Quincy’s fire department had high hopes for a new moneymaking program last year: To ease budget woes, the department could pay for auto accident responses by sending the bill to private insurance companies.

But less than a year later, the program has been “a disappointment,” as insurers have refused to pay up.

What’s more, Quincy’s troubles may have recently helped derail another town’s plans to adopt a similar program – even as fire chiefs maintain that insurance companies are legally obligated to pay, and at least one local town says its fire department has seen success with the strategy.

All the while, the Massachusetts Division of Insurance hasn’t issued any guidance on the subject, leaving fire departments and insurers to duke it out on their own.

The issue has left insurers and fire departments alike confused, with a much hoped-for source of municipal revenue apparently standing on shaky ground – and, for some, leaving troubling questions.

Money On The Table

Only a few municipalities in Massachusetts appear to have tried the idea, but budgets are running thin and it seems likely that more departments will consider it. But insurers insist the bills they receive are groundless, as such expenses aren’t covered under many auto or home policies. In the middle are collections agencies such as California-based Fire Recovery USA, which insurers accuse of duping fire departments into an appealing but unlawful scheme.

Those conflicts are worrisome to Gloucester Deputy Fire Chief Stephen Aiello. On March 11, he appeared before the city council and proposed that the department contract with one such billing agency to charge insurers for auto accidents and structure fires. The plan could yield $60,000 annually, according to one estimate, and Aiello said he consulted with local insurance agents who told him homeowners’ policies covered responses to structure fires or other emergencies. But he acknowledged they were less certain about some auto insurance policies’ coverage of certain types of accident responses.

Not billing private insurers for many types of responses is tantamount to leaving money on the table, Aiello said. But looking at Quincy’s troubles, coupled with a negative public response in Gloucester, gave him pause.

“That makes you have second thoughts. For all the bad publicity, for all the legwork that you have to do, to only be able to recoup a minimal amount of the proceeds, it might not be worth it in the long run,” Aiello said, adding that he intended to re-hash the idea with town officials before any decisions had been made.

Quincy Fire Chief Joseph Barron didn’t respond to messages requesting comment, but City Council President Kevin Coughlin said the program had brought in far less than expected because insurers weren’t paying.

“I don’t have any dollar figures … but I don’t believe the program has been anywhere near the success that had been hoped for,” Coughlin told Banker & Tradesman, although he gave Barron credit for seeking out creative solutions to a tough budget problem in the city.

In a December article in The Patriot Ledger newspaper, Barron said the Quincy Fire Department’s collection company, Fire Recovery USA, had recovered only $2,700 out of the $14,000 in claims it had sent out since the program began several months prior. Quincy only billed for auto accidents, unlike Gloucester’s plan to include structure fires and emergencies.

Snake Oil Salesmen?

Mike Rivera, chief business development officer for Fire Recovery USA, wouldn’t speak specifically to Quincy’s troubles, but said it was common for insurance companies to drag their feet. Fire Recovery billed for responses clearly covered under insurance policies, he said, but it was in insurers’ best interests to obfuscate and deny coverage.

“They don’t want to pay – that’s how they make money,” he said, while companies like his persist until they successfully get insurers to pay up.

Frank O’Brien, Boston-based vice president at the Property Casualty Insurers Association of America, roundly rejected the idea that such responses were covered, and accused companies such as Fire Recovery USA of selling snake oil to cash-strapped cities.

In tough economic times, fire chiefs of course will respond to the siren song of firms like Fire Recovery USA, which are essentially promising free money, he said.

“What these outfits don’t mention, however, is that the legal basis for collecting these fees is shaky, the collection rates are relatively low,” O’Brien said. “And they also fail to mention that, ‘Oh, by the way, our services don’t come free, so we’re going to take a cut of whatever you get.’”

Gloucester City Councilman Bruce Tobey was dead set against implementing the program in his community. On a fundamental level, he said, it begs the question of why residents pay taxes, if those taxes don’t provide basic services like fire rescue.

But beyond that, he echoed O’Brien’s idea that insurance couldn’t be on the hook for fire responses; particularly for car accident responses, the insurance is meant to cover damage, not rescue.

Tobey, along with the insurance industry, added that insurance premiums would surely go up as a result of this – something Fire Recovery USA and the fire chiefs deny.

Jason Lefferts, spokesman for the Massachusetts Division of Insurance, told Banker & Tradesman that the division hadn’t laid out any firm guidelines on what could be billed and what couldn’t.

“This is a transaction between the municipality and the insurance company,” he said.

But at least one Massachusetts department is happy with the arrangement. Captain Jeff Baxter of Wenham’s fire department said the community contracted with a third party to collect money for its department’s ambulance and fire response and hazardous waste cleanup. In the town of approximately 4,400 people, most accidents were out-of-towners just passing through – so the town shouldn’t have to pay for these responses, Baxter said. Recovery rates, by his estimation, were 60 percent to 65 percent.

“So far, it’s been a pretty decent program,” he said.