Office 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

Regulatory Affairs

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.

Social Impact

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.

Economic 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.

Job Impact

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:







11:25-1.1 Purpose and scope

    1. The purpose of this subchapter is to establish procedures for the Insurance Claims Ombudsman to exercise his or her statutory authority to:

    1. Investigate consumer complaints involving policies of insurance, including the payment of claims;
    2. Monitor the implementation of N.J.S.A. 17:23A-1 et seq. (policyholderís personal information disclosure practices of regulated insurers);
    3. Monitor the implementation of N.J.S.A. 17:29B-1 et seq. and 17B:30-1 et seq. (consumer complaints regarding unfair methods of competition; unfair, deceptive and discriminatory acts or practices by insurers);
    4. Monitor the implementation of N.J.S.A. 17:35C-1 et seq. (Medicare supplement health insurance policies; regulation of contract provisions and required disclosure to consumers);
    5. Investigate alleged violations of N.J.S.A. 17:35C-11 (use of false, misleading, or fraudulent statements and advertising to sell Medicare supplement insurance to consumers);
    6. Respond to consumer inquiries, including, but not limited to, those regarding policy terms and availability of coverage;
    7. Ensure that accurate and understandable buyersí guides and rate comparisons are published and disseminated to consumers where required by law, except those with respect to health insurance coverages provided pursuant to N.J.S.A. 17B:27A-2 et seq. and 17B:27A-17 et seq.;
    8. Review the conduct of arbitrators appointed in accordance with the terms of a policy of insurance to arbitrate disputes, except those arbitration proceedings arising out of policies issued pursuant to N.J.S.A. 39:6A-1 et seq. or already subject to the provisions of N.J.A.C. 11:22-1;
    9. Investigate such other improper patterns or practices as are deemed necessary and appropriate to the Office of Insurance Claims Ombudsman; and
    10. Review disputes that are appealed by consumers after an internal appeals procedure (N.J.A.C. 11:25-2.1) is conducted by life, property and casualty Insurers.

(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.

11:25-1.2 Definitions

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


    1. All complaints received by the Ombudsman shall be entered into the
    2. 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.

    3. If the Ombudsman needs further information on any complaint,
    4. the office shall notify the complainant of the additional information needed before any further action may be taken.

    5. 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 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;

    1. The resources available, considering the established priorities, are insufficient for an adequate investigation;
    2. The matter complained of is not within the investigatory authority of the Ombudsman; or

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

    1. The Ombudsman may, upon his or her initiative, or upon the filing of a complaint by any consumer, 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.
    2. When making investigations or conducting hearings, the Ombudsman may consider any and all information deemed necessary and proper to resolve the issues raised by the investigation or hearing.
    3. The Ombudsman may inspect and copy books, papers, objects, documents, records and other evidence considered material or relevant to the matter under investigation, and may issue a subpoena to compel any person to attend and testify as well as to produce documents, books, papers, objects, records and other evidence at such place and time as is selected by the Ombudsman.
    4. At the conclusion of the investigation, inquiry or hearing, the Ombudsman may, in his or her discretion or at the request of the Commissioner, issue a report as to any findings and conclusions reached regarding the trade practice, marketing practice, policy or provision being investigated. The Ombudsman may determine if any policy provision, endorsement or form is unfairly discriminatory, confusing, misleading or contrary to public policy together with a specific recommendation as to the modification or discontinuance of the policy, form or provision. The report may also include a recommendation to the Commissioner regarding any further investigation of an insurerís practices together with a recommendation regarding the imposition of penalties or other sanctions.

11:25-1.6 Registry of closed claims and confidentiality of information

    1. The Ombudsman shall maintain a central registry of all closed claims investigations that shall contain information on the nature of the investigation, findings and disposition. The Ombudsman shall report to the Commissioner any evidence that an insurer may be engaged in a pattern of conduct which violates N.J.S.A. 17:29B-1 et seq., 17:23A-1 et seq., 17:29B-1 et seq., 17B:30-1 et. seq, 17:35C-1 et seq., or 17:35C-11. The contents of this central registry shall be confidential and shall not be subject to public inspection or copying pursuant to the "Right To Know Law," N.J.S.A. 47:1A-1 et seq.
    2. Any correspondence or written communication from any complainant and any written material submitted by an insurer to the Ombudsman shall remain confidential and shall not be considered a public record pursuant to the "Right to Know Law," N.J.S.A. 47:1A-1 et seq. and shall not be subject to release unless such disclosure is necessary to enable the Ombudsman to perform his or her duties and to support any opinions or recommendations, or as may be necessary to enable the Commissioner to perform any function authorized by law, including any action to stop unfair claims settlement practices. Any statement or communication made by the Ombudsman or which is provided in good faith to the Ombudsman shall be deemed to be privileged and confidential in accordance with N.J.S.A. 17:29E-12(c). Confidentiality shall attach only after the Ombudsman has exercised his or her jurisdiction to investigate a complaint. Complaints sent to the Ombudsman that he or she does not elect to investigate pursuant to N.J.A.C. 11:25-1.4(c)2 shall be returned to the complainant or referred to the Division of Enforcement and Consumer Protection for further action. Only those claims retained by the Ombudsman shall be subject to the confidentiality provision of this chapter.

11:25-1.7 Publication of information

    1. Every buyerís guide given to insureds in accordance with Title 11 of the New Jersey Administrative Code shall contain a notice describing the existence and function of the Office of Insurance Claims Ombudsman together with the mailing address, toll-free telephone number and e-mail address listed below.
    2. As a part of any claim, consumer denial, payment, compromise or any other disposition, all insurers shall provide notice and explanation of the insurerís internal appeal process that is established in accordance with N.J.A.C. 11:25-2.
    3. As a part of any action taken by an insurerís internal appeals panel, excepting those covered by N.J.S.A 39:6A-5.1 and 5.2 and N.J.A.C. 11:22-1 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) 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



11:25-2.1 Purpose and scope

    1. The purpose of this subchapter is to implement the provisions of N.J.S.A.17:29E-9 that requires life, property and casualty insurers to establish an internal appeals procedure for consumers seeking review of disputed claims.

(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.

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.

"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:

    1. Written notification to all claimants of the telephone numbers, FAX number, e-mail (if used) and business addresses of the insurerís employees responsible for internal appeals of disputed claims;
    2. A system to record and document the status of all internal appeals which shall be maintained for a period of five years from the date the internal appeal is filed;
    3. The availability of an insurerís member service representative to assist insureds, when requested, with information pertaining to the insurerís internal appeals system;
    4. Establishment of a specified response time which shall be no more than 10 business days from receipt of the appeal for disposition of an internal appeal;
    5. A communication sent to the claimant when the appeal is filed which describes in non-technical terms how internal appeals are processed and resolved;
    6. Procedures for follow-up action including methods to inform the complainant of the decision of the internal appeals panel within three working days of its decision; and
    7. A mechanism for notifying claimants in writing that they may contact the Insurance Claims Ombudsman if there continues to be dissatisfaction with the decision reached by the insurerís internal appeals panel.

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:

    1. A copy of the internal appeal filed by the insured;
    2. A copy of the decision being appealed;
    3. A list of the documents, records and other pertinent information relied upon by an internal appeals panel in deciding the appeal; and
    4. A copy of the notice sent to the claimant advising the claimant of the decision and the right to subsequent appeals in accordance with N.J.A.C. 11:25-2.3.

11:25-2.6 Reporting

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.

11:25-2.7 Penalties

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

Total Appeals

Insurer Upheld

Complainant Upheld

Compromised & Resolved


Aggregate Additional Payments Made as a Result of Appeals