Office of the Insurance Claims Ombudsman

Adopted New Rules: N.J.A.C. 11:25

Proposed: March 19, 2001 at 33 N.J.R. 982(a)

Adopted: September 6, 2001 by Karen L. Suter, Commissioner, Department of Banking and Insurance

Filed: September 14, 2001 as R. 2001 d.376, with substantial and technical changes not requiring additional public notice and comment (see N.J.A.C. 1:30-6.3)

Authority: N.J.S.A. 17:1-8.1, 17:1-15e, and 17:29E-1 et seq.

Effective Date: October 15, 2001

Expiration Date: October 15, 2006

Summary of Public Comments and Agency Responses:

The Department received 24 timely filed written comments regarding this proposal from:

American Council of Life Insurers;

CGU New Jersey;

Association of Trial Lawyers of America;

United Concordia;

Insurance Council of New Jersey;

Medical Society of New Jersey;

New Jersey Special Investigators Association;

National Association of Independent Insurers;

First Trenton Companies;

Selective Insurance Group, Inc.;

Harleysville Insurance;

State Farm Insurance Companies;

Independent Insurance Agents of New Jersey;

American Insurance Association;

Methfessel & Werbel, Attorneys;

Horizon Blue Cross/Blue Shield of New Jersey;

New Jersey Association of Health Plans;

New Jersey Manufacturers Insurance Group;

New Jersey Academy of Family Physicians;

New Jersey Association of Mutual Insurance Companies;

American International Group, Inc.;

Flaster/Greenberg, Attorneys;

Allstate New Jersey Insurance Companies; and

Alliance of American Insurers.

The Department also received three comments after the close of the comment period which have not been considered in this adoption.

1. COMMENT: Several commenters expressed confusion with the purpose and scope of the rules as stated in N.J.A.C. 11:25-1.1(b) and 1.2(b). Based on their interpretation of these provisions, the commenters claimed that the Ombudsmanís authority to investigate complaints is limited as follows:

a. All life insurance policies.

b. Only those health insurance issues not covered by N.J.A.C. 11:22-1 (Prompt Pay).

c. No property and casualty coverages.

d. Only non-medical expense PIP auto coverages.

RESPONSE: The statutory definition of "insurance" and "claim" as enacted in N.J.S.A. 17:29E-1 states that the Act and these rules apply to any contract of insurance issued pursuant to N.J.S.A. 17:17-1, N.J.S.A. 39:6A-1 et seq. (private passenger automobile) and any policy of life or health insurance issued pursuant to Title 17 or Title 17B of the New Jersey Statutes. Based on the Act, the Department concludes that all forms of insurance are subject to the review of the Ombudsman, with the only exceptions:

a. Those PIP disputes coming within the alternative dispute resolution process established in N.J.A.C. 11:3-5; and

b. Those health benefit payment disputes that are filed by providers that are subject to the internal and external appeals procedure established in N.J.A.C. 11:22-1.8.

As a result of the comments, and in order to eliminate any misunderstanding, the Department is amending N.J.A.C. 11:25-1.1(b) to mirror the statutory citations.

2. COMMENT: Numerous other commenters noted that the Act and these rules appear to permit great latitude to the Ombudsman to investigate and inquire into many different insurance issues, some of which are extremely complex. These commenters stated that they are concerned that the Ombudsman will overextend his or her office to undertake burdensome issues that greatly exceed the traditional role of an ombudsman as a quasi-official consumer advocate. In so doing, the Ombudsman may not only fail to render needed assistance to consumers, but also may inadvertently interfere with important procedural and due process rights of insurers.

RESPONSE: The Department does not share the concerns of these commenters. N.J.S.A. 17:29E-6 provides that the Ombudsman need not investigate any complaint that is determined to be:

    1. Trivial, frivolous, vexatious or not made in good faith;
    2. Too old to warrant current investigation;
    3. Beyond the investigative authority of the Office; or
    4. Too complex and would interfere with other established priorities of the Office.

Based on this authority, the Ombudsman has discretion to avoid involvement in any

matter that might lessen the ability to achieve this mission. Also, the Act requires that the Ombudsman does not permit that Office to be used as a weapon against insurers in frivolous or vexatious complaints not made in good faith. Based on these provisions, which are also repeated in N.J.A.C. 11:25-1.3(c)3, the Department is confident that the Ombudsman will not exceed the proper limits of authority.

3. COMMENT: One commenter asked the Department to extend the scope of Ombudsman authority to include all issues arising out of the Prompt Payment Act of 1999, the Health Care Quality Act of 1997 and the Genetic Privacy Act of 1996.

RESPONSE: The role of the Ombudsman regarding the Acts mentioned above is limited to issues of questionable trade practices and procedures which may arise from time to time. Furthermore, the Department notes that each of these Acts establishes its own primary procedures for compliance review and that parallel review by the Ombudsman is not necessary. For instance, the Health Care Quality Act (P.L. 1997, c. 192) and the Genetic Privacy Act (N.J.S.A. 10:5-43) are the subject of the Department of Health and Senior Servicesí rules at N.J.A.C. 8:38. The Prompt Pay Act, P.L. 1999, c. 154 is implemented by the Departmentís rules adopted at N.J.A.C. 11:22-1. The provisions of N.J.A.C. 11:22-1.8 require that health care carriers establish and maintain an internal and external appeals procedure for redress of medical provider complaints regarding non-payment or inadequate payment of clean claims. The Department considers that these safeguards are sufficient to protect the interests of the public and providers, should prompt payment questions or other issues arise. In the event a pattern or practice of abuse indicates the existence of a widespread problem, the Ombudsman may then make inquiry pursuant to N.J.S.A. 17:29E-8.

4. COMMENT: Several commenters asked the Department to limit the Ombudsmanís authority only to those issues that are not already being investigated by any other agency of government including other divisions within the Department (such as the Division of Enforcement and Consumer Protection), the Department of Health and Senior Services, the Office of Insurance Fraud Prosecutor or any Federal agency. These commenters are concerned that they may be called upon to respond to multiple investigations in various governmental agencies on a single claim.

RESPONSE: The Department can find no statutory authority that would limit the authority of the Ombudsman to only those cases not yet subject to the inquiry of another agency. Furthermore, it is also noted that there are grounds for the Ombudsman to reject consideration of a complaint as set forth at N.J.S.A. 17:29E-6, and that do not relate to the kind of coverage or the involvement of other agencies. Also, practical considerations such as an ongoing criminal investigation by the OIFP, will certainly lessen the involvement of the Ombudsman. From a practical standpoint, the various government agencies will usually defer to the appropriate lead agency. Hence, the Department does not consider it necessary to list any limitations on the Ombudsmanís authority such as requested.

5. COMMENT: Several commenters claimed that the Ombudsman does not have the statutory authority to investigate complaints unless they involve the payment of a claim.

RESPONSE: The Department disagrees with these commenters. N.J.S.A. 17:29E-3c states that the Ombudsman is permitted to investigate, among other things, consumer complaints about the payment of claims on policies of insurance. The reference to payment of claims is not intended as a limitation but rather an illustration of the kinds of consumer issues that can be undertaken by the Ombudsman. The Department further notes that N.J.S.A. 17:29E-3d specifically permits the Ombudsman to establish procedures to monitor the implementation of N.J.S.A. 17:29B-1 et seq. which involves unfair competition and improper trade practices. Thus, the Department does not agree with the assertion that the Ombudsmanís authority is limited to complaints arising solely out of the payment of claims.

6. COMMENT: N.J.S.A. 17:29E-3g and N.J.A.C. 11:25-1.1(a)8 state that the Ombudsman shall be permitted to review the conduct of arbitrators appointed under the terms of the policy of insurance to arbitrate disputes, except those policies issued pursuant to N.J.S.A. 39:6A-1 et seq. (PIP). The commenter questioned the extent of the Ombudsmanís authority to review the conduct of arbitrators, specifically the decisions reached in arbitrated disputes.

RESPONSE: The Department notes that the Ombudsmanís authority regarding arbitrators is limited to a review of their conduct. Therefore, only where the conduct of an arbitrator(s) is reflected in the decision reached on a case will an arbitratorís ruling be subject to review by the Ombudsman.

7. COMMENT: Several commenters questioned the ability of the Ombudsman to issue subpoenas for the attendance of witnesses at proceedings conducted pursuant to N.J.S.A. 17:29E-5 and 17:29E-8. They reference the Act and state that it only refers to the production of documents, books, records, papers and other physical evidence but does not mention the right of the Ombudsman to require the personal attendance of witnesses. Thus, the commenters inquired whether the Ombudsman can issue a subpoena regarding personal attendance at a proceeding.

RESPONSE: The Department notes that N.J.S.A. 17:29E-5 and 17:29E-8 permit the Ombudsman to conduct investigatory proceedings into disputed claims and questionable trade, claim settlement and marketing practices. The Act permits the Ombudsman to make the necessary inquiries and to conduct hearings on the disputed issues. The Ombudsman has sufficient authority under the Act to issue subpoenas for the personal attendance of witnesses who would be necessary to produce and explain the documentary evidence. The commenters are also reminded of the provisions of N.J.S.A. 17:29B-6, all of which grant to the Commissioner or her designated representative the authority to issue subpoena ad testificandum and subpoena duces tecum.

8. COMMENT: Several commenters expressed concern regarding the definition of "disputed insurance claim" and the proceedings that are based on that definition. As proposed, a disputed insurance claim is any offer of settlement made by any insurer which is, in whole or in part, rejected or refused by the claimant. The commenters are concerned that this definition will unnecessarily interfere with or sever negotiations between the insurer and a claimant. The commenters stated that the definition of disputed claim should provide that the Ombudsman does not have jurisdiction to intervene until such time as the insurer issues its final offer of settlement.

RESPONSE: The Department disagrees with the commenters. To limit the Ombudsmanís jurisdiction with a highly restrictive definition of "disputed claims" which is tied to a final offer of settlement would unnecessarily and unreasonably inhibit the opportunity of consumers to obtain the services and assistance of the Ombudsman. The definition suggested by the commenters could be used by an insurer to preclude involvement by the Ombudsman by failing to issue a final offer of settlement.

9. COMMENT: Several commenters suggested that consumers who are represented by an attorney should not be permitted to obtain the assistance of the Ombudsman.

RESPONSE: The Department does not agree. It is improper to diminish the rights of consumers to seek Ombudsman assistance simply because they have consulted with and obtained the services of an attorney.

10. COMMENT: Several commenters stated that N.J.S.A. 17:29E-4 requires that persons seeking review of a disputed claim must first proceed with the insurersí internal appeals procedure before filing an application for review by the Ombudsman. The commenters ask that this provision be expressly stated in this rule.

RESPONSE: While it may appear that N.J.S.A. 17:29E-4 directs that internal appeals take place before a matter can be taken to the Ombudsman, the Department is hesitant to limit the opportunity of consumers to consult with and obtain the help of the Ombudsman. For that reason, the Department will not amend the rules to require an exhaustion of internal appeals before matters can be considered by the Ombudsman. It is consistent with the purposes of the Act that the Ombudsman be permitted to undertake review of a case in an exigent fashion when necessary in the interest of a fair, timely and appropriate settlement. Under most circumstances, the normal internal appeals process should be allowed to function unimpeded and nothing herein should be interpreted to the contrary. Rather, the Department simply deems it necessary to preserve the right of the Ombudsman to participate in limited situations. Therefore, the Department declines to make the requested amendments at this time.

11. COMMENT: Several commenters suggested that the provisions of N.J.A.C. 11:25-1.3(b)3 that require that the insurer respond to a complaint within 14 days of the receipt of the transmittal from the Ombudsman should be changed to 15 days, to be consistent with N.J.A.C. 11:2-17.6(d).

RESPONSE: The Department agrees that consistency in these time limits is appropriate and is, upon adoption, amending the rule to change the time from 14 days to 15 days.

12. COMMENT: Several commenters claimed that the Ombudsman should not be permitted to intervene in any claims that have been referred to the Office of Insurance Fraud Prosecutor (OIFP) by the insurer on the grounds of suspected fraudulent activity. The commenters go on to note that any information referred to the OIFP regarding fraudulent activities is confidential and is not discoverable.

RESPONSE: The Department does not agree with the commenters. The Act does not place any limitation on the authority of the Ombudsman regarding matters referred to the OIFP. While the Ombudsman will not normally become involved in matters referred to the OIFP, the Department is concerned that insurers could abuse this referral process to shield cases from the scrutiny of the Ombudsman. Thus, the Department will not impose any such limits on the authority of the Ombudsman. The Ombudsman would normally defer to the OIFP where that Office has received and is actively investigating a case.

13. COMMENT: Some commenters expressed concern with N.J.A.C. 11:25-1.4 which permits the Ombudsman to hire consultants and other professionals to assist in the investigation and review of cases. The commenters claim that this section might be used as authority for the Ombudsman to impose these fees as a charge to the specific insurer that is subject to the investigation.

RESPONSE: The Department does not share the concerns of the commenters. N.J.S.A. 17:29E-3b, cited in N.J.A.C. 11:25-1.4, states that the Ombudsman has authority to hire professionals "within the limits of the funds provided." Thus, it appears that there is no direct authority to assess the insurer for the cost of a consultant. This does not, however, preclude the assessment of reimbursement of fees where appropriate, pursuant to N.J.S.A. 17:22A-17b.

14. COMMENT: N.J.A.C. 11:25-1.5(a) uses the words "proper standards of conduct" as the measure against which an insurer's activity will be subject to the scrutiny of the Ombudsman. Several commenters are concerned that the phrase "proper standards of conduct" is too broad and not subject to specific definition, and could lead to misunderstanding and confusion.

RESPONSE: The Department agrees with the observation of the commenters and is amending the rule, upon adoption, to provide for a specific reference to N.J.S.A. 17:29B-1 et seq. and 17B:30-1 et seq. and N.J.A.C. 11:2-17. These provisions regulate the conduct of insurers and represent an identifiable standard against which insurers' conduct can be measured. Furthermore, the Department is also amending the same provisions to make it clear that any interested party, not just a consumer, can bring questionable trade practices to the attention of the Ombudsman. This is consistent with the provisions of N.J.S.A. 17:29E-4 and 17:29E-7.

15. COMMENT: Some commenters suggested that the Buyer's Guide Notice requirement set forth in N.J.A.C. 11:25-1.7(a) is unnecessary and duplicates the notice requirements found in N.J.A.C. 11:3-15.5(d), Standards For Written Notice: Buyerís Guide and Coverage Selection Form.

RESPONSE: The Department does not agree with the commenters. The reference to Buyer's Guide in this rule refers to all Buyer's Guides and is not limited to the private passenger automobile insurance guides governed by N.J.A.C. 11:3-15.5(d). The Department further notes that health insurance coverages issued pursuant to the provisions of N.J.S.A. 17B:29A-2 et seq. and 17B:27A-17 et seq. are specifically excluded from the Buyer's Guide Review imposed by N.J.S.A. 29E-3f. Thus, all Buyersí Guides, with the exception of those noted herein, are subject to the review of the Ombudsman.

16. COMMENT: The Department received several comments claiming that the internal appeals process described in N.J.A.C. 11:25-1.7(b) should be limited only to those cases that are denied on the basis of no coverage or on the issue of liability. As proposed, insurers will be required to give notice of their internal appeals process as a part of any claim denial, payment, compromise or any other disposition. The commenters claim that this is excessive and overly broad.

RESPONSE: The Department disagrees with the commenters. The definition of "claim" involves any disputed claim, not just those in which the insurer determines that there is no coverage or no liability. Clearly, the Act does not impose any such limitations on the Ombudsman's authority to review claim settlements, nor does any such limitation exist on the internal appeals procedure required pursuant to N.J.S.A. 17:29E-9. Thus, the Department cannot diminish in any way the obligation of insurers to advise consumers of the internal appeals procedures.

17. COMMENT: N.J.A.C. 11:25-1.7(c) provides that insurers shall be required to advise consumers of the opportunity to contact the Ombudsman as part of any action taken by the insurers' internal appeals panel. The commenter notes that this notification should not be a part of all communications, but should only be a part of the final communication from the panel to the consumer.

RESPONSE: The Department agrees with the commenter. The provision regarding notification of the availability of assistance from the Ombudsman should only be sent after final action is taken by the insurer's internal appeals panel. As a result, the Department is, upon adoption, amending the provision to include the word "final."

18. COMMENT: Several commenters expressed their concern with the range of the purpose and scope of the internal appeals procedure rules set forth in N.J.A.C. 11:25-2.1(a) and (b). The commenters asked that the language be revised to limit applicability of the internal appeals procedure to certain specifically identified private passenger automobile insurance disputes, rather than to all property and casualty insurance, as currently stated in the rule. The commenters also asked that workers' compensation insurance be specifically exempted from the requirements.

RESPONSE: N.J.S.A. 17:29E-9 provides that every insurer writing property and casualty insurance or life insurance in New Jersey shall establish an internal appeals procedure for the review of disputed claims in accordance with rules established by the Commissioner. The statute specifically identifies property and casualty insurers and life insurers as being subject to the internal appeals procedures. N.J.S.A. 17:29E-4 goes on to state that appeals from an insurer's internal appeals procedure may be submitted to the Ombudsman for review. The only disputes not subject to Ombudsman review are those PIP medical reimbursement claims which are subject to the Alternative Resolution Dispute Process created in accordance with N.J.S.A. 39:6A-5.1 and 39:6A5.2 and N.J.A.C. 11:3-5.

As a result of the foregoing, the Department concludes that there is no statutory limitation as suggested by the commenters. Thus, the Department must decline to take any action to limit the application of the internal appeals procedures. Regarding workersí compensation cases, the Department observes that there is already an elaborate structure for handling these matters and therefore, the Ombudsman will normally avoid involvement.

19. COMMENT: Numerous commenters claimed that the internal appeals process and review by the Ombudsman is limited to first party claims and should not be permitted in any third party claims. Specifically, the commenters argue that third party claims normally involve disputes of genuine and material fact, and issues of causation, comparative negligence and damages. Often questions of law can emerge, further clouding the issues of liability and damages. As a result, the commenters argue that third party claims should not be subject to the internal appeals process established by N.J.A.C. 11:25-2. Furthermore, the commenters suggest that the legislative intent of the Act was to avoid the internal appeals process in third party claims.

RESPONSE: The Department disagrees with the commenters. The Department has found no indication of a legislative intent to exclude third party claims from the internal appeals procedure. N.J.S.A. 17:29E-9 establishes an internal appeals procedure for the review of disputed claims and contains no limitation on the kind of claims. In addition, the definition of "claim" at N.J.S.A. 17:29E-1 does not support the commentersí position.

As a result, the Department considers that all insurers writing property and casualty insurance or life insurance shall establish an internal appeals procedure in accordance with N.J.A.C. 11:25-2 that is available for consideration of disputed claims.

20. COMMENT: Several commenters objected to the definition of "internal appeals" as found in N.J.A.C. 11:25-2.2. The commenters expressed concern regarding the use of the words "any notification, whether in writing or otherwise." They note that many communications from a claimant are received and they are concerned that an unintentional commencement of internal appeals proceedings will take place when not requested by a claimant. Also, the lack of a written notification requirement makes it difficult for the insurer to know that the final offered claim settlement remains unacceptable to the claimant.

RESPONSE: The Department agrees with the commenters and is amending the definition, upon adoption, to require that the notification from the claimant to the insurer occur by mail, electronic mail, facsimile or other method of physical delivery to the insurer which indicates that the insurer's final offered claim settlement is unacceptable.

The Department is sensitive to the concerns of the commenters that there will be uncertainty regarding the claimant's intention to invoke the internal appeals procedure. As a result, upon adoption, the Department is amending the definition in N.J.A.C. 11:25-2.2 to include the requirements that there is some concrete manifestation of the claimant's rejection of final offered settlement.

21. COMMENT: One commenter claimed that the internal appeals procedure mandated in N.J.S.A. 17:29E-9 should apply to all internal dispute resolution procedures, including all PIP benefit coverage disputes.

RESPONSE: The commenterís objection is directed to N.J.A.C. 11:25-2.1(b), which states that an insurers internal appeals procedure shall apply to all consumer complaints except those PIP disputes arising in accordance with N.J.S.A. 39:6A-5.1 and 5.2. The Departmentís exclusion of these PIP disputes is required by N.J.S.A. 17:29E-4b, which removes any dispute which was, or could be, submitted to alternative dispute resolution under N.J.S.A. 39:6A-5.1 and 5.2. These PIP disputes involve reimbursement of medical expense benefits and are subject to processes established in N.J.A.C. 11:3-4 and 3-5.

22. COMMENT: As proposed, N.J.A.C. 11:25-2.5(a) would require that all insurers provide amended policies of insurance to all policyholders in order to give notice of the internal appeals procedures. Several commenters object to the time and expense of amending all existing policies to include information on the internal appeals procedure when a simple notice and description to all policyholders should suffice.

RESPONSE: The Department agrees with the commenters for the reasons stated and is amending the rules upon adoption to delete the requirement that policies be amended.

Federal Standards Statement

A Federal standards analysis is not required because these adopted chapter relates to the requirements for establishing the Office of the 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.

Full text of the adoption follows (additions to proposal indicated in boldface with asterisks *thus*; deletions from proposal indicated in brackets with asterisks *[thus]*):


11:25-1.1 Purpose and scope

(a) (No change from proposal.)

(b) This subchapter shall apply to all claims filed under a policy of insurance issued in accordance with N.J.S.A. *17:17-1* 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]* *shall not be subject to the Ombudsmanís review*.

11:25-1.3 General provisions; disputed claims

(a) (No change from proposal.)

(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 No.: (800) 446-7467

Telefax No.: (609) 292-2431


1. - 2. (No change from proposal.)

3. A copy of the filed complaint shall be sent promptly to the respondent together with a transmittal letter that advises the respondent that an answer to the complaint must be filed no more than *[14]* *15* days after the date receipt of the transmittal letter.

4. - 6. (No change from proposal.)

(c) - (d) (No change from proposal.)

11:25-1.5 Trade and marketing practices; investigations, hearings and complaints

(a) The Ombudsman may, upon his or her initiative, or upon the filing of a complaint by any *[consumer]* *interested party*, conduct an investigation and/or hearing into an insurerís trade practices, including claims settlement practices, and marketing practices which may deviate from *[the proper standards of conduct]* *N.J.S.A. 17:29B-1 et seq.; N.J.S.A. 17B:30-1 et seq. and/or N.J.A.C. 11:2-17*.

(b) - (d) (No change from proposal.)

11:25-1.7 Publication of information

(a) - (b) (No change.)

(c) As a part of any *final* action taken by an insurerís internal appeals panel, excepted these covered by N.J.S.A. 39:6A-5.1 and 5.2 and N.J.A.C. 11L22-1, notice shall be provided to all parties that the Office of Insurance Claims Ombudsman may be contacted at the address in (d) below if further review is sought.

(d) (No change from proposal.)


11:25-2.2 Definitions

The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

. . .

"Internal appeals" means any notification, *[whether in writing or otherwise]* *in written form which is received either by mail, electronic mail, facsimile or by delivery to the insurer* that advises the insurer that the final offered claim settlement remains unacceptable to the claimant.

11:25-2.5 Notice to insureds and maintenance of data

(a) All insurers shall provide policyholders 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) (No change from proposal.)