Fraudulent procurement defense precluded

Gutierrez v United Servs. Auto. Assn., 2015 NY Slip Op 50797(U)(App. Term 2d Dept. 2015)

“Plaintiff correctly argues that defendant failed to demonstrate that it is not precluded from asserting its proffered defense—that the insurance policy at issue was fraudulently procured—as it failed to establish that it had timely denied plaintiff’s claim on that ground (see Westchester Med. Ctr. v GMAC Ins. Co. Online, Inc., 80 AD3d 603 [2011]; Great Health Care Chiropractic, P.C. v Hanover Ins. Co., 42 Misc 3d 147[A], 2014 NY Slip Op 50359[U] [App Term, 2d, 11th & 13th Jud Dists 2014]).”

Preclusion really should not apply to this defense.  While Fair Price dealt with provider fraud, there was always a distinction (as unnatural as it might seem) between provider fraud and EIP fraud.  The latter would not result in coverage, whilst the former would be immaterial to coverage.  Still think Westchester/GMAC was incorrectly decided.

Triangle R again

Okslen Acupuncture P.C. v Unitrin Advantage Ins. Co., 2014 NY Slip Op 51290(U)(App. Term 1st Dept. 2014)

“The defendant-insurer failed to demonstrate entitlement to depositions relating to its excessive treatment and fee schedule defenses, in the absence of any affirmative showing that it preserved those defenses by timely denying plaintiff’s 2006 first-party no-fault claim (see Triangle R. Inc. v Progressive Ins. Co., 36 Misc 3d 151[A], 2012 NY Slip Op 51685[U][App Term, 1st Dept 2012]). In view of the foregoing, we need not and do not address plaintiff’s alternative argument that the noticed depositions were otherwise unwarranted.”

If you are that serious about the fraud, then bring a Supreme Court action where courts will give you more latitude to pursue a common-law fraud action.  Or, try your hand at a Rico if you have enough information on the provider.

A citing of the Anti-Fair Price regulation

Optimal Well-Being Chiropractic, P.C. v Utica Mut. Ins. Co., 2014 NY Slip Op 51233(U)(App. Term 2d Dept, 2014)

“While defendant sought summary judgment on the grounds that plaintiff’s assignor had failed to appear for independent medical examinations and that plaintiff was seeking to recover for treatment which the assignor swore he never received, defendant failed to establish that such defenses are not precluded.[FN1]

“We note that if the treatment at issue had been rendered after April 1, 2013, pursuant to the revised Insurance Department Regulations, the defense that the services were not provided would not be subject to preclusion (see Insurance Department Regulations [11 NYCRR] § 65-3.8 [g] [eff Apr. 1, 2013]). ”

The Court again cites Westchester Lincoln and gives a cf to Unitrin.  This point is old but I felt like putting it out there anyway because this is my blog and you are choosing to read it.  The Court appears to cite the new anti preclusion regulation as a “defense that..would not be subject to preclusion”.  Three points here.

Point I: I was unsure if the Courts would hold that the new regulations could reverse preclusion, but I reread Presbyterian and “re-realized” that preclusion (according to the court) was supported through a dichotomy in the regulations.  (Former 65.15(g)(3) v. 65.15(g)(5 and “The interpretive canon of inclusio unius, exclusio alterius “)  So, Point I, i.e., can the DFS wipe out preclusion?  Answer : yes.

Point II: The failure to provide services is being categorized as a defense.  Certain defense attorneys have stated that the wording of the regulation suggests, e.g., billing in accordance with the fee schedule is part of a prima facie case based upon the textual layout of the amendment to the regulations.  I never bought into that argument, and I am glad I did not.  These preclusion carve outs are being classified as defenses.

Point III: I still think a medical provider should have to prove causation, proper billing and medical necessity.  Furthermore, should the proposed attorney fee regulation pass, then the applicants cannot say that they are not being paid enough to prove the same elements that would need to be proven in a tort case.

Fraudulent procurement and preclusuion

Doctrinally, a fraudulent procurement defense should not be bound by the 30-day pay or deny rule.  This is so since the Appellate Division in Kaplun specifically held that an insurance carrier can seek recompense from an EIP for monies paid out due to this fraud and, therefore, the defense can be raised at an time.   Contrariwise, the Court instructed us in Cornell Medical that an unjust enrichment cannot lie if the defense is precludable.   GMAC was an aberrant act and the “preclusion” appeared to be more dicta than anything else.

Great Health Care Chiropractic, P.C. v Hanover Ins. Co., 2014 NY Slip Op 50359(U)

“With respect to defendant’s motion for summary judgment, although defendant contends that, in connection with the issuance of the insurance policy at issue, plaintiff’s assignor had misrepresented the state where the insured vehicle was garaged, defendant is precluded from asserting that defense in support of its motion and in opposition to plaintiff’s motion as it failed to establish that it had timely denied plaintiff’s claim on that ground (see Westchester Med. Ctr. v GMAC Ins. Co. Online, Inc., 80 AD3d 603 [2011]”

Partial fraud?

Jian Kang, Inc. v New York Cent. Mut. Fire Ins. Co., 2013 NY Slip Op 50851(U)(App. Term 2d Dept. 2013)

(1) In this action by a provider to recover assigned first-party no-fault benefits, defendant denied plaintiff’s claims on the ground of “material misrepresentation” because plaintiff had billed for a heating pad which defendant had determined had not been provided to plaintiff’s assignor.

(2)  The Civil Court, by order entered April 20, 2011, granted defendant’s motion to the extent of dismissing so much of the[*2]complaint as sought to recover for the heating pad, on the ground that it had not been delivered to plaintiff’s assignor, but denied the branches of defendant’s motion seeking summary judgment dismissing so much of the complaint as sought to recover for the remaining supplies billed for, which amounted to $3,988.58.

(3) Defendant failed to establish as a matter of law that the claim forms which are the subject of this appeal sought payment of assigned first-party no-fault benefits for medical supplies that had not actually been provided by plaintiff to its assignor. Defendant also failed to establish that the provider’s billing for a heating pad which had never been delivered to plaintiff’s assignor voided the automobile insurance policy underlying this action from the policy’s inception and that, therefore, defendant need not pay for any of the other medical supplies which may have been furnished to plaintiff’s assignor under this policy.

That is okay – you can bill for supplies that were never provided.  If you get caught, well you will be penalized solely for the supply that was not delivered.  How about the other supplies?  No problem – payment is forthcoming.

Insurance Law 403(c): “(c) In addition to any criminal liability arising under the provisions of this section, the superintendent shall be empowered to levy a civil penalty not exceeding five thousand dollars and the amount of the claim for each violation upon any person, including those persons and their employees licensed pursuant to this chapter, who is found to have: (i) committed a fraudulent insurance act, fraudulent life settlement act or otherwise violates the provisions of this section; or (ii) knowingly and with intent to defraud files, makes, or assists, solicits or conspires with another to file or make an application for a premium reduction, pursuant to subsection (a) of section two thousand three hundred thirty-six of this chapter, containing any materially false information or which, for the purpose of misleading, conceals information concerning any fact material thereto.”

Financial Services Law 408(a)(1)(A): ‘In addition to any civil or criminal liability provided by law, the superintendent may, after notice and hearing, levy a civil penalty: not to exceed five thousand dollars per offense, for:any intentional fraud or intentional misrepresentation of a material fact with respect to a financial product or service or involving any person offering to provide or providing financial products or services”

Does anybody have any shame anymore?

Alvin, Simon and….Theodore

United States v. Leslie Dantes Theodore (11 CR 829)(SDNY 2013)


MR. BELL: Your Honor, not for the purposes of the allocution. I will note that at the bottom of page 4 of the plea agreement, three lines from the bottom, there is a provision that does not frequently occur, but it may be worth making sure that Dr. Theodore understands.

THE COURT: Yes. Thank you.  The scheme that you have been telling me about related to no-fault insurance claims, is that correct?

THE DEFENDANT: Yes, your Honor.

THE COURT: And do you understand that in this letter agreement, you have agreed to withdraw any no-fault insurance claims that you have pending anywhere, whether it is in court or in an arbitration or anywhere else on behalf of yourself or any entities that you own?

THE DEFENDANT: Yes, your Honor.


DME Companies have fallen and here are the docs

I have here a repository of some of the documents that I either ordered or found on Pacer regarding the following individuals:

1) Defendant Mugerman (Unlimited and Infinity)

2) Defendants Shapiro & Bronshteyn (Bath Medical, Alev Medical) and plea agreement (Shapiro) and plea agreement (Bronshteyn).

3) Defendant Shturman (TriMed Supply, Dorsey Medical Supply) and plea agreement.

4) Defendant Zalgadko (MSSA, Vespa, Amega) and plea agreement.

5) Defendant Borunov (Atlantic Medical, I&Y Medical, Benz Medical, East Coast Medical, Larisa Supplies, Exclusive Medical, Med-Aid Supplyu, Mike Supply, Three Onyx Supply, Avgur Supply, Inc, DB Medical Supply, Inc.) and plea agreement

6) Defendant Afanasyev (MSSA, Vespa, Amega) and plea agreement.

When the sentencing minutes find their way onto the ECF/Pacer system, I will post those on here.

Use these documents accordingly.

Monies paid for fraudulently procured services or supplies may be recovered under limited circumstances

Lincoln Gen. Ins. Co. v Alev Med. Supply, Inc., 2011 NY Slip Op 21012 )(App. Term 2d Dept. 2011)

In a case with major implications, the Appellate Term for the 9th and 10th Judicial Districts reached a key compromise behind the dicta found at the Appellate Term’s holding in Fair Price v. Travelers (a precluded defense based upon fraud and unjust enrichment may be recouped in a civil action) and one of the many holdings in Cornell Medical v. Mercury (counterclaims or civil actions for paid-out monies are not permitted when the defense to the paid-out monies has been precluded).

Namely, a counterclaim or civil action is permitted where the payments to the alleged fraudulent claims are made within 30-days of receipt of the bills.  To quote the court:

If an insurer is precluded from asserting a defense due to its failure to pay or deny a claim within the 30-day claim determination period, it may not later seek to recover amounts it paid on the claim based on a theory of unjust enrichment (see e.g. Cornell Med., P.C. v Mercury Cas. Co., 24 Misc 3d 58 [App Term, 2d, 11th & 13th Jud Dists 2009]). However, where, as here, an insurer timely pays a claim within the 30-day claim determination period, the insurer is not foreclosed from affirmatively commencing an action to recover the amounts paid on the claim when the insurer later discovers that the claim is fraudulent (see State Farm Mut. Auto Ins. Co. v Grafman, 655 F Supp 2d 212, 223-224 [ED NY 2009]; State Farm Mut. Auto Ins. Co. v James M. Liguori, M.D., P.C., 589 F Supp 2d 221 [ED NY 2008]; see also Carnegie Hill Orthopedic Servs. P.C. v GEICO Ins. Co., 19 Misc 3d 1111[A], 2008 NY Slip Op 50639[U] [Sup Ct, Nassau County 2008, Austin, J.]; Progressive Northeastern Ins. Co. v Advanced Diagnostic & Treatment Med., NYLJ, Aug. 2, 2001, at 18, col 2 [Sup Ct, NY County, Gammerman, J.]). The fact that the insurer chose to pay first-party no-fault benefits within the 30-day claim determination period, at a point when the insurer had no reason to deny the claim, “cannot in any sense be taken as a concession that the claim is legitimate”

This case has huge implications.  I will leave it at that.

Counterclaim based upon precludable fraud rebuffed

Quality Psychological Servs., P.C. v GEICO Ins. Co., 2010 NY Slip Op 51423(U)(Civ Kings. 2010) Here are the five statements from this case that are important.

(1) “In an action to recover assigned first party no-fault benefits, defendant seeks leave to amend its answers, strike the notices of trial, and compel discovery, including a deposition.”

(2) “Though defendant admits that it did not deny plaintiff’s bills on the basis of fraudulent billing, it maintains that it has a cause of action to recover benefits paid under a theory of fraud or unjust enrichment.  Defendant therefore seeks leave to amend its answers to interpose counterclaims for fraud and unjust enrichment.”

(3) “Herein, defendant’s counterclaims for fraud and unjust enrichment are palpably insufficient and patently devoid of merit because the claims were not denied on the grounds of fraudulent billing.”

(4) “As all evidence indicates that the counterclaims pertain to a precluded defense, defendant may not assert them in an amended answer. See Cornell Med., P.C., 24 Misc 3d at 60 (App. Term, 2d Dept. 2009) (“In our opinion, since defendant’s proposed counterclaim [for unjust enrichment] pertains to a defense which is precluded due to defendant’s untimely denials, the Civil Court properly denied the branch of defendant’s motion seeking leave to amend the answer to assert the counterclaim.”).”

Civil Court decided to cite Cornell Medical twice, which is fine.  But does anyone out there even factually know what Cornell was about? Cornell was not about fraud.  Never was and never will be.  It involved a medical provider who believed that every visit within his practice was a consultation, and that the ground rule that limits x-ray reimbursement to 75% for each subsequent x-ray on the same date of service should not apply to that Plaintiff.   Cornell involved “greedy billing” or “stupid billing”.  However, it did not involve fraud.

The Appellate Term in Cornell made an unnecessarily broad statement when it held that a counterclaim would not be allowed for any precludable defense.  Insofar as Cornell did not involve “fraud”, the portion of the holding which held that a counterclaim would not lie upon any precludable defense, including fraud, should be read as dicta. As to this case, we never reached the merits of what the so-called fraud is.  But, if it really was fraud, then why would anyone prosecute that case?  Then again, if a civil action that seeks to recoup moneys paid out to a provider who engaged in some type of fraud may not be maintained, then perhaps I am wrong for even suggesting that this type of case should not be prosecuted.

What is the starkest different between no-fault and domestic relations law?

Campbell v Thomas, 2010 NY Slip Op 02082 (2d Dept.2010)(Prudenti, P.J.)

For those of you who have been involved with elder abuse in some fashion, this case reads like a screen play of some of the horrors that bestow some of our most vulnerable seniors.  But there is a real no-fault link in this one.  Since this is a long opinion, I will summarize this for you.

Mr. Thomas, a 72 year old man, suffered from Alzheimers, Dementia and Terminal Prostate Cancer.  His care taker, Ms. Colon, 14 years his junior, decided to marry him.  Mr. Thomas had no idea what was happening or that he married this woman.  She filed papers to have numerous accounts – separate property – of Mr. Thomas placed into joint accounts with the right of survivorship.   In New York, joint accounts opened by two spouses are presumed to be held as a joint tenancy with right of survivorship, unless specifically stated to the contrary.  This is a minority rule.

Mr. Thomas dies.  Ms. Colon demands the monies from which a joint tenancy was formed and demands a spousal election, pursuant the EPTL.

You can read the sordid facts of all of this in the opinion.  What is important to know is that an action was commenced to annul this marriage based upon fraud and other theories since the marriage was voidable.  The Supreme Court found the marriage to be fraudulent and annuled it.  However, a voidable marriage will not prevent a spousal election upon death, if the annulment is made after the death of the spouse.

Therefore, Ms. Colon, although found to have acted fraudulently, deceitfully and maybe criminally, made a claim to the assets she attempted to obtain through her artifice.  Supreme Court, based upon its equity jurisdiction, denied her claim notwithstanding a statute to the contrary.  Ms. Colon appeals, and the decision of Supreme Court is affirmed in pertinent part.  It was modified as to a collateral and inconsequential issue.

The Court observed the following:

“[T]he Supreme Court, being a court of equity as well as law (see NY Const art VI, § 7[a]; McCain v Koch, 70 NY2d 109, 116), was empowered to grant relief consistent with the equitable principle that “[n]o one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime” (Riggs v Palmer, 115 NY 506, 511; see Matter of Covert, 97 NY2d 68, 74; Matter of Lonergan, 63 NYS2d 307; see also Barker v Kallash, 63 NY2d 19, 25; Carr v Hoy, 2 NY2d 185, 187). Pursuant to this doctrine, which has been applied in both civil and criminal cases, the wrongdoer is deemed to have forfeited the benefit that would flow from his or her wrongdoing (see Giles v California,US, 128 S Ct 2678, 2683 [discussing common-law doctrine of “forfeiture by wrongdoing,” under which a criminal defendant forfeits the right to confront witnesses by engaging in conduct designed to prevent a witness from testifying]; Diaz v United States, 223 US 442, 458, quoting Falk v United States, 15 App DC 446, 460 [” The question is one of broad public policy. . . . Neither in criminal nor in civil cases will the law allow a person to take advantage of his own wrong'”]; New York Mut. Life Ins. Co. v Armstrong, 117 US 591, 600 [person who purchased life insurance policy “forfeited all rights under it when, to secure its immediate payment, he murdered the assured”] [quoted in Riggs v Palmer, 115 NY at 512]; People v Sanchez, 65 NY2d 436 [criminal defendant who deliberately leaves courtroom during trial forfeits the right to be present at [*8]trial]; Matter of Coty, Inc. v Anchor Const. Inc., 2003 NY Slip Op 50013[U], *11 [Sup Ct New York County 2003], affd 7 AD3d 438 [“for example, if one party destroys evidence, wrongfully resists disclosure, intentionally absents itself, or prevents a witness from testifying, it cannot profit from its own misconduct”]).

This “fundamental equitable principle” (Simon & Schuster, Inc. v Members of N.Y. State Crime Victims Bd., 502 US 105, 119, quoting Matter of Children of Bedford v Petromelis, 77 NY2d 713, 727) has been invoked to deny an individual who murders a family member the right to inherit from the victim of the murder (see Riggs v Palmer, 115 NY at 513), the right to succeed to the survivorship interest he would have otherwise had as a joint tenant of the victim (see Matter of Covert, 97 NY2d at 76), and the right to an elective share of the victim’s estate (see Matter of Lonergan, 63 NYS2d 307, 308). The rule, however, is not limited to murderers, and has been employed under a variety of circumstances, for example, to prevent a party from enforcing an illegal contract (see Stone v Freeman, 298 NY 268), to preclude recovery in tort by a plaintiff whose injuries directly resulted from his or her serious violation of the law (see Manning v Brown, 91 NY2d 116), to deny a wife’s request to redate a judgment of divorce terminating her husband’s prior marriage where the wife knew that her own marriage to the husband was bigamous (see Martin v Martin, 205 AD2d 506), and to find that a landowner’s commencement of construction of a shopping center did not create a vested right to the issuance of building permits, where the landowner knowingly performed the work in violation of a restrictive covenant (see Matter of G. M. Land Corp. v Foley, 20 AD2d 645).

We find this result to be compelled not only by the need to protect vulnerable incapacitated individuals and their rightful heirs from overreaching and undue influence, but to protect the integrity of the courts themselves. It is “an old, old principle” that a court, “even in the absence of express statutory warrant,” must not ” allow itself to be made the instrument of wrong, no less on account of its detestation of every thing conducive to wrong than on account of that regard which it should entertain for its own character and dignity'” (Matter of Hogan v Supreme Ct. of State of N.Y., 295 NY 92, 96, quoting Baldwin v City of New York, 42 Barb 549, 550, affd 45 Barb 359; cf. Carr v Hoy, 2 NY2d at 187, quoting Stone v Freeman, 298 NY at 271 [“a party to an illegal contract cannot ask a court of law to help him carry out his illegal object” because ” no court should be required to serve as paymaster of the wages of crime'”]). In this case, the record reveals that Nidia secretly entered into a marriage with a person whom she knew to be incapable of consenting to marriage, with the intent to collect, as a surviving spouse, a portion of his estate. A crucial step in the completion of that plan was Nidia’s assertion of a right of election in the Surrogate’s Court. Of course, the powers of the judiciary are not unlimited, and courts are not capable of righting or preventing every wrong. The courts, however, can, and must, prevent themselves and their processes from being affirmatively employed in the execution of a wrongful scheme.

The equitable doctrine pursuant to which we find that Nidia has forfeited her right of election does not displace legislative authority, but complements it. Our decision does not reflect an effort to avoid a result intended by the Legislature. Rather, for the following reasons, it is clear to us that the Legislature did not contemplate the circumstances presented by this case when it enacted EPTL 5-1.2.


Here is the no-fault link.  How come a statute that compels a fraud to be recompensed may be ignored for equitable reasons in the realm of Domestic Relations Law, yet a similar type of statute in the realm of no-fault litigation may not be ignored for equitable reasons?

In Fair Price v. Travelers, 10 NY3d 556 (2008)(Reid, J.), the Court of Appeals held that as long as there is coverage for the loss, the proponent of a no-fault action must be compensated for the fraud, if it is not timely or properly denied in accordance with Ins Law 5106(a) and 65-3.8.

As observed above, Fair Price is belied by centuries of case law, and as seen in Campbell, a fraud that goes to the heart of the matter must not be rewarded, and the courts will employ the tools necessary to reach that equitable result.

In other words, how come the Court of Appeals did not hold in Fair Price that even though there was coverage, the limited equity jurisdiction that even the Civil Courts have must trump 5106(a), since “[t]he courts, however, can, and must, prevent themselves and their processes from being affirmatively employed in the execution of a wrongful scheme.”?

Something to think about.

New update – well not new.  For some reason I thought Presiding Justice Prudenti issued a signed opinion, when the Appellate Division In Fair Price affirmed the Appellate Term’s decision, which the Court of Appeals affirmed.  My suspicions proved true.  Fair Price v. Travelers, 42 Ad3d 277 (2d Dept. 2007)(Prudenti, P.J.), aff, 10 NY3d 556 (2008)(Reid, J.).

Here is now my second question: Does equity call for a different result when it is an insurance carrier that has been defrauded and tricked by a scheme, ruse or artifice, as opposed to other individuals, corporations or entities?  It looks as if the Presiding Justice at the Appellate Division may believe it does.  Or perhaps, and i hate to say this, but was this specific issue in Fair Price not preserved or forcefully argued?