Alleviation Med. Servs., P.C. v Allstate Ins. Co., 2017 NY Slip Op 27097
This is a really important issue and I will give an extended discussion in this post about the policy exhaustion issue before discussing the impact of Alleviation on this issue.
The bean counters have told me that the average amount that is paid upon a no-fault claim is between $11,000-$13,000. That amount creeps up at the rate of inflation. The New Jersey game and the necessity of a surgery to occur before an insurance company will authorize an indemnity payment in excess of $25,000, less comparative negligence, has placed upward pressure on aggregate first-party claim payouts. Some can blame the insurance carriers on the third-party side for creating this first-party monster. Others will blame opportunistic Plaintiffs for trying to create a 6 figure settlement or jury verdict from a motor vehicle accident involving delta forces equal to the act of mastication. I really have no opinion (or one I will publicly share); I express this opening to give you some thoughts as to why $50,000 PIP policies exhaust more frequently than they really should.
With policy exhaustion comes the tension between the law stating that an insurance carrier should never have to pay more than the agreed upon policy limits and the priority of payment regulation which, taken at face value, invites policies to offer more coverage than the amount that is contracted.
For those unaware, the priority of payment regulation requires no-fault payments to be made in the order a bill is received. For billing received on the same date, priority is for earlier dates of service. Through Court of Appeals case law a decade ago, a bill is deemed received when it is fully verified, i.e., the latter of receipt or when timely and proper verification is received. Bills must be paid in priority order: first come, first serve. The case law penalty for the failure to pay bills in the order of receipt is to be forced to pay more than the contracted for policy amount. The Court of Appeals in Nyack Hosp. v General Motors Acceptance Corp.,8 NY3d 294 (2007) compelled GMAC to pay over policy due to the holding up of funds under the basic PIP policy prior to receipt of the OBEL election. The Appellate Division expressly held in another matter that the failure to follow the priority of regimen mandates insurance carriers to pay more than the policy. Mount Sinai Hosp. v. Dust Transit Inc. 104 AD3d 823 (2d Dept. 2013).
To explain this another way, if an insurance carrier pays bills “out of line”, the insurance carrier runs the risk of exceeding the applicable coverage limits. This is because when a policy exhaustion defense is presented, the existence of coverage on a disputed bill is looked at through the vantage point of how much coverage is available on the policy when the bill was received or fully verified.
Now, assuming the disputed bill was not properly handled, i.e., untimely denied, defectively denied, not denied, or denied on a completely and wholly meritless defense, the courts and the insurance department will not engender sympathy to the insurance carrier who dropped the ball.
However, the Appellate Term First Department in Harmonic Physical Therapy, P.C. v Praetorian Ins. Co., 47 Misc 3d 137(A)(App. Term 1st Dept. 2017), created what I classified as a very limited safe-harbor provision to the priority of payment regulation. In essence, an insurance carrier that timely denies a bill on the basis of lack of medical necessity will be granted a safe-harbor from the priority of payment regulation. This makes sense. An insurance carrier that legitimately disputes a billing should not be placed in an all or nothing position. If anything, a medical provider or injured person who receives this type of disclaimer should quickly challenge the disclaimer, since it is only the insured, putative insured or their assignee who will sustain a policy exhaustion defense should they they sit on their rights. And quickly challenge does not mean filing a lawsuit in a venue where it will take 3-6 years to have a case fully adjudicated.
Harmonic makes sense as it accomplishes two things. First, it ensures that an insurance carrier that fails to properly handle a claim will feel the swift consequences of a law that is narrowly construed and inures to the benefits of the injured person and their assignee. Second, it allows an insurance carrier to properly medically manage billings without having to worry about paying more than the contacted policy coverage amounts.
Harmonic strikes a balance that we all can live with, although begrudgingly. The insurance carrier who properly trains their claims handlers and properly manages the claims will not feel the knife being plunged into their back should the billings exceed the amount of contracted coverage. Yet, the insurance carrier who fails to timely and properly deny bills will be unhappy that they will have to pay an amount in excess of the applicable coverage limits. This is a compromise that fits within the spirit of no-fault law and basic contract law.
The consumer can live with the fact that an insurance carrier that is negligent and fails to properly handle the claims will have to pay all disputed billings. Yet, a consumer will be unhappy that all of their treatments are not being paid because they were under the belief when they received their 6 month EOB that more money was left on the policy than what was there in reality.
This now brings me to Alleviation, which states the following:
In Nyack Hosp. v General Motors Acceptance Corp. (8 NY3d 294 ), the Court of Appeals, noting that no-fault benefits are overdue if not paid within 30 calendar days after receipt of a fully complete claim, held that the word “claims,” as used in 11 NYCRR 65-3.15, the priority-of-payment regulation, does not encompass claims that are not yet complete because they have not been fully verified in accordance with 11 NYCRR 65-3.5 (b). In contrast, in the instant case, by denying the claim on May 10, 2011, defendant implicitly declared that the claim at issue was fully verified. As we read Nyack Hosp. to hold that fully verified claims are payable in the order they are received (see 11 NYCRR 65-3.8 [b] ; 65-3.15; Nyack Hosp., 8 NY3d 294), defendant’s argument—that it need not pay the claim at issue because defendant paid other claims after it had denied the instant claim, which subsequent payments exhausted the available coverage—lacks merit (see 11 NYCRR 65-3.15; cf. Nyack Hosp., 8 NY3d 294; but see Harmonic Physical Therapy, P.C. v Praetorian Ins. Co., 47 Misc 3d 137[A], 2015 NY Slip Op 50525[U] [App Term, 1st Dept 2015]). Consequently, defendant has not established its entitlement to summary judgment dismissing the complaint.
The facts here were that the billing was timely denied on the basis that the services lacked medical necessity. The insurance policy subsequently exhausted. The Court explicitly did not apply the case-law created safe-harbor provision for billings timely and properly denied on lack of medical necessity.
I think Alleviation is incorrect from a policy standpoint. I sense that if the Appellate Division, Second Department grants leave, they will be constrained to affirm. The law from the Second Department, especially the Dust case, suggests that there is no safe-harbor provision to be read into the priority of payment regulation. With that said, I wonder if leave will even be granted when Allstate makes it motion to the Appellate Term and later to the Appellate Division, Second Department?
At the end of the day, the ball is going to be in the Department of Financial Services’ Court to fix what I think is an unintended reading of the priority of payment regulation,
Allstate Prop. & Cas. Ins. Co. v Northeast Anesthesia & Pain Mgt., 2016 NY Slip Op 50828(U)(App. Term 1st Dept. 2016)
(1) “An arbitrator’s award directing payment in excess of the monetary limit of a no-fault insurance policy exceeds the arbitrator’s power and constitutes grounds for vacatur of the award”
(2) “Petitioner’s submissions in support of its petition to vacate the award and in opposition to the cross motion to confirm – including an attorney’s affirmation, the policy declaration page showing the $50,000 policy limit, and a payment ledger listing in chronological order the dates the claims by various providers were received and paid – raised triable issues as to whether the $50,000 policy limit had been exhausted by payments of no-fault benefits to respondent and other health care providers before petitioner was obligated to pay the claims at issue here”
(insurer relied upon “affirmation of its attorney with attachments of alleged payout sheets, bills submitted by providers, and other documents” to show policy limits exhausted)
(3) “We note that, contrary to respondent’s contention, defendant was not precluded by 11 NYCRR 65-3.15 from paying other legitimate claims subsequent to the denial of respondent’s claims”
This is interesting from the standpoint that the court will adjudge priority of payment disputes under a de novo level of review. Again, the Harmonic Physical Therapy exception to priority of payment rules applies to these disputes.
Brand Med. Supply, Inc. v Infinity Ins. Co., 2016 NY Slip Op 50738(U)(App. Term 2d Dept. 2016)
(1) “In support of its defense of exhaustion of the policy limits, defendant unsuccessfully attempted to have the applicable insurance policy’s declaration page, which set forth, among other things, the coverage limits of the policy (see e.g. Matter of Government Empls. v Ally, 106 AD3d 736 ; Matter of State Farm Mut. Auto. Ins. Co. v Gray, 68 AD3d 1002 ), admitted into evidence. Upon a review of the record, we find that the Civil Court erred in excluding the insurance policy declaration page from evidence. Defendant was not required to lay a CPLR 4518 (a) foundation for the declaration page, since a declaration page is not hearsay, but rather, as part of an insurance contract, it “has independent legal significance and need only be authenticated to be admissible””
(2) “Here, the testimony of defendant’s senior no-fault representative sufficiently identified the document as an accurate representation of the declaration page which defendant maintained electronically (see CPLR 4539 [a]; Kaliontzakis v Papadakos, 69 AD3d 803). Furthermore, in describing defendant’s procedure for generating a declaration page, defendant’s witness satisfactorily set forth the “manner or method in which tampering or degradation of the reproduction is prevented” (CPLR 4539 [b]).”
What I want to know is why counsel could not get the document in as a business record? I am very much curious as to what happened here. Very curious.
Interboro v. Miriam Cantor, Index #: 601298/14 (Sup. Ct. Nassau Co. 2014)
Here, Defendant sought no-fault reimbursement before AAA in the amount of $10,888.33. Defendant was awarded $7,934.24. Defendant was paid out $5,228.18, the amount remaining on the policy. Plaintiff files a master arbitration demand. Defendant then asserts that bill was paid in full. Defendant changed his mind and the briefing schedule expired. So, Plaintiff filed a demand for a trial de novo asserting policy exhaustion and an alternative cause of action based upon the lack of medical necessity of the services.
The court plainly stated -without a priority of payment debate – that through paying the $5,228.18 (the remaining amount on the policy), Plaintiff’s obligation under the policy ceased.
Interesting procedural dynamic to say the least.
Mount Sinai Hosp. v Dust Tr., Inc., 2013 NY Slip Op 01811 (2d Dept. 2013)
“The plaintiff hospital, as assignee of Alison Cassani, commenced this action to recover no-fault medical benefits from the defendant, a self-insured taxi corporation. The plaintiff moved for summary judgment on the complaint. However, the Supreme Court denied that motion on the ground that the defendant had not yet received all requested verification. The plaintiff subsequently moved for leave to reargue its motion for summary judgment. The Supreme Court, in an order entered September 28, 2011, granted leave to reargue and, upon reargument, granted the plaintiff’s motion for summary judgment on the complaint, finding that the requested verification had been received. A judgment was entered on October 13, 2011, in favor of the plaintiff and against the defendant in the principal sum of $59,609.44, plus interest, costs, and an attorney’s fee.”
(So at this point, it is learned that Defendant did not have a defense to the no-fault claim)
“The defendant thereafter made a motion, denominated as one pursuant to CPLR 2221(a) to modify so much of the order entered September 28, 2011, as, upon reargument, granted the plaintiff’s [*2]motion for summary judgment on the complaint, and to vacate the judgment, asserting that the judgment, together with the total amount of $181,379.82 it previously paid medical providers on behalf of Cassani, exceeded its no-fault coverage of $200,000, which was the amount of coverage required by the Rules of the New York City Taxi & Limousine Commission (see TLC Rule [35 RCNY] § 58-13[a], [d][i]). The defendant asserted that the plaintiff may only recover the sum of $18,620.18, which was the available balance of its coverage. The Supreme Court granted the defendant’s motion, and, in effect, upon renewal, vacated the order entered September 28, 2011, and the judgment entered October 13, 2011, and, thereupon, granted the plaintiff’s motion for summary judgment only to the extent of permitting it to recover the sum of $18,620.18 from the defendant, inclusive of interest, costs, and an attorney’s fee.”
(Motion to renew in actuality. Defendant is seeking to limit its exposure now knowing that it is doomed on the merits)
“The issue of partial exhaustion of the defendant’s coverage was raised for the first time after the judgment was entered, even though the plaintiff had previously moved for summary judgment on the complaint, seeking a certain amount of benefits (see Westchester Med. Ctr. v Lincoln Gen. Ins. Co., 82 AD3d 1085, 1086). No reasonable justification was provided for the failure to raise the issue of partial exhaustion earlier.”
(Court says this should have been part of an omnibus motion for summary judgment)
“The failure to present such reasonable justification by itself requires denial of the defendant’s motion, and, in any event, the evidence submitted in support of the motion, i.e., an affidavit of the defendant’s claims manager setting forth the policy limits and the amount of benefits allegedly paid to other medical providers, failed to establish the order in which the medical services were rendered, and the order in which the claims were received. Thus, on this record, it cannot be determined whether the defendant’s purported payments were made in compliance with 11 NYCRR 65-3.15.”
This is a very tough loss to take.
Westchester Med. Ctr. v Lincoln Gen. Ins. Co., 2011 NY Slip Op 02379 (2d Dept. 2011)
“The plaintiff hospital, as assignee of Bartolo Reyes, was awarded judgment against the defendant in the principal sum of $416,039.42, in this action to recover no-fault medical benefits under a contract of insurance entered into between the plaintiff’s assignee and the defendant. The defendant thereafter moved to modify the judgment pursuant to CPLR 5015(a), belatedly asserting that the judgment exceeded the coverage limit of the subject policy due, in part, to payments previously made under the policy to other health care providers. In the order appealed from, the Supreme Court properly denied the defendant’s motion to modify the judgment.”
“[t]he defendant failed to demonstrate that the evidence offered in support of the motion, i.e., an affidavit of an employee setting forth the policy limits and the amount of benefits paid for alleged prior claims, “was not available at the time of the prejudgment proceedings” (Jonas v Jonas, 4 AD3d 336, 336; see Sicurelli v Sicurelli, 73 AD3d 735).
Moreover, although courts possess inherent discretionary power to grant relief from a judgment or order in the interest of justice, this “extraordinary relief” is not appropriate under the circumstances presented (Jakobleff v Jakobleff, 108 AD2d 725, 726-727; see Selinger v Selinger, 250 AD2d 752). The plaintiff previously moved for summary judgment on the complaint, seeking a certain amount of benefits, in accordance with the no-fault billing statement sent to the defendant, and [*2]this Court reversed the denial of that motion and granted the plaintiff’s motion for summary judgment on the complaint (see Westchester Med. Ctr. v Lincoln Gen. Ins. Co., 60 AD3d 1045). Only after the plaintiff obtained, upon this Court’s order, a judgment from the Clerk of the Supreme Court, Nassau County, representing, inter alia, the amount of benefits sought in the complaint, did the defendant raise the issue of exhaustion of the policy limits. Under these circumstances, modification of the judgment in the interest of justice is not warranted.”
I find it really nauseating that the Appellate Division allowed a judgment to stand that was $350,000 over the policy limits, because the insurance carrier failed to move for partial summary judgment on the basis that should the carrier lose its main motion, then its damages are limited to $50,000. I realize it is the better practice to cover every contingency in a protective summary judgment motion, but this is just out of control. I know Medicaid funding is less, the malpractice cap failed, hospitals are going under and there is no sympathy for the insurance carriers. Still, the rule of law, reason and logic should prevail.
Allstate Ins. Co. v DeMoura, 2011 NY Slip Op 50430(U)(App. Term 1st Dept. 2011)
“When an insurer “has paid the full monetary limits set forth in the policy, its duties under the contract of insurance cease” (Countrywide Ins. Co. v Sawh, 272 AD2d 245 ). A defense that the coverage limits of the policy have been exhausted may be asserted by an insurer despite its failure to issue a denial of the claim within the 30-day period (New York & Presby. Hosp. v Allstate Ins. Co., 12 AD3d 579 ), and an arbitrator’s award directing payment in excess of the $50,000 limit of a no-fault insurance policy exceeds the arbitrator’s power and constitutes grounds for vacatur of the award (see Matter of Brijmohan v State Farm Ins. Co., 92 NY2d 821, 822 ; Countrywide Ins. Co. v Sawh, 272 AD2d at 245; 11 NYCRR 65-1.1).”
This was an interesting case, and similar to a recent Second Department case, where the Court have held that a carrier can collaterally attack an arbitration award or judgment to the limited extent of determining whether complying with the award or judgment would cause the policy to exhaust.
Policy limit defense is preserved when payments are compelled that might bring the payments over the policy limit
St. Barnabas Hosp. v Country Wide Ins. Co., 2010 NY Slip Op 09121 (2d Dept. 2010)
Now this is an interesting one, and is quite hypertechnical in practice. Here is the pertinent part of the holding:
“[s]ince the only issues decided in connection with the motion for summary judgment on its cause of action to recover no-fault medical payments were the questions of whether the defendant had failed to pay or deny the relevant claim within the statutory time frame, and whether the defendant had received verification of that claim, the defendant is not collaterally estopped from seeking to modify the amount of the judgment that was in satisfaction of the plaintiff’s claim, based upon the contention that the policy limits have been partially exhausted”
The best way of understanding this issue is to assume the following:
1. $50,000 policy
2. Bill in the amount of $45,000 denied on lack of medical necessity received 8/1/10
3. Bill in the amount of $30,000 denied on lack medical necessity received 9/1/10
Defendant goes to trial and loses the $30,000 bill on 10/1/10 and loses. Defendant then goes to trial on $45,000 bill and loses on 11/1/10.
According to this case, Defendant may now move for partial summary judgment on the $30,000 bill to the extent of reducing its liability to $5,000 (the policy limits).
Try this hypothetical. Bill #1 is $50,000, and assume same facts. Defendant after losing at trial on the $30,000 bill may now move for summary judgment to dismiss the complaint! Of course, many might be saying that Defendant should have moved at trial or through motion practice to dismiss the $30,000 bill based upon the policy exhaustion defense. Yet, it may happen that a decision on the $50,000 bill was pending when the $45,000 bill went to trial. The carrier thought they could win both. Oops.
Now, I have another hypothetical, but I am not going to share that on here, since I am going to test it out first. I cannot give away all my secrets on this blog.