Preclusion

While the insurance carriers do not generally have bad faith in New York and the statutory attorneys fees are anemic, the rule on preclusion in the no-fault sphere acts often times acts as the great equalizer. Preclusion doctrine holds that insurers who fail to deny claims within statutorily required timeframes are barred from asserting those defenses later, even if the defenses have merit. This creates powerful incentives for insurers to investigate claims promptly and issue timely denials, protecting healthcare providers and claimants from indefinite uncertainty about coverage.

That said, the preclusion remedy over time has been chipped away, but the “nuts and bolts” no-fault defenses still fit within that gambit. Core defenses such as lack of medical necessity, lack of causation, and similar claim-based challenges remain subject to strict preclusion rules, while certain policy-based defenses have been carved out through judicial interpretation and legislative amendments.

The Fair Price family of preclusion issues has always been one of the more intriguing rules of law that have developed over time. Fair Price Medical & Surgical Supply, Inc. v Travelers Insurance Co., 10 AD3d 283, established that insurers must timely deny claims and cannot assert defenses for the first time in litigation if those defenses could have been raised earlier. This principle has spawned numerous progeny cases addressing specific scenarios and defense types.

For purposes of this post, the material misrepresentation corollary is also quite poignant as the failure to timely disclaim precludes this defense. Westchester Medical Center v GMAC Insurance Co. Online, Inc., 80 AD3d 603 (2d Dept. 2009), held that material misrepresentation defenses, like other claim-based defenses, are subject to preclusion if not timely asserted. This distinguishes material misrepresentation from policy-based defenses such as lack of coverage, which may be raised at any time.

Case Background: United Auto Insurance Co. v AFO Imaging

While New York’s preclusion doctrine provides significant protection for healthcare providers, other jurisdictions have taken different approaches. Florida previously required insurers to timely disclaim material misrepresentation defenses, similar to New York’s approach. However, the Fifth District Court of Appeal’s decision in United Auto Insurance Co. v AFO Imaging, 5D20-2442, represents a significant departure from that rule.

But as the reader probably knows, these claim based rules of preclusion are quite unique to NY. In Fla, it was the rule through their Appellate Division that the material misrepresentation defense has to be timely disclaimed. The Fifth DCA has changed course:

United Auto Ins. Co. v. AFO imaging, et. al., 5D20-2442

(1) “The Florida Supreme Court has explained that section 627.736(4) describes when PIP benefits are due and the method by which notice must be given. Allstate Ins. Co. v. Kaklamanos, 843 So. 2d 885, 891 (Fla. 2003). The Florida Supreme Court has also observed “the insurer is not barred from contesting the claim just because a payment becomes overdue.” Id. “

(2) “Because section 627.736(4)(i) does not alter the penalties for overdue payments, the Florida Supreme Court’s previous pronouncement still applies: United Auto is not barred from contesting the claim just because the
payment became overdue. In so holding, we do not address the propriety.”

So there you go

Legal Significance

The Florida Fifth District Court of Appeal’s decision in United Auto Insurance Co. v AFO Imaging represents a fundamental shift in how material misrepresentation defenses are treated in that state’s PIP litigation. The court held that Florida’s statute governing when PIP benefits are due and how notice must be given does not bar insurers from contesting claims even after payments become overdue. This effectively eliminates any preclusion consequence for failing to timely assert material misrepresentation defenses.

The court relied on the Florida Supreme Court’s decision in Allstate Insurance Co. v Kaklamanos, 843 So. 2d 885, 891 (Fla. 2003), which distinguished between payment obligations and the right to contest claims. According to Kaklamanos, the fact that an insurer’s payment becomes overdue does not automatically preclude the insurer from raising defenses to the underlying claim. The Fifth District extended this principle to material misrepresentation defenses, holding that overdue payments do not prevent insurers from later contesting claims based on misrepresentations.

This contrasts sharply with New York’s approach, where the Fair Price doctrine and its progeny require timely assertion of claim-based defenses, including material misrepresentation. New York courts have repeatedly held that insurers who fail to timely disclaim based on material misrepresentation are precluded from raising that defense in litigation, even if the misrepresentation is proven and material.

The policy implications of these divergent approaches are significant. New York’s preclusion rule incentivizes prompt claim investigation and provides certainty to healthcare providers about whether claims will be paid. Florida’s new rule, as articulated in United Auto v AFO Imaging, allows insurers more flexibility to investigate claims over extended periods and to raise defenses even after initial payment obligations have been triggered.

Practical Implications for Attorneys and Litigants

For New York practitioners, the Florida decision serves as a reminder of the importance of preclusion doctrine in protecting healthcare providers and claimants. The robust preclusion rules in New York create leverage for providers in settlement negotiations and limit insurers’ ability to assert defenses that could have been raised earlier. Providers and their counsel should continue to vigilantly enforce preclusion doctrine and challenge any attempt by insurers to assert untimely defenses.

The decision also highlights potential advocacy opportunities for New York insurers seeking to narrow preclusion doctrine. While New York courts have not followed Florida’s approach, insurers may cite United Auto v AFO Imaging in arguing for a more limited application of preclusion principles. Healthcare providers should be prepared to distinguish Florida law and emphasize the policy benefits of New York’s stricter approach.

For insurers operating in multiple jurisdictions, the decision illustrates the importance of understanding state-specific preclusion rules. Claims handling procedures that may be acceptable in Florida could result in preclusion of defenses in New York. Insurers need tailored investigation and denial protocols that comply with each state’s requirements, rather than one-size-fits-all approaches.

The contrast between New York and Florida law also demonstrates broader trends in no-fault and PIP litigation. Some jurisdictions are moving toward more insurer-friendly rules that provide greater flexibility in asserting defenses, while others maintain strict procedural requirements designed to protect providers and ensure prompt payment of legitimate claims. Practitioners must stay current with these evolving standards and adjust their strategies accordingly.

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