Request for Review and Comment on Proposed Regulations

GAO was asked to comment on proposed regulations to be incorporated into the Manual of the Judge Advocate General regarding setoff of Navy affirmative claims against insurance company subrogation claims under federal law. Specifically, questions were raised concerning: (1) whether the proposed regulation conforms to guidelines set forth in a GAO decision; (2) whether setoff against a settled subrogation claim constitutes a denial which affords the insurer the right to bring suit under the Federal Tort Claims Act; (3) the administrative appeal or review rights of the insurer if setoff does not constitute a denial; (4) the administrative due process precautions that must be taken prior to effecting setoff; and (5) whether an affirmative claim against an insurance company in one state may be set off against a subrogation claim filed by the same company through its offices in another state. GAO concluded that: (1) there was nothing in the proposed regulations that is inconsistent with its decision; (2) it seems that setoff should not be viewed as a denial but, if this issue is raised, it will ultimately have to be resolved through litigation; (3) a claimant should always be able to seek administrative reconsideration by the agency that took the initial action; (4) Federal Claims Collection Standards were amended in 1981 to address the issue of administrative due process precautions necessary before setoff; and (5) a setoff would be proper where the insurance company is both claimant and debtor, regardless of the fact that the tort claim and the debt may have arisen in different states.