Priority of Payment Regulation Has No Force in Arbitration: First and Second Departments Agree

The Priority of Payment Question — Finally Answered

For years, the priority of payment regulation under 11 NYCRR 65-3.15 has been one of the murkier areas of New York no-fault practice. I have written about this issue many times over the years, each time noting the confusion and inconsistency surrounding these rules. As recently as 2023, courts were still producing opinions that cited conflicting authority — applying 65-3.15 while simultaneously relying on Harmonic Physical Therapy, a case that arguably undercuts the regulation’s application.

Now, both the First and Second Departments have spoken clearly in the arbitration context: the priority of payment regulation is of no force or effect.

First Department: Matter of Lam Quan, MD, PC v. GEICO Gen. Ins. Co.

Matter of Lam Quan, MD, PC v. GEICO Gen. Ins. Co., 223 A.D.3d 503 (1st Dept. 2024)

The First Department held that the priority of payment regulation is of no force or effect in the context of no-fault arbitration proceedings. This is a significant appellate-level pronouncement because the priority of payment regimen under 11 NYCRR 65-3.15 has been the subject of persistent litigation for over a decade, with practitioners and courts alike struggling to apply it consistently.

The Lam Quan decision cuts through years of confusion. In arbitration — where the vast majority of no-fault disputes are resolved — the regulation simply does not apply as a defense. Carriers cannot invoke the priority of payment hierarchy to defeat a provider’s claim in arbitration.

What This Means in Practice

For defense practitioners, this eliminates priority of payment as a viable arbitration defense in the First Department. Carriers who previously relied on 65-3.15 to argue that benefits were properly exhausted through payments to higher-priority claimants cannot sustain that argument in arbitration.

For plaintiff providers, this removes a significant obstacle. The priority of payment defense was often raised to deny claims where the $50,000 policy limit had been reached or was approaching exhaustion. With the regulation deemed ineffective in arbitration, providers have a clearer path to recovery.

Second Department: Matter of Fill Rx NY, Inc. v LM Gen. Ins. Co.

Matter of Fill Rx NY, Inc. v LM Gen. Ins. Co., 241 AD3d 918, 919 (2d Dept. 2025)

The Second Department followed suit, holding that the priority of payment regulation also has no effect in arbitration. This is critical because the Second Department handles a substantial volume of no-fault litigation from Nassau County, Suffolk County, Queens, Kings County, and the surrounding jurisdictions — precisely the geographic areas where our clients practice.

With both Departments aligned, there is now a consistent rule across New York’s two largest appellate divisions: 11 NYCRR 65-3.15 does not operate as a defense in no-fault arbitration.

The Arc of Priority of Payment Litigation

This resolution has been a long time coming. The priority of payment issue has generated confusion at every level of the courts:

• 2017 — In Easy Care Acupuncture, PC v MVAIC (2017 NY Slip Op 51346(U)), I noted the court found triable issues of fact about whether payments complied with priority regulations, but the opinion contained so few facts that I could not understand how the issue could even be resolved.

• 2018 — In Ameriprise Ins. Co. v Kensington Radiology Group (2017 NY Slip Op 51911(U)), the case was remanded for a framed-issue hearing on exhaustion. I wrote: “This looks like pure priority of payment, which does not look good.”

• 2022 — Policy exhaustion cases continued to blur the line between exhaustion defenses and priority of payment, with inconsistent application of the regulatory framework.

• 2023 — In Advantage Radiology v MVAIC (2023 NY Slip Op 50139(U)), the court applied 65-3.15 while citing Harmonic Physical Therapy — an internal contradiction I called “one of life’s great mysteries.”

• 2024 — Lam Quan (First Department) declares the regulation has no force in arbitration.

• 2025 — Fill Rx (Second Department) agrees. The question is settled.

The trajectory is instructive: what started as a murky regulatory defense that generated inconsistent results for over a decade has been resolved by the Appellate Divisions through a clean jurisdictional limitation. The regulation may still have some theoretical application in plenary court actions, but since the overwhelming majority of no-fault disputes are resolved in arbitration, the practical effect is that priority of payment is no longer a viable defense in most cases.

Implications for Pending Cases

Practitioners with pending arbitration matters where priority of payment has been raised should take note:

1. In arbitration, the defense is now foreclosed in both the First and Second Departments.
2. In plenary actions, the regulation’s status is less clear, though the reasoning of Lam Quan and Fill Rx may be persuasive authority against its application there as well.
3. Policy exhaustion remains a distinct defense from priority of payment. Carriers can still argue that the $50,000 limit has been reached — they simply cannot invoke the priority hierarchy to justify which claims were paid first.

The Broader Significance

This development exemplifies how New York no-fault law evolves. A regulation that was promulgated to create order in the payment hierarchy instead created years of confusion and conflicting decisions. The appellate courts resolved the problem not by clarifying the regulation but by declaring it inapplicable in the forum where it matters most.

For practitioners who have been litigating these issues for years, the Lam Quan and Fill Rx decisions provide welcome clarity. For the law of priority of payment, this is a watershed moment.

For questions about priority of payment, policy exhaustion, or any no-fault insurance issue, contact the Law Office of Jason Tenenbaum at 516-750-0595 for a free consultation.

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