The Rogak Report: 28 Jul 2009 ** No Fault - Misrepresentation **
WORKERS COMP DEFENSE TO NO-FAULT IS WAIVED UNLESS CONTAINED IN TIMELY DENIAL
Lenox Hill Radiology & MIA, P.C. a/a/o Zulfiqar Ahmad v Global Liberty Ins. Co. of N.Y. 2009 NY Slip Op 51620(U) Decided on July 6, 2009 Civil Court Of The City Of New York, Richmond County Levine, J. Edited by Lawrence N. Rogak
In this no-fault suit, "Defendant's motion for summary judgment raises anew whether the recent Court of Appeals decision in Fair Price Medical Supply Corp. v. Travelers Indemnity Co., 10 NY3d 556 (2008) requires an insurer to deny a claim on the grounds that the assignor was involved in an accident while on the job and that workers compensation is hence primary within 30 days, or whether that defense is not subject to the preclusion rule."
Plaintiff medical service provider, brought this action seeking reimbursement in the amount of $878.67 for medical services it provided to its assignor stemming from a motor vehicle accident that occurred on September 19, 2007. Plaintiff timely submitted its bill to defendant Global Liberty Insurance Co. Global received the claim on November 2, 2007, and denied and mailed the claim on November 28, 2007 on the grounds of lack of medical necessity based upon a peer review. [FN1] "The denial did not list as a grounds lack of coverage based upon workers compensation being primary," wrote the Court.
"Defendant moved for summary of judgment on the grounds that there is no coverage since it 'has reason to believe' that the assignor was in the course of his employment at the time of the accident and that therefore, workers compensation is primary and the assignor is not entitled to no-fault benefits. It further contends that the Workers Compensation Board is vested with the responsibility of resolving questions of fact or mixed questions of law and fact and that the Board hence has 'primary and exclusive jurisdiction' to resolve questions of coverage. Thus, a no -fault insurer is only obligated to pay no-fault benefits if the workers compensation carrier denies liability for benefits. From these propositions, defendant argues that 'there is no coverage' from an insurance company for no-fault benefits until the Board makes a determination that there is no workers compensation coverage and that hence, defendant's time in which to issue a denial does not even commence until the Board makes its determination."
"Plaintiff cross moved for summary judgment on the ground that the defense that a 'claimant is eligible for workers compensation' is not a coverage defense but rather a 'statutory offset' which must be contained in a timely denial. Plaintiff contends that there are only four 'coverage defenses' that are not subject to preclusion even if not raised in a timely denial and that the instant defense is not included in this group. Since defendant did not preserve this defense by issuing a timely denial, plaintiff contends it is entitled to partial summary judgment."
"In response, defendant contends that if in fact the Board were to determine that the assignor was not working at the time of the accident but rather was using the vehicle for personal reasons, this would be in violation of his policy of insurance or contract with Global and would constitute a 'material misrepresentation' by the insured so as to warrant a forfeiture of his rights under the policy. Defendant further contends that 'misrepresentation by an insured and a material breach of the contract of insurance result in the vitiation of coverage.'"
"In Fair Price Medical v. Travelers Ins., 10 NY3d 556 (2008), the Court of Appeals clarified when an insurance company would not be precluded from offering a defense to its refusal to pay no - fault benefits even though it denied the claims beyond the 30 day period. There, Travelers issued its denial nearly two years after receiving the claim, based upon the assignor's statement that he had never received medical supplies from the plaintiff. The Civil Court denied plaintiff's motion for summary judgment, finding that defendant was not precluded by the 30 day rule since it had asserted fraud as a defense. The Appellate Division affirmed the Appellate Term's reversal of the lower court's order denying plaintiff summary judgment on the grounds that "in this case, unlike a staged accident case, there was an actual automobile accident, which caused... actual injuries, for which he was treated by actual health care providers, who issued actual prescriptions for medical supplies to treat his injuries. Nivelo's undisputably real accident had resulting injuries triggered with the coverage provided for in his insurance policy with the defendant" Fair Price Med. Supply Corp. V. Travelers Indem. Co. 42 AD3d 277, 284 (2d Dept. 2007) affg 9 Misc 3d 76 (App. Term 2d and 11th Jud. Dist 2005)."
"In sum, the Appellate Division concluded that while Travelers could contest the assignor's claim as fraudulent, it must do so within the tight deadlines imposed by the no -fault system. The Court of Appeals affirmed . It first cited to its recent review of the legal framework behind the No - Fault Law in Hospital for Joint Diseases v. Travelers Prop. Cas. Ins., 9 NY3d 312, 317 (2007); namely that the no fault insurance system was designed to ensure prompt compensation for losses incurred by accident victims without regard to fault or negligence, to reduce the burden on the courts, and to provide substantial premium savings to New York motorists. Citing to its prior decision in Central General Hospital, supra, the Court cautioned that there was only one narrow exception to the preclusion rule for those situations where an insurance company raises the defense of lack of coverage. The Court explained that in such cases an insurer who fails to issue a timely disclaimer is not prohibited from later raising the defense because the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed."
"Thus, the key issue in every case is whether the facts fit within the narrow no-coverage exception to the preclusion rule. A court, in determining whether a specific defense is precluded under the 30 day rule or falls within the exception entails a judgment as to whether the defense is more like a normal exception from coverage such as a policy exclusion or a lack of coverage in the first instance, i.e. a defense implicating a coverage matter."
"In Westchester Medical Center v. Lincoln General Ins. Co., 60 AD3d 1045 (2d Dept. 2009), the Second Department found that the defendant failed to raise a triable issue of fact solely based on the hearsay statement of its investigator, as to whether the accident was covered by Workers Compensation benefits. The court then added that defendant's possible entitlement to offset any no-fault benefits it pays by any recovery pursuant to a workers compensation claim does not constitute a defense of lack of coverage, which is not subject to the requirement that there be a timely service of the disclaimer, citing Fair Price. The Second Department decision in Westchester, supra, despite its brevity, controls the instant matter. Furthermore, as set forth above, the Second Department has previously enunciated its position on the preclusion rule in Fair Price, supra wherein it declared that as long as there was an actual automobile accident, which caused the assignor to sustain actual injuries for which he was treated by an actual health care provider, the case would not fall within the narrow exception to the preclusion rule. Defendant does not contend otherwise but merely argues that workers compensation is 'primary' and that there is no coverage for no fault benefits until and unless a workers compensation board makes a determination that the assignor is not covered by workers compensation at which point the no - fault insurer is obligated to pay first party benefits."
"Defendant cannot escape this rule by now claiming that there was 'fraud' or 'misrepresentation' by as the assignor in obtaining the policy. Defendant fails to allege the type of fraud which will warrant the suspension of the preclusion. This distinction was aptly drawn in Carnegie Hill Orthopedic Servs. P.C. v. GEICO Ins. Co., 2008 NY Slip Op 50639U, 19 Misc 3d 1111A, 862 N.Y.S.2d 813 (NY Sup. Ct. 2008) wherein the court stated that 'the defense of fraud based upon 'staged accidents' or intentional collisions are considered defenses premised on lack of coverage, and have been found not subject to the rigorous 30-day rule because there was, in fact, no accident."
"On the other hand, cases involving fraudulent billing or excessive treatment are considered claims of 'provider fraud' and can be precluded by the 30-day rule. See, Careplus Medical Supply Inc v State-Wide Ins. Co., 11 Misc 3d 29 (App Term, 2nd & 11th Jud Dists 2005); MGM Psychiatry Care PC v Utica Mutual Ins. Co., 12 Misc 3d 137(A), 824 N.Y.S.2d 763,(App Term, 2nd & 11th Jud Dists 2006)."
"The key distinction is that in the first circumstance the insurance carrier demonstrated that an issue existed as to whether there was any coverage at all, whereas in the second the courts were presented with an exclusion under the policy, which does not mean that there was no contractual obligation in the first instance. In the latter, the 30-day rule still applies."
"In fact, in Fair Price, the Second Department specifically stated that the exception to the preclusion rule was carved out specifically where an insurer failed to timely pay or deny fraudulent claims that arise out of staged automobile accidents. 42 AD3d at 283. The rationale for such a holding was that 'a deliberate collision that is caused in furtherance of an insurance fraud scheme is simply not an accident covered by the subject insurance policy. To that end, no matter how 'egregious' the alleged fraud was in the case before it ( medical supply company's claim was fraudulent as medical supplies were never delivered), it was not related to the existence of coverage in the first instance."
"Nor does the fraudulent misrepresentation raised by defendant herein fall into the category of fraudulent incorporation. A defendant is not precluded from raising its defense that plaintiff may be fraudulently incorporated since it is 'possibly' owned by both a physician and non physician, the latter of which is prohibited by both the Business Incorporation Law, the No- fault regulations and the seminal case of State Farm Mutual Auto Ins. V. Mallela, 4 NY3d 313 (2005)."[FN2]
"In Eastern Medical P.C. v. Allstate Ins. Co., 19 Misc 3d 775 (Dist. Ct. Nassau Co. 2008), the court rejected Allstate's contention that Fair Price had reshaped the analysis of fraud based defenses so as to make a Mallela fraudulent incorporation defense untimely if not made within the 30 day denial period. The court found that the Mallela defense was not predicated upon a policy exclusion or the extent of coverage provided by a contract of insurance but rather upon a statutory defense arising from a claimant's failure to comply with applicable sections of the Business Corporation, Limited Liability and Education Laws. Hence, the challenged regulation in Mallela did not create a new category of exclusion but rather was 'a condition precedent with which all claimants must comply in order to receive benefits.' Therefore, Fair Price did not alter, much less address prior precedent that a fraudulent incorporation defense is a non- waivable defense, and is therefore not subject to the 30-day preclusion rule. Nor was such a defense waived by the failure to assert it in a denial of claim form."
"Since the instant defendant's claim of fraud does not fall into the category of fraud in pursuance of a staged accident or fraudulent incorporation, it does not fall within the exception to the preclusion. Having failed to raise the defense that claimant is eligible for workers compensation or that workers compensation is primary in a timely denial, plaintiff is entitled to partial summary judgment. However, since defendant timely mailed its denial based on lack of medical necessity and annexes a sufficient peer review report in support of its denial, this matter will proceed to trial on the issue of medical necessity."
"In sum, defendant's motion for summary judgment is denied and plaintiff's cross-motion for summary judgment is granted solely with respect to the defense of workers compensation."