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The Rogak Report: 30 Sep 2009 ** No Fault - Fraud - Restitution **

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  • Lawrence
    Message 1 of 1 , Sep 30, 2009
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      Lincoln General Insurance Co. v. Alev Medical Supply Inc.
      2009 NY Slip Op 29389
      Decided on September 28, 2009
      District Court Of Nassau County, First District
      Hirsh, J.
      Edited by Lawrence N. Rogak


      "This case," wrote the Court, "presents the issue of whether a no-fault insurance carrier that has paid no-fault benefits can sue a provider to recover no-fault benefits paid on a fraudulent claim."

      "Andrey Armstrong ("Armstrong") was injured in an automobile accident on September 5, 2008.  On October 4, 2008 and October 9, 2008, Alev Medical Supply, Inc. ("Alev") purportedly provided medical supplies to Armstrong. Armstrong assigned his right to no-fault benefits for these items to Alev."

      "Alev submitted the bills for these medical supplies to the plaintiff Lincoln General Insurance Company ("Lincoln"). Lincoln provided no-fault insurance benefits for Armstrong for claims arising out of the Armstrong's September 5, 2008 motor vehicle accident.  Lincoln received the bills from Alev on November 10, 2008."

      "Lincoln paid the bills in part and denied the bill in part on December 4, 2008. Lincoln issued checks to Alev for the portions of the bills it paid and issued denials for the balance of the bills. Lincoln denied a portion of the bills on the grounds the charges for the medical supplies and equipment were not in accordance with the no-fault payment schedule, 11 NYCRR Part 68."

      "Alev received and deposited the checks issued in payment of the claims.  On December 18, 2008, Armstrong testified at an Examination Under Oath (11 NYCRR 65-1.1) that he never received any of the equipment Alev claims it provided to him, for which Alev billed Lincoln and for which Lincoln paid."

      "Lincoln commenced this action seeking to recover the money it paid to Alev on the claim. Alev has defaulted in the action. Lincoln now moves for leave to enter a default judgment."

      The Court held, "an insurer has thirty days from receipt of a no-fault claim to pay or deny the claim. Hospital for Joint Diseases v. Travelers Property Casualty Ins. Co., 9 NY3d 312 (2007); Kingsborough Jewish Medical Center v. Allstate Ins. Co., 61 AD3d 13 (2nd Dept. 2009); and 11 NYCRR 65-3.8(a)(1)."

      "An insurer's time to pay or deny a claim is tolled or extended if the insurer timely requests verification and/or upon receipt of the verification, timely requests additional verification of the claim. St. Barnabas Hospital v. American Transit Ins. Co., 57 AD3d 517 (2nd Dept. 2008); and Central Suffolk Hosp. v. New York Central Mut. Fire Ins. Co., 24 AD3d 492 (2nd Dept. 2005); lv. dnd. 7NY3d 704 (2006)[FN1]When a insurer timely requests additional verification, the 30 day period in which to pay or deny the claim is tolled pending receipt of the additional verification. Kingsbrook Jewish Medical Center v. Allstate Ins. Co., supra ; and Montefiore Medical Center v. Government Employees Ins. Co., 34 AD3d 771 (2nd Dept. 2006)."

      "Lincoln did not request verification of the claim submitted by Alev."

      "With limited exception, none of which are relevant to this case, an insurer is precluded from raising defenses including fraud not asserted in a timely denial. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., 10 NY3d 556 (2008); Hospital for Joint Disease v. Travelers Property Casualty Ins. Co., supra ; and Careplus Medical Supply, Inc. v. Selective Ins. Co of America, -Misc.3d-, 2009 WL 679251 (App.Term 9th & 10th Jud. Distrs. 2009)."

      "Lincoln could have denied the claim on the grounds it was fraudulent. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra . Lincoln did not. It paid the claim in part and denied the claim in part. The denial of the claim was based not upon fraud but upon the charges not being in accordance with the no-fault payment schedule."

      "The purpose of the no-fault law is 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. Medical Society of the State of New York v. Serio, 100 NY2d 854, 860 (2003). See, Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra ; and Hospital for Joint Disease v. Travelers Property Casualty Ins. Co., supra . An insurer can contest an illegitimate or fraudulent claim, but it must do so within the strict time periods and processes established by the no-fault law and regulations. Presbyterian Hosp. in the City of New York v. Maryland Cas. Co., 90 NY2d 274(1997)."

      "The core objective of the no fault law and regulations is to provide a tightly timed process of claim, disputation and payment.  See, LMK Psychological Services, P.C. v. State Farm Mutual Auto Ins. Co., 12 NY3d 217 (2009)."

      "Permitting Lincoln to recover in this action would allow an insurer to avoid or evade the time restrictions of the no fault law and regulations by paying and then investigating a claim and suing to recover the previously paid benefits if the investigation reveals the claim was fraudulent. To permit this would subvert the entire no-fault system which establishes strict time limits by which an insurer must process, dispute and pay a claim."

      "The no-fault law and regulations require insurers to promptly investigate and pay claims. The regulations provide insurers with the verification process in order to obtain additional information designed to ferret out illegitimate or fraudulent claims."

      "While the 30 day period plus any applicable tolls for paying or denying a claim may be too short of a time frame in which to detect billing fraud, any change is up to the Legislature. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra at 565."

      "All bases that an in insurer has for denying a no fault claim, except for specific and limited exceptions, must be raised in a timely denial.[FN2] The only way an insurer can avoid paying a fraudulent no fault claim is to deny the claim as fraudulent in a timely denial and to assert and prove the defense at trial.  Lenox Hill Radiology and MIA, P.C. v. Global Liberty Ins. Co. of New York, 24 Misc 3d 1225(A) (NY Civil Ct. 2009)."

      "One of the elements of an application for leave to enter a default judgment is proof a cause of action against the defendant.. Francisco v. Soto, 286 AD2d 573 (1st Dept. 2001); and Joosten v. Gale, 129 AD2d 531 (1st Dept. 1987); and Siegel, New York Practice 4th §295. Lincoln complaint fails to state a claim upon which relief can be granted."

      "Nothing in this decision precludes Lincoln from reporting this apparent insurance fraud (Penal Law Article 176) to the appropriate law enforcement authorities or from obtaining restitution should Alev be prosecuted and found guilty of insurance fraud in connection with this claim. Penal Law §60.27."

      "For the foregoing reasons, plaintiff's motion for leave to enter a default judgment is denied. The action is dismissed."

      Comment: As I said when I reported the Court of Appeals' decision in Fair Price: no fault   insurance fraud is legal in New York.  As shocking as that may sound, that is the essence of what the Court of Appeals held.  A no-fault insurer has 30 days to discover fraud, if it exists.  After that, it is too late.    If anyone wonders why the New York Legislature would permit such a state of affairs to exist, you obviously haven't been following the news about the New York Legislature.  To paraphrase a comment once made by William F. Buckley, New York would be better off being governed by the first 200 names in the Brooklyn telephone directory than by the current members of the New York State Assembly.

      Larry Rogak

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