The NYIA said a "loophole" in New York State's no-fault law had been revealed in the decision from the Appellate Division (Second Department) of the State Supreme Court in Brooklyn.

"This ruling is another example of why fraud is rampant in New York's no-fault auto insurance system," said Mr. Bourdeau. "Reform cannot come soon enough."

NYIA noted that insurance fraud adds an estimated $200 to $300 to the cost of insurance policies in New York, according to the New York Alliance Against Insurance Fraud.

The court found in Utica Mutual Insurance Company v. Duane Timms, et al. that even though a judicial hearing officer had determined the policyholder (Mr. Timms) had falsely claimed there was a passenger in his vehicle at the time of an accident in the Bronx, his insurance company (Utica Mutual) was still obligated to provide him with no-fault coverage benefits to pay his personal medical costs.

The appellate court ruled that the defendant's fraudulent conduct did not vitiate the no-fault portion of the policy because "the no-fault endorsement is internally complete and a distinct part of the policy."

In its ruling upholding an April 20, 2001, lower court decision in Westchester County, the appellate court pointed out that the fraudulent conduct applied to the liability portion of the policy.

At the same time, the court endorsed the lower court's call for a change and said it noted "with approval, the Supreme Court's suggestion that the Legislature study and review this loophole in the no-fault law that permits an insured who attempts to commit fraud to reap the benefits of his insurance policy."

State Supreme Court in New York is a county-level trial court.

Mr. Bourdeau observed that a package of no-fault reforms proposed by Gov. Pataki remains stalled in the legislature. "This decision is more evidence that New York's no-fault system favors insurance criminals over honest policyholders and their insurance companies," he said.

The New York Insurance Association is a trade association of 75 insurance companies that insure the autos, homes and businesses of the people of New York.

An official with Utica Mutual said an appeal of the latest ruling is under review.