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AIA Opposes Unpopular NYC "Crash Tax" Proposal

Posted on 17 Jan 2011

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The American Insurance Association (AIA) submitted testimony to the New York City Fire Department (FDNY) to be included in the record of last's Friday's public hearing on proposed accident response fees.  In his testimony, David F. Snyder, AIA vice president and associate general counsel, urged the FDNY to withdraw its proposal for imposing an onerous "crash tax" on New York City drivers. 

According to Snyder, fire department services are a basic government function and should already be covered by taxes, and the effect of implementing a ‘crash tax’ could have potentially deleterious effects, as victims of accidents may be hesitant to call for ambulance services for fear of having to pay the fees.

A copy of AIA’s testimony is below.

The American Insurance Association (AIA) is an association of more than 300 insurers that provide critical personal and commercial insurance coverage, including motor vehicle and property insurance, in New York and throughout the US and world.  AIA’s predecessor organization was founded in New York City nearly 150 years ago and its member insurers have a substantial and longstanding commitment to the welfare of New Yorkers. 
Emergency Response Has Evolved Into A Public Service, Paid For By All And Enjoyed by All.

Among the most basic services provided by local government are fire and rescue services.  At one time, they were provided on a “pay to play” basis. 

That is, fire services were provided only to those with fire marks signifying that they had insurance that would pay for the fire service.  No fire mark, no fire service.  This led to major problems, including lack of protection for uninsureds as well as conflicts between fire service providers for those that were insured. A modern example of problems with the fee for service model was last year’s incident in Tennessee where a home was allowed to burn because the fire tax had not been paid. See the October 7, 2010 story in Daily Finance entitled: “Tennessee Fire Ignites National Debate on Public Services.”

More recently, fire and rescue services have been regarded as a general public good, enjoyed by all and paid for by all.  This change in public perception is recognized by the proposal’s language that service should not be withheld based on one’s ability to pay.

In fact, emergency services are some of the most fundamental and important of all public services provided by local governments, such as New York City.  As the provision of emergency services has evolved into a public good, so too did the FDNY emerge as a world leader, highly respected by those who live and work in New York and highly regarded globally. Therefore, it should come as no surprise that the public has responded very negatively to the notion of billing for these services, after they thought they were providing them through their taxes.
The Public Strongly Opposes Fee--Based Emergency Services.

A review of the media coverage and public reaction surrounding this proposal discloses a strong and nearly universal negative public reaction to the emergency response fee proposal.  Here are several examples. In a December 10, 2010 story headlined: “Motorists Unhappy About FDNY’s Plan To Charge For Emergency Response”: motorists are quoted on the fee proposal as saying: “It’s wrong, completely wrong.” And, “I think it’s ridiculous.  I think we pay taxes that are supposed to be for all these services that they’re rendering.”  And further, “”My insurance will increase, and I pay income tax-that’s supposed to cover the cops, ambulances.  What are my taxes—which are going up, up all the time—paying for?”

An American Automobile Association New York spokesperson is quoted in a December 10, 2010 WNYC News story, as commenting that the crash tax is an outrageous idea and adding: “Fire and ambulance service is a basic service provided by government that is covered in taxes, and the idea that they need some relief now, and that the burden should fall on motorists, we think, is a bad one.”  The negative public reaction seems well summarized by the December 9, 2010 story headline: “New Yorkers Stunned At Notion Of Being Billed By Firefighters.”

This negative public reaction to emergency response fees has given rise to legislation in many states, and has led to enacted laws banning at least some of them in 12 states, including in the neighboring state of Pennsylvania. New York State and possibly the City, are considering legislation to ban these emergency response fees.  Just this past November, the voters of Montgomery County, Maryland, a large jurisdiction bordering on Washington, DC, rejected billing for emergency medical service.  The concerns that seemed to carry the day included that: the fees amounted to double taxation; the fees changed the relationship of first responders with the public from unqualifiedly positive to bill collectors; and some of people might now tragically think twice before calling for emergency services.

Major Revenue Gains From Third Parties May Not Materialize. 

For all this negative publicity and public reaction, there isn’t the assurance of a bonanza of payment by third parties, including insurers.  What insurance pays is the result of policy language and applicable law, something appropriately recognized by the proposed rule.  Insurance contracts may not cover the fees in many cases, thereby resulting in direct personal responsibility for payment of the fees.  In this connection, the comments of the State’s chief insurance regulator in a December 11, 2011 Daily News story are instructive: “Except in some limited circumstances, a charge by the Fire Department for responding to auto crashes would not be covered under current auto insurance policies.”

And to the extent that insurance does pay the fees, such payments will become costs that will need to be covered by future insurance rates.  New York insurance law and practice provides that to the extent insurers are obligated and make such payments, the costs could go into the basis for determining insurance rates. The double payment by only some of the people for a general public good, therefore, is not avoided whether the individual pays the fees or her insurance company pays the fees.  We believe this kind of fee-based emergency response system was rejected long ago for very good reasons and should not be resurrected now.
Charging for Emergency Response Could Result In Tragic And Other Adverse Outcomes.
It is well understood that seconds can make a difference in lives saved and prevention of further loss, in connection with motor vehicle crashes.  Even a moment’s hesitation, caused by fee related financial concerns, can be fatal. An AAA representative explained other potentially adverse results to the Journal as quoted in a December 10, 2010 story: “We have concerns that some motorists might be less likely to call police to crash scenes, allowing drunk drivers, uninsured drivers, drivers with suspended licenses, and others to go undetected.”

Charging For Emergency Response Could Adversely Affect the Relationship With, And Support Of, The Public.

First responders fully appreciate the importance of public respect and cooperation for the successful accomplishment of their mission. The FDNY currently enjoys the highest level of this critical public support.  But converting FDNY personnel into bill collectors, as this proposal would do, runs the risk of dramatically and fundamentally changing the relationship with the public and thereby losing at least some of this hard earned and much deserved public respect and support.

For all of the reasons set forth above and others, we urge the FDNY to reconsider and withdraw the fee proposal.  We are committed to working with you here and in Albany to help assure that emergency services are adequately funded.