The State of New Jersey adopted the Automobile Insurance Reparation Reform Act (known as the No Fault Act) in 1972. The act provides that every standard automobile liability insurance policy shall contain personal injury protection (PIP) benefits, without regard to fault, including medical expenses up to $250,000; income continuation up to $5,200; essential services up to $4,380; death benefits up to $9,580; and funeral expenses up to $1,000. N.J.S.A. 39:6A-4.

As initially enacted, the No Fault Act barred civil suits for "soft-tissue injuries" unless the claimant’s medical expenses exceeded a monetary threshold (originally $200 and later increased to $1,500). The act was amended in 1988 to replace the "monetary threshold" with a "verbal threshold": a description in words of the type of injury that would permit an accident victim to recover damages for noneconomic loss (defined as "pain and suffering").

In 1998, the Automobile Insurance Cost Reduction Act (AICRA) replaced the old verbal threshold with a new verbal threshold (called the "limitation on lawsuit option"). The six types of injury that satisfy the new verbal threshold include: death (type 1); dismemberment (type 2); significant disfigurement or scarring (type 3); displaced fractures (type 4); loss of fetus (type 5); or a permanent injury (type 6).

In addition, AICRA created a statutory standard for determining whether an injury is permanent. First, the act provided a definition of a permanent injury: "when the body part or organ, or both, has not healed to function normally and will not heal to function normally with further medical treatment." Second, the statute provided a procedure for satisfying the threshold — a physician’s certification that the injury is permanent based upon "objective clinical evidence, which may include medical testing."

Since 1988, there have been over 120 published opinions that discuss some aspect of the verbal threshold. Each of these cases is listed by subject in the Verbal Threshold Citator included in this supplement at page S-9.

Each year since 1992, I have prepared a special "Automobile Injury" supplement to the New Jersey Law Journal, with a main article entitled "A Look at No Fault." The supplement reviews all of the published verbal threshold cases from the prior year.

This year, for the first time, there are no verbal threshold opinions to report. However, despite the absence of activity from the judicial branch, the executive branch has been quite active.

PIP Regulations

The New Jersey No Fault Act provides that every standard automobile liability insurance policy shall contain personal injury protection (PIP) benefits that include the payment of medical expenses in an amount not to exceed $250,000 per person per accident. N.J.S.A. 39:6A-4. In addition, the act requires the Commissioner of Banking and Insurance to promulgate medical fee schedules for the reimbursement of health-care providers for services and equipment. N.J.S.A. 39:6A-4.6. Also, the act requires the commissioner to designate an organization for the purpose of administering proceedings for the resolution of disputes regarding the recovery of medical expense benefits. N.J.S.A. 39:6A-5.1.

On July 8, 2011, the Department of Banking and Insurance (DOBI) filed proposed new rules, amendments and appeals with respect to PIP benefits, PIP dispute resolution and PIP medical fee schedules. 43 N.J.R. 1640(a). In the "Summary" to the agency proposal, DOBI notes that it "has determined that it is reasonable and appropriate to propose these new rules, repeals and amendments to revise the regulatory framework for the provision and payment of PIP benefits to contain costs and thereby increase the value of the PIP benefit to injured persons."

On Jan. 27, 2012, DOBI announced that it had received over 18,000 comments from consumers, policyholders, insurance companies, medical professionals, attorneys and others. As a result, the department filed a Notice of Substantial Changes to the initial proposal. 44 N.J.R. 383(a).

Finally, on Oct. 9, 2012, the department adopted the new rules, amendments and repeals. The effective date was Nov. 5, 2012, and the operative date was Jan. 4, 2013, for all rules except internal appeals (which was delayed until Nov. 5, 2013). 44 N.J.R. 2652(c). The new PIP regulations include the following topics: on-the-paper hearings, assignment of benefits and duties, counsel fees, standard treatment protocols and internal appeals.

Purpose and Scope

In the summary to the initial agency proposal on July 8, 2011, DOBI states that "auto carriers pay benefits of $1.23 for every dollar of PIP premium collected." Thus, it is alleged that the cost of providing PIP coverage continues to exert upward pressure on private passenger automobile (PPA) insurance rates.

Several commentators disputed the statistics utilized by DOBI and, accordingly, rejected the department’s rationale for the proposed regulations. They noted that:

(1) There have been significant legislative and regulatory changes to the New Jersey No Fault Act that have already contained costs and created a more competitive marketplace for automobile insurance; and

(2) The data submitted by DOBI was stale and did not depict the most current trends in the cost of PIP benefits.

In its comments published on Oct. 9, 2012, DOBI changed its rationale for the adoption of the new PIP regulations. The department agreed that the automobile insurance market is "vibrant and competitive." Nonetheless, DOBI stated that it was "seeking to avoid another personal lines private passenger auto insurance availability crisis for insureds."

PIP Dispute Resolution: On-the-Papers

The No Fault Act provides that any dispute regarding the recovery of PIP benefits "may be submitted to dispute resolution on the initiative of any party to the dispute" (otherwise known as PIP arbitration). N.J.S.A. 39:6A-5.1(a). The Commissioner of Banking and Insurance shall designate an organization to administer the dispute resolution proceedings and the organization shall establish a dispute resolution plan. N.J.S.A. 39:6A-5.1(b). The disputes shall be resolved by full-time dispute resolution professionals (DRP) whose decisions shall be in writing and shall be binding. N.J.S.A. 39:6A-5.1(c). (The first Dispute Resolution Organization was the American Arbitration Association; then the National Arbitration Forum; and, currently, Forthright).

The old insurance regulations provide that the administrator (the dispute resolution organization) shall promptly assign a demand for arbitration to a DRP and notify all parties of the DRP assigned. N.J.A.C. 11:3-5.6(b). Any party may challenge the assignment by submitting the specific grounds to the administrator. N.J.A.C. 11:3-5.5(b)(3). Once the demand is assigned, the administrator shall provide for "the prompt, fair and efficient resolution of PIP disputes, after a hearing" by the assigned DRP. N.J.A.C. 11:3-5.4(b)(5).

In the "Summary" of the initial agency proposal, DOBI states that it "believes that too many disputes between providers and insurers are going to" PIP arbitration. Thus, the department is proposing "a number of measures to reduce the costs of PIP ADR and make it work more efficiently."

DOBI has adopted an amendment of the insurance regulations to provide for the resolution of PIP disputes by a proceeding "on-the-papers." The amendment defines an "in-person proceeding" as a dispute where the parties appear in person or telephonically. In an "on-the-papers proceeding," the parties submit written documentation, and the DRP decides the case based solely on the documentation. The proceedings will be permitted only "where all parties consent or where there is no further treatment at issue and the amount at issue is less than $1,000." N.J.A.C. 11:3-5.2, Definitions.

In order to incorporate these "on-the-papers" proceedings, DOBI has adopted the following amendments:

(1) The administrator shall provide for the resolution of PIP disputes by in-person and on-the-papers proceedings. N.J.A.C. 11:3-5.4(b)(5);

(2) The administrator shall promptly assign a Demand for Arbitration to a DRP. For in-person proceedings, the administrator shall notify all parties of the DRP at the time of assignment; however, for on-the-paper proceedings, the notification to the parties will be made at the time that the decision is issued. N.J.A.C. 5.6(b); and

(3) In an in-person case, any party may challenge the assignment of the DRP at the time of notification; however, for on-the-papers cases, the parties may challenge the assignment only "as part of the appeal process." N.J.A.C. 11:3-5.5(b)(3).

DOBI has advised Forthright (the PIP resolution administrator) that any changes to the PIP arbitration rules relating to on-the-paper proceedings will be reviewed by both the Advisory Council and DOBI. Thus, although the regulations become effective on Jan. 4, 2013, the implementation of the regulations will be delayed until March 1, 2013.

Assignment of Benefits

The No Fault statute provides that PIP benefits shall not be assignable "except to a provider of service benefits." N.J.S.A. 39:6A-4. The old regulations state that insurers may impose "reasonable procedures" that restrict the assignment of PIP benefits to a provider "consistent with the efficient administration of coverage." N.J.A.C. 11:3-4.9(a). The reasonable restrictions may include a requirement that the provider agrees to follow the insurer’s decision-point review plan; agrees to hold the insured harmless for penalty co-payments; and agrees to submit disputes to PIP arbitrations.

DOBI has adopted an amendment to specify that any assignment from an insured to a provider shall include both "benefits and duties under the policy." In addition, the reasonable restrictions on the assignment of PIP benefits shall be consistent with both the efficient administration of the coverage and "the prevention of fraud."

Counsel Fees

The No Fault Act provides that the cost of the dispute resolution proceedings (PIP arbitration) "shall be apportioned by the dispute resolution professional. Fees shall be determined to be reasonable if they are consonant with the amount of the award, in accordance with a schedule established by the New Jersey Supreme Court." N.J.S.A. 39:6A-5.2(g). The old insurance regulations provide that the award of the DRP "may include attorney’s fees for a successful claimant is an amount consonant with the award and with Rule 1.5 of the Supreme Court’s Rules of Professional Conduct." N.J.A.C. 11:3-5.6(d)(3).

In the "Summary" of the initial agency proposal, DOBI notes that it has obtained data on the amounts awarded to claimants and paid to attorneys for 10,703 awards in 2010. The most common attorney fee was $1,200 for all cases; $1,000 where the PIP benefit was $500 or less; and $1,200 where the PIP benefit was between $5,000 and $10,000. Thus, since the counsel fees did not vary significantly, the department concluded "that these numbers demonstrate that DRPs are not awarding attorney fees that are "consonant with the amount of the award."

DOBI notes that the Supreme Court has not established a schedule for the determination of a reasonable counsel fee. Thus, "the Department believes that it is proper to incorporate the jurisprudence of this State which establishes how to determine the reasonableness of attorney fee awards in a fee-shifting statute." See Rendine, Szczepanski, Furst, Allstate/Sabato and Scullion.

The new insurance regulations would still require the DRP to apportion the costs of the proceedings and permit the award of "reasonable attorney’s fees for a successful claimant in an amount consonant with the award." N.J.A.C. 11:3-5.6(e). If a successful claimant requests an attorney fee, the DRP shall determine "reasonable attorney fees" by making an analysis of the following items and addressing each item in the award:

(1) Calculate the "lodestar": defined as the number of hours "reasonably expended" by claimant’s counsel multiplied by a "reasonable hourly rate" in accordance with R.P.C. 1.5.

(a) The lodestar shall exclude hours not reasonably expended;

(b) The lodestar shall exclude hours that exceed what "competent counsel reasonably would have expended to achieve a comparable result" based upon the damages recoverable, the interests vindicated and the statutory objectives; and

(c) The lodestar may be reduced if the claimant achieves only a "partial or limited success"; however, the time expended on an unsuccessful claim may be considered if the same evidence was "addressed to support a successful claim."

(2) If the request for an attorney fee is more than the amount of the award, the DRP shall analyze whether the attorney fees are "consonant" with the award, which means "compatible and/or consistent with the amount of the arbitration award."

(3) If the request for an attorney fee is "grossly disproportionate" to the amount of the award, the DRP must make a "heightened review" of the lodestar calculation.

Standard Professional Treatment Protocols

The No Fault Act provides that all medical treatments, diagnostic tests and services shall be rendered "in accordance with commonly accepted protocols and professional standards and practices which are commonly accepted as being beneficial for the treatment of the covered injury." Protocols are deemed to be "commonly accepted" if recognized by national standard setting organizations; national or state professional organizations in the same discipline as the treating provider; or approved by the commissioner in consultation with professional licensing boards in New Jersey. The commissioner may reject the use of protocols, standards and practices or lists of diagnostic tests "set by any organization deemed not to have standing or general recognition by the provider community or the applicable licensing boards." N.J.S.A. 39:6A-4(a).

In the "Summary" to the initial agency proposal, DOBI indicates that it has become aware that the medical necessity for procedures or tests "is being supported by articles, books and practice or treatment guidelines that are published by the proponents of the treatment or list in journals that are not peer-reviewed and where the evidence supporting the treatment or test is anecdotal."

The department suggests that these types of treatment protocols and guidelines "cannot be used as evidence that a treatment or test is medically necessary." Thus, while not adding to the list of rejected protocols, DOBI has adopted a new definition of "standard professional treatment protocols" to mean "evidence-based clinical guidelines/practice/treatment published in peer-reviewed journals."

Internal Appeal Procedure

The old insurance regulations require insurers to submit to DOBI for approval a "decision-point review plan." N.J.S.A. 11:3-4.7. These plans are defined as the procedures "for the insurer to receive notice and respond to requests for proposed treatment or testing at decision points" (those junctures where a decision must be made about the continuation or choice of further treatment or the administration of diagnostic tests). N.J.A.C. 11:3-4.2. The regulations require all decision-point review plans to include "an internal appeals procedure that permits the provider to provide additional information and have a rapid review of a decision to modify or deny reimbursement for a treatment or the administration of a test." N.J.A.C. 11:3-4.7(c)(6).

In the "Summary" of the initial agency proposal, DOBI notes that the details of these decision-point review plans and internal appeal procedures "varied considerably among insurers, which made it complicated and burdensome for providers to make these appeals." Accordingly, DOBI has adopted a new rule "to establish standards for a uniform internal appeal process for PIP disputes" that is based upon the process used by DOBI for utilization management appeals in health plans.

The new rule includes the following comments and requirements, N.J.A.C. 11:3-4.7B:

(a) The purpose of the rule is to permit a provider who has an assignment of benefits to submit additional information and have a "rapid review" of an adverse decision by an insurer.

(b) An "adverse decision" is defined as any determination by an insurer with which the provider does not agree, such as medical necessity; causation; notification of requests for decision-point review or precertification; imposition of deductibles and co-payments; overdue payments; usual, customary and reasonable fees; and coding (downcoding, unlisted codes and NCCI edits).

(c) There will be two types of internal appeals: "treatment appeals," about the medical necessity of future treatment or testing, and "administrative appeals" for all other types of adverse decisions.

(d) All appeals shall be filed on a form established by DOBI and shall be submitted by the provider (with any supporting documentation) to the insurer.

(e) Treatment appeals shall be submitted not later than five business days after the provider has received notice of the adverse decision. If the provider misses the deadline, the provider may not submit an administrative appeal; however, the provider may submit another decision-point review request for treatment or testing. (If the second request is denied, the provider will have another opportunity to submit a treatment appeal.)

(f) Administrative appeals shall be submitted within 180 days of the adverse decision, a time frame that is consistent with the health-care appeal system.

(g) The insurer shall acknowledge receipt of the appeal by regular mail, fax or electronic means on a form established by DOBI. Treatment appeals shall be acknowledged within three business days and administrative appeals within five business days of receipt. Appeals received without all of the required information shall be acknowledged as "Incomplete." Appeals received after the time deadlines shall be acknowledged as "Late Appeals." However, incomplete or late appeals do not constitute an appeal.

(h) The insurer shall conduct a review of the appeal and notify the provider of its decision by fax, mail or electronic means. The insurer may contact the provider by telephone but must follow up with a written decision. For treatment appeals, the provider shall receive the decision no later than 10 days after receipt of the acknowledgment. For administrative appeals, the provider shall receive the decision no later than 30 days after receipt of the acknowledgment. If an insurer determines that a physical examination is necessary to respond to the appeal, the time periods shall start "after the examination has been scheduled and the report received."

(i) A provider who acts on an assignment of benefits must file an internal appeal prior to filing for alternate dispute resolution (PIP arbitration). The demand for arbitration must include a copy of the internal appeal decision or proof that an internal appeal was filed (but no decision was received from the insurer). The rules of the dispute resolution administrator (Forthright) shall include penalties for providers and their attorneys who do not exhaust the internal appeals process before making a demand for arbitration.

(j) An insurer that fails to respond to an internal appeal shall lose the right "to raise defenses in an arbitration on the issue that was subject to the appeal"; however, the insurer can raise any other "valid and relevant defenses."

DOBI has adopted the rule as of Oct. 9, 2012, but has delayed the operative date until Nov. 5, 2013. The department agrees that "the internal appeal process needs to be amended in consultation with insurers and providers," and that "any such amendments would constitute substantial changes requiring additional notice and opportunity for comment." Thus, the department is adopting the amendments with a delayed operative date so as not to delay the other amendments.■