N.Y. Comp. Codes R. & Regs. tit. 11 § 70.7

Current through Register Vol. 46, No. 45, November 2, 2024

Section 70.7 - Availability of coverages for excess of primary levels of insurance; rates for such excess coverages; requirements for medical malpractice insurers

(a)

(1) Section 3437 of the Insurance Law provides that:

(a)" Every authorized insurer which issues a policy of medical or dental malpractice insurance with primary levels of insurance in an amount equal to or greater than $1 million for each claimant under that policy and $3 million for all claimants under that policy in any one year must make available, and, if requested by the policyholder, provide coverage of at least $1 million per claimant and $3 million for all claimants in excess of such primary levels of insurance. Such insurers shall, subject to the approval of the superintendent, make available and, if requested by the policyholder, provide additional excess coverage in an amount requested by such policyholder.

(b) With respect to the excess coverage and additional excess coverage required to be made available on and after July 1, 1985 by subsection (a) of this section, the superintendent shall establish and promulgate provisional rates to be charged for such excess coverage and additional excess coverage. The superintendent, subsequent to December 1, 1985, shall approve final rates for such excess coverage and additional excess coverage for the period commencing July 1, 1985 and ending June 30, 1986. No insurer shall have the duty to file for final rates for such excess coverage or additional excess coverage for the period commencing July 1, 1985 prior to December 1, 1985."

(2) Section 5502 (e)(i) of the Insurance Law contains comparable provisions which are applicable to the Medical Malpractice Insurance Association and apply to any applicants for excess coverage whose primary levels of coverage are equal to or greater than $1 million for each claimant and $3 million for all claimants in any one year.

(3) Section 19 of chapter 294 of the Laws of 1985 specifies the obligations of general hospitals to purchase excess coverage on behalf of physicians having professional privileges in such hospitals who meet the specified conditions.

(b)

(1) Medical malpractice experience demonstrates that, on average, the more severe claims take longer to resolve. Average medical malpractice claim payments are made several years after the occurrence of the claim. Very severe cases may take decades to resolve. Experience demonstrates that the rate of increase in severity (i.e., cost per claim) has been escalating at a double digit annual rate. This persistent rate of increase in severity can be expected to drive the more severe 1985-1986 occurrences beyond the primary $1 million/$3 million maximum policy limits which had been generally offered to physicians. Some claims may even be expected to exceed a $2 million/$6 million limit. Excess coverage, prior to the enactment of chapter 294, was generally unavailable.

(2) The superintendent has concluded that it is appropriate to require, and the Medical Malpractice Insurance Association shall offer, aggregate coverage with limits up to $3 million/$9 million as well as first and second excess layers of coverage described in subparagraphs (c)(1)(i) and (ii) of this section. Other medical malpractice insurers shall offer, but only after obtaining the approval of the superintendent, the first excess layer and the second excess layer of coverage. Mandating availability of coverage beyond these limits would be imprudent at this time.

(3) As stated in section 70.5(b)(3) of this Part "... rate determination for [primary] medical malpractice is a particularly difficult task that is fraught with uncertainty..." particularly when new legislation has made fundamental changes to the system. This observation is even more applicable to the pricing of excess limits coverage for the following reasons:

(i) Coverage above the primary $1 million/$3 million level has not, heretofore, been generally offered. Since insurers have not been liable for losses above primary limits they have not maintained a credible data base for losses in excess of the primary levels. Therefore, it is necessary to rely, in part, upon fragmentary data and theoretical models whose accuracy can only be verified many years into the future.

(ii) The availability and purchase of dramatically higher policy limits may serve to escalate the levels of settlements and judgments beyond the severity that could otherwise be expected under $1 million/$3 million policy limits.

(iii) Since, on average, the more severe claims are paid later than the less severe claims, it is more difficult to project investment income and payout pattern assumptions for excess coverage pricing than for primary coverage pricing.

(iv) Apportionment of loss adjustment expenses between primary and excess coverages is complex and there is little historic or analogous data to assist the rate-maker.

(c)

(1) The superintendent has drawn upon existing casualty actuarial rate-making analyses and studies, testimony and evidence at Insurance Department hearings, consulted with attorneys and other persons expert in medical malpractice litigation, and conferred with the professional staffs of the Insurance Department, the Legislature and the Governor. Recognizing the above-described difficulties in excess coverage rate-making and the provisional nature of the excess rates being promulgated, the superintendent has concluded that the following provisional excess rates shall apply for the period July 1, 1985 through November 30, 1985 to excess coverages purchased by physicians and excess coverages purchased by general hospitals on behalf of their eligible physicians pursuant to section 19 of chapter 294:

(i) For a first excess layer providing $1 million/$3 million of excess coverage above a $1 million/$3 million primary coverage, the provisional rate shall be 30 percent of the $1 million/$3 million provisional rate for 1985-1986 primary coverage.

(ii) For a second excess layer providing $1 million/$3 million of excess coverage above the underlying primary and first layer of excess coverage described in subparagraph (i) of this paragraph, the provisional rate shall be 15 percent of the $1 million/$3 million provisional rate for 1985-1986 primary coverage.

(2) When quoting rates for excess coverage, insurers shall advise all applicants in writing that the rates promulgated in paragraph (1) of this subdivision are provisional and subject to upward or downward adjustment.

(3) The rates promulgated in paragraph (1) of this subdivision shall apply to all specialty classifications and territories and only to "occurrence" policies. Section 19 of chapter 294 provides that the superintendent shall approve policy forms for excess coverage specified in sections 3437 and 5502 (e)(1) of the Insurance Law for "... occurrences between July 1, 1985 and June 30, 1986..." Accordingly, an excess "claims-made" policy without the simultaneous issuance of a fully paid "tail" coverage, at an aggregate rate equal to the occurrence rate, does not comply with this statutory requirement and cannot be approved by the superintendent for purchase by general hospitals.

N.Y. Comp. Codes R. & Regs. Tit. 11 § 70.7