Key Takeaway
NY court rules insurer failed to establish timely denial defense for fraudulent procurement claim, highlighting ongoing debates in no-fault insurance law.
Fraudulent Procurement Defense Precluded in New York Insurance Case
The intersection of fraud defenses and procedural requirements in New York’s no-fault insurance system continues to create complex litigation scenarios. A recent Appellate Term decision highlights the ongoing tension between insurers’ ability to assert fraudulent procurement defenses and the strict timing requirements imposed by New York courts.
In insurance disputes, the distinction between different types of fraud can significantly impact coverage determinations. While fraudulent procurement cases involve allegations that the insurance policy itself was obtained through deception, provider fraud typically relates to billing practices after coverage is established. This distinction has important implications for how courts handle preclusion arguments and timing requirements in insurance litigation.
The case demonstrates the continuing evolution of New York’s approach to fraud defenses in the insurance context, particularly regarding when insurers must raise certain defenses to avoid waiving them.
Jason Tenenbaum’s Analysis:
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 ; Great Health Care Chiropractic, P.C. v Hanover Ins. Co., 42 Misc 3d 147, 2014 NY Slip Op 50359 ).”
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.
Key Takeaway
This decision reinforces the procedural hurdles insurers face when attempting to assert fraudulent procurement defenses in New York courts. The distinction between different types of fraud remains critical, as does the timing of when insurers raise these defenses to avoid preclusion issues.
