? No.

(b) What industry is affected by the proposed rule? Fire, Marine, and Casualty Insurance (# 6331).

(c) List the specific parts of the proposed rule, based on the underlying statutory authority (RCW section), which may impose a cost to businesses.

Written Disclosure: After receipt of actual notice of an insured's intent to file a personal injury protection medical and hospital benefits claim, and in every case prior to denying, limiting, or terminating an insured's medical and hospital benefits, an insurer is required to advise an insured in writing that it reserves the right to deny medical and hospital benefits to an insured after review.

Written Notification of Claim Denials: After an insurer concludes that it intends to deny, limit, or terminate an insured's medical and hospital benefits, the insurer shall advise an insured in writing. The notification shall be clear and unambiguous. The insurer shall outline in writing the means by which an insured may request a prompt reconsideration or appeal of that determination.

Standards for Claim Denials: Health care professionals upon whom the insurer will rely to make a decision to deny, limit, or terminate an insured's medical and hospital benefits shall be currently licensed, certified, or registered in the same health field or specialty as the treating professional.

(d) What will be the compliance costs for industries affected? The following potential costs to insurers are considered:

Preparing or amending written notification to all insured persons intending to file a personal injury claim.

Preparing or modifying letters notifying clients of claim denials.

Contracting with appropriate health care professionals to perform medical reviews.

(e) What percentage of the industries in the four-digit standard industrial classification will be affected by the rule? One hundred percent of the insurers that choose to offer personal injury protection as part of automobile liability insurance policies in the state of Washington.

(f) Will the rule impose a proportionately higher economic burden on small businesses within the four-digit classification? No. The rule imposes no lump sum costs or fixed costs that would disproportionately affect smaller businesses. All potential costs of this rule are marginal costs per claim by policy holder; thus, potential costs would be in direct proportion to the volume of claims filed. The cost of compliance per employee may vary on a company-by-company basis; however, this variance is based on the extent to which the company already meets the new standards and not on the size of the insurer.

(g) Can mitigation be used to reduce the economic impact of the rule on small businesses and still meet the stated objective of the statutes which are the basis of the proposed rule? Potential costs of compliance have been reduced to a negligible amount (see (i) for more detail). Note the potential costs considered in this evaluation:

1. Preparing or amending written notification to all insured persons intending to file a personal injury claim. The potential costs of this rule have been reduced to the negligible cost of merely modifying already existing cover letters sent with claim forms for an estimated 95% of the insurers. The remaining 5% of insurers that may not be sending cover letters shall be required to provide written notification with appropriate language. See (i) for specific cost information.

2. Preparing or modifying letters notifying clients of claim denials. It is the practice of all insurers to send written notification of the claim denial¹. Thus, this rule does not impose any significant additional administrative costs.

3. Contracting with appropriate health care professionals to perform medical reviews. Insurers already utilize health care professionals to review medical claims. Insurers often utilize health care professionals in the same field as the treating professionals in order to avoid potential complaints from the insured and for legal purposes (in the event the case goes to trial, a health care reviewer in the same field often proves to be a more credible witness).² This proposed rule may potentially restrict an insurer's pool of reviewing health care professionals by requiring reviewers to be in the same field as the treating health care professional; however, only a small portion of the PIP claims (SAFECO estimates that only 1% of all claims filed) are reviewed by insurers using independent exams. Any additional costs imposed by this requirement would only affect this small portion of claims. When these costs are spread over the entire number of PIP claims filed in a given year (estimations from various insurers range from 60,000 to 70,000 claims per year in the state of Washington), the potential costs per claim are minimal.

The commissioner believes that any further mitigation would prevent the rule from meeting the objective of providing standards for prompt, fair and equitable settlements applicable to automobile personal injury protection insurance.

(h) What steps will the commissioner take to reduce the costs of the rule on small businesses? Various forms of mitigation are included in section (i) of this statement.

(i) Which mitigation techniques have been considered and incorporated into the proposed rule? Consideration of cost mitigation has occurred throughout the rule drafting process. With regards to the specified cost implications in (c), potential record-keeping and administrative costs have been reduced in the following manner:

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(j) Which mitigation techniques were considered for incorporation into the proposed rule but were rejected, and why? The comments from insurers regarding this rule include recommendations to withdraw the proposed rule, insisting that no rule is necessary because other claims settlement practice rules already apply. Although insurers feel they are already settling personal injury protection claims in a fair manner, the number of complaints and inquiries the commissioner's office receives regarding this matter indicates there are problems with the current settlement process. The commissioner's office logged over seven hundred complaints and inquiries in the past four years regarding personal injury protection matters. This rule is designed to address these complaints.

The commissioner also considered eliminating the requirement that health care professionals reviewing the claims be registered, licensed, or certified in the same field due to complications arising in locations that may not have a sufficient supply of all types of health care professionals as well as in cases where fraud is suspected and willing reviewing professionals in the same field are difficult to find. This form of mitigation was considered and rejected at this time because the commissioner believes this form of mitigation would prevent policyholders from exercising their right to choose health care professionals that best suit their needs. The commissioner believes that the only fair manner in which to review these health care professionals would be by professionals that are licensed, registered, or certified in the same field as the health care professionals that treat the insureds. In the event that insurers are not using professionals in the same field as the treating health care professional, this rule would require insurers to change the type of professional they utilize. The rule would not require additional professional services because insurers currently use a variety of reviewing professionals from all types of health care professions.

(k) Briefly describe the reporting, record-keeping, and other compliance requirements of the proposed rule. Insurers will have to maintain information in an insured's claims file such as copies of letters of denials to policyholders and proof of certification of the reviewing health care professional. Some insurers voiced concerns that this type of regulation would require them to maintain additional costly paper files and copies of health care professional certificates, curriculum vitae, etc. This is not the case. This proposed rule merely requires that insurers maintain "sufficient information to verify the credentials of the health care professional with whom it consulted." This information could be kept in any form (e.g. electronic, paper, coded) that the insurer chooses. This should not result in any significant costs.

(l) List the kinds of professional services that a small business is likely to need in order to comply with the reporting, record-keeping, and other compliance requirements of the proposed rule. Small businesses are not likely to need any new or additional professional services to comply with these rules.

(m) Analyze the cost of compliance including, specifically:

Cost of equipment: No new equipment will be required.

Cost of supplies: No new supplies will be required; however, in the event the insurers are not already sending cover letters with claim forms to policyholders upon notification of an accident, the cost of one additional sheet of paper per claim may be imposed.

Cost of labor: The employees of the insurer may be required to modify or amend the insurer's cover letter included with the mailing of claim forms and claim denial reports.

Cost of increased administration: No new administrative costs are anticipated.

(n) Compare the cost of compliance for small business with the cost of compliance for the largest businesses in the same four-digit classification, using one or more of the following (as specifically required by RCW 19.85.040 (1)(a), (b), and (c)). The number of employees hired by companies varies proportionately with the number of policyholders and volume of claims. Because the only potential costs imposed by these rules are marginal costs per claim, the costs of compliance per employee for small insurers should be no greater than the costs per employee for large insurers. The cost of compliance per employee may vary on a company-by-company basis; however, this variance is not based on the size of the insurer (measured in terms of employees, hours of labor, and sales volume), but rather on the extent to which the company already meets the new standards. In a phone survey, sampling over 10% of the insurers of varying size, no relationship was found between the size of the firm and the extent to which the company already meets the new standards; thus, the per employee cost should not be substantially different between the largest and the smallest insurance insurers in this business.

(o) Have businesses that will be affected been asked what the economic impact will be? Yes. On August 14, 1996, a meeting was held to discuss a possible rule regarding utilization review standards in personal injury protection coverage where all affected parties were invited to attend. From August 12th through October 17th, comments from affected parties regarding a preliminary draft of [the] proposed rule were solicited and reviewed by staff. These comments included information on specific cost implications of the rule. On October 14, 1996, a second work group meeting was held to discuss the fourth draft of the proposed rule. In October, a phone survey was conducted, sampling over 10% of the affected insurance insurers of various sizes to determine the potential costs of the proposed rule. On November 26, 1996, a public hearing was held to solicit comments from representatives of insurers and the public regarding an earlier version of this proposed rule.

(p) How did the commissioner involve small businesses in the development of the proposed rule? The commissioner contacted a number of insurers that volunteered to assist in the development of the rule, the accurate assessment of the costs of the proposed rule, and the means to reduce the costs imposed on small insurers and agents. The insurers that participated ranged from large to small, and included the associations that represent a vast majority of the property/casualty insurers engaged in the transactions of insurance in this state.

In addition, a phone survey was conducted, sampling over 10% of the affected insurance insurers of various sizes to determine the potential costs of the proposed rule. This survey intentionally included samples from both the largest and smallest affected insurers in the industry.

(q) How and when were affected small businesses advised of the proposed rule? See (o) and (p) above.

In addition, a copy of the proposed rule will be sent to the Association of Washington Businesses and to the Independent Business Association. Insurers known to be interested in this rule regardless of size, were directly involved.

Conclusion: The commissioner has the responsibility of protecting consumers against unfair practices in the insurance industry. The objective to protect the consumer has guided the drafting of this rule. While the Regulatory Fairness Act requires the commissioner to involve small licensees in the rule making, the commissioner recognizes that this rule also impacts the health care providers who provide services to insureds. The commissioner also recognizes that many of these providers are an important part of the small business community. This rule was developed after review of the commissioner's complaints database and after health care providers and attorneys that represent insureds asked the commissioner to provide some protection against the unfair claims settlement practices of insurers. Commissioner representatives met with providers and consumers representatives, as well as insurers during the drafting process of this rule.

¹ This conclusion is based on interviews, a survey, and comments solicited from the insurers.

² This conclusion is based on interviews, a survey, and comments solicited from the insurers.

³ Estimation based on a phone survey, sampling 10% of the insurers affected by proposed rule.

A copy of the statement may be obtained by writing to Kacy Brandeberry, P.O. Box 40255, Olympia, WA 98504-0255, internet: inscomr@aol.com, phone (360) 664-3790, or FAX (360) 586-3535.

Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. This is not a "significant legislative rule" as defined at RCW 34.05.328 and the costs to implement are minimal. The rule reflects the practices of many insurers. This rule is necessary for the protection of policyholders. After consideration of many alternatives this rule is the least burdensome alternative that provides protection for consumers. No federal or state laws or rules also govern the same subject matter and no insurer will be required to take any action that violates state or federal laws or regulations. RCW 48.22.005(7) defines "medical and hospital benefits" as "payments for reasonable and necessary expenses incurred..." This rule establishes minimum standards for insurers as they apply the definition to individual PIP claims.

Hearing Location: General Administration Building, 1st Floor Auditorium, 11th and Columbia, Olympia, Washington, on February 26, 1997, at 9:30 a.m

Assistance for Persons with Disabilities: Contact Lori Vilaflores by February 5, 1997, TDD (360) 586-0691.

Submit Written Comments to: Kacy Brandeberry, P.O. Box 40255, Olympia, WA 98504-0255, Internet: inscomr@aol.com, FAX (360) 586-3535, by February 25, 1997, 5 p.m.

Date of Intended Adoption: March 31, 1997.

January 16, 1997

Deborah Senn

Insurance Commissioner

NEW SECTION

WAC 284-30-395 Standards for prompt, fair and equitable settlements applicable to automobile personal injury protection insurance. The commissioner finds that some insurers limit, terminate, or deny coverage for personal injury protection insurance without adequate disclosure to insureds of their bases for such actions. Personal injury protection benefits are a significant element in the cost of automobile liability insurance and limiting the increases in such costs is lawful under chapter 48.22 RCW. To eliminate unfair acts or practices in accord with RCW 48.30.010, the following are hereby defined as unfair methods of competition and unfair or deceptive acts or practices in the business of insurance specifically applicable to automobile personal injury protection insurance. The following standards apply to an insurer's consultation with health care professionals when reviewing the adequacy or appropriateness of treatment of the insured claiming benefits under his or her automobile personal injury protection benefits in an automobile liability insurance policy, as those terms are defined in RCW 48.22.005 (1), (7), and (8), and as prescribed at RCW 48.22.085 through 48.22.100. This section applies only where the insurer relies on the medical opinion of health care professionals to deny, limit, or terminate medical and hospital benefit claims. When used in this section, the term "medical or health care professional" does not include an insurer's claim representatives, adjusters, or managers or any health care professional in the direct employ of the insurer.

(1) Within a reasonable time after receipt of actual notice of an insured's intent to file a personal injury protection medical and hospital benefits claim, and in every case prior to denying, limiting, or terminating an insured's medical and hospital benefits, an insurer shall provide an insured with a written explanation of the coverage provided by the policy, including a notice that the insurer may deny, limit, or terminate benefits if the insurer determines that the medical and hospital services:

(a) Are not reasonable;

(b) Are not necessary;

(c) Are not related to the accident; or

(d) Are not incurred within three years of the automobile accident.

These are the only grounds for denial, limitation, or termination of medical and hospital services permitted pursuant to RCW 48.22.005(7), 48.22.095, or 48.22.100.

(2) Within a reasonable time after an insurer concludes that it intends to deny, limit, or terminate an insured's medical and hospital benefits, the insurer shall provide an insured with a written explanation that describes the reasons for its action. The insurer shall include the true and actual reason for its action as provided to the insurer by the medical or health care professional with whom the insurer consulted in clear and simple language, so that the insured will not need to resort to additional research to understand the reason for the action. A simple statement, for example, that the services are "not reasonable or necessary" is insufficient.

(3) If an insurer denies, limits, or terminates an insured's medical and hospital benefits, the insurer shall outline in writing the means by which an insured may request a prompt reconsideration or appeal of that determination. The costs for the reconsideration shall be paid for by the insurer. If the insured's treating health care professional provides additional information for use in a reconsideration of the insurer's action, the reconsideration may be undertaken by the original professional reviewer; however, if no additional information is provided by the treating health care professional, the review shall be completed by a different professional reviewer.

(4) Health care professionals with whom the insurer will consult regarding its decision to deny, limit, or terminate an insured's medical and hospital benefits shall be currently licensed, certified, or registered to practice in the same health field or specialty as the health care professional that treated the insured.

(5) To assist in any examination by the commissioner or the commissioner's delegatee, the insurer shall maintain in the insured's claim file sufficient information to verify the credentials of the health care professional with whom it consulted.

(6) An insurer shall not refuse to pay expenses related to a covered property damage loss arising out of an automobile accident solely because an insured failed to attend, or chose not to participate in, an independent medical examination requested under the insured's personal injury protection coverage.

(7) In order to define and effect reasonable uniformity of arbitration clauses in all personal injury protection policies, if an automobile liability insurance policy includes an arbitration provision, it shall provide no less than the following:

(a) The arbitration shall commence within a reasonable period of time after it is requested by an insured.

(b) The arbitration shall take place in the county in which the insured resides or the county where the insured resided at the time of the accident, unless the parties agree to another location.

(c) Relaxed rules of evidence shall apply, unless other rules of evidence are agreed to by the parties.

(d) The arbitration shall be conducted pursuant to arbitration rules similar to those of the American Arbitration Association, the Center for Public Resources, the Judicial Arbitration and Mediation Service, chapter 7.04 RCW, or any other rules of arbitration agreed to by the parties.

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