Prior to April 5, 2002, the No-Fault Regulations provided for interest to be paid on overdue claims at the rate of 2 percent compounded (11 NYCRR 65.15(h)(1)). For accidents occurring on or after April 5, 2002, interest is calculated at 2 percent per month, simple (11 NYCRR 65-3.9). Under the old regulations, then, interest on an unpaid claim will surpass the principal amount in under three years.

The recent case B.Z. Chiropractic, P.C. v. Allstate Ins. Co., 56 Misc 3d 139(A) (App. Term 2d, 11th & 13th Jud. Dists. 2017) presented a scenario wherein a judgement on a claim for no-fault benefits remained unpaid, at least partially, for approximately 15 years. In that case, the plaintiff medical provider obtained a default judgment against the defendant insurer in 2001 for the amount of $8,847.49 (combined principal, statutory interest, attorney fees and costs). In June 2015, the plaintiff's counsel attempted to collect on the judgment and advised the defendant insurer that with statutory interest continuing to accrue on the claim, the interest had reached over $221,000. In July 2015, the defendant apparently paid the original judgment amount of $8,847.49 and moved, among other things, to toll the accrual of post-judgment interest, arguing that the plaintiff should not be rewarded with additional interest for failing to take any action to enforce the judgment for an extended period of time. The lower court granted the defendant's motion to the extent of tolling interest for approximately 10 years, reducing post-judgment interest to approximately $14,000, which the defendant paid.

On appeal, the Appellate Term reversed, holding “Postjudgment interest is awarded as a penalty for the delayed payment of a judgment” (citing ERHAL Holding v. Rusin, 252 A.D.2d 473, 474 (2d Dept. 1998)). The court thus reinstated the entire 15+ years of interest, crediting the defendant for partial payments made.

Although the court has previously tolled interest on matters involving long delays in prosecution of cases (see, e.g., Aminov v. Country Wide Ins. Co., 43 Misc.3d 87 (App. Term 2d, 11^th & 13^th Jud. Dists. 2014); Arzu v. NYC Transit Authority, 35 Misc.3d 210 (NYC Civ. Ct., Kings Cty. 2012)), the distinction between those cases and the instant one is in this case, the plaintiff had already obtained a judgment and “plaintiff, as the prevailing party, was not required to make a demand for the money … and did not cause the delay in paying the judgment.” The court further held, perhaps to some consolation to the defendant, that “postjudgment interest should be calculated pursuant to CPLR 5004 [9 percent per year] and not at the two percent per month rate provided for in 11 NYCRR 65-3.9(a).”

Arbitration Award Rejecting 'Mallela' Defense Upheld

In Country-Wide Insurance Company v. TC Acupuncture, P.C. (2017 NY Slip Op 32007(U) (Sup. Ct., NY Cty. 2017)), the insurer commenced a special proceeding, pursuant to CPLR Article 75, to vacate a master arbitration award which upheld the lower arbitration award, finding in favor of the applicant medical provider. At the arbitration hearing and in the Article 75 proceeding, the insurer, citing State Farm Mut. Auto. Ins. Co. v. Mallela, 4 N.Y.3d 313 (2005) [see note 1], raised the defense that pursuant to 11 NYCRR 65-3.16(a)(12) [see note 2], the medical provider was not eligible for payment of no-fault benefits because, inter alia, an unlicensed individual associated with the medical provider professional corporation had pleaded guilty in federal court to health care billing fraud and mail fraud and agreed, as part of the terms of his plea, to forfeit his rights, title and interest in the medical provider's account. Thus, according to the insurer, this proved that the medical provider was owned, operated and/or controlled by the unlicensed individual, in violation of NY BCL §1507(a) and 1508 [see note 3] and Education Law §6507 (provisions regarding the licensing of professionals and the registration of professional corporations) and is therefore ineligible for payment of no-fault benefits. The insurer further argued that the medical provider bore the burden to prove its corporate structure compliance with aforementioned professional licensing statutes, but failed to satisfy it burden.

The court (Justice Billings) rejected the insurer's arguments and held, inter alia, that the individual's conviction and plea agreement:

show neither that [the individual] engaged in the unlicensed performance of healthcare services, nor that he owned or controlled any interest in the seized funds he agreed to forfeit or in the entity [the medical provider] that held those funds … In fact, [the individual's] lack of control may have been the basis for the billing fraud to which he pleaded guilty.

With respect to the argument that the medical provider bore the burden to prove its compliance with the corporate structure statutes, the court held:

Neither the regulation [11 NYCRR 65-3.16(a)(12)] nor any of the statutes affirmatively places the burden on a health care provider seeking reimbursement to show that the provider meets licensing requirements for a professional corporation.

The operative wording supporting this holding is that the:

regulation dictates only that a 'provider … is not eligible for reimbursement … if the provider fails to meet any … licensing requirement' suggesting that a party seeking to show the failure to meet any requirement bears the burden to do so.

Finding that the lower and the master arbitrators' awards were rational and supported by the evidence, the court found no reason to disturb these awards, denied the insurer's petition and confirmed the awards. [see note 4]

Motion to Vacate Default Denied

A default judgment obtained, whether by failure to answer a complaint or failure to oppose a summary judgment motion, may be vacated if the moving party demonstrates both a reasonable excuse for the default and a meritorious defense. CPLR R 5015(a). In Bayshore Chiropractic, P.C. v. Allstate Ins. Co., 56 Misc.3d 141(A) (App. Term 2d, 11th & 13th Jud. Dists. 2017), the plaintiff medical provider's motion for summary judgment was granted on default after the defendant insurer failed to oppose the motion. The defendant subsequently moved to vacate the judgment, relying upon the often-used law office failure as its reasonable excuse for failing to oppose the plaintiff's motion. According to the defendant, the law office failure occurred during the transfer of the file from prior counsel to the current one.

CPLR §2005 provides:

Upon an application satisfying the requirements of subdivision (d) of section 3012 or subdivision (a) of rule 5015, the court shall not, as a matter of law, be precluded from exercising its discretion in the interests of justice to excuse delay or default resulting from law office failure.

The lower court denied the defendant's motion and the defendant appealed, arguing that the lower court improvidently exercised its discretion in rejecting the proffered excuse for default. The Appellate Term affirmed, holding:

While a claim of law office failure may be accepted as a reasonable excuse (see CPLR 2005), the claim must be supported by a “detailed and credible” explanation of the default (Henry v Kuveke, 9 AD3d 476, 479 [2004]; see State Farm Mut. Auto. Ins. Co. v Preferred Trucking Serv. Corp., 42 Misc 3d 88 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2013]). In this case, defendant's claim of law office failure during the transfer of the case file from defendant's prior counsel was insufficient to constitute a reasonable excuse for the default, as the explanation offered by defense counsel indicated that the default was the result of attorney neglect.

Although the courts have recognized and applied miscommunications between prior counsel and newly retained counsel as satisfying law office failure (see, e.g., Madonna Management Services v. R.S. Naghavi, 123 A.D.3d 986 (2d Dept. 2014)), here, the court apparently found that the “drop” by counsel was inexcusable neglect.

Substitute Peer Doctor May Testify Without Admission of Peer Report

In Promed Orthocare Supply v. Geico Ins. Co., 2017 NY Slip Op 51264(U) (App. term 2d, 11th & 13th Jud. Dists. 2017), the defendant insurer denied the plaintiff's claim based on a peer review report of a physician. At trial, the defendant presented the testimony of a different physician who did not prepare, but who reviewed and apparently agreed with the peer review report (commonly known as a “substitute peer”). The peer report was not admitted into evidence. The court stated it had no choice but to hold in favor of the plaintiff because without the peer report, it had no way of knowing whether the substitute peer agreed or disagreed with the original peer review physician. On appeal, the Appellate Term reversed, holding:

The Civil Court erred in refusing to consider expert testimony from the witness who did not prepare the peer review report on the ground that the peer review report was not admitted into evidence, and in indicating that testimony from the author of the peer review report was required. Testimony of an expert witness who did not prepare the peer review report upon which an insurer's denial of claim was based can be used to prove a lack of medical necessity (see e.g. Metropolitan Med. Supplies, LLC v GEICO Ins. Co., 36 Misc 3d 141[A], 2012 NY Slip Op 51490[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]). Moreover, at trial, an insurer cannot use a peer review report to prove its defense of lack of medical necessity (see e.g. A-Quality Med. Supply v GEICO Gen. Ins. Co., 39 Misc 3d 24 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2013]). While the expert witness's testimony should be limited to the basis for the denial as set forth in the peer review report (e.g. Park Slope Med. & Surgical Supply, Inc. v Progressive Ins. Co., 34 Misc 3d 154[A], 2012 NY Slip Op 50349[U] [App Term, 2d, 11th & 13th Jud Dists 2012]), it is plaintiff's burden to make an appropriate objection in the event the testimony goes beyond the basis for the denial and, if necessary, produce the peer review report. As plaintiff here failed to make an appropriate objection, it was error for the Civil Court to have disregarded the testimony of defendant's witness. Consequently, a new trial is required on the second cause of action.

In many trials involving a peer review medical necessity defense, peer review reports are often, as a matter of course, admitted into evidence by stipulation of both parties, in order to assist the court in following along with the peer review and, where applicable, to support a plaintiff's objection to defendant's expert's testimony going beyond the scope of the peer. In this case, however, the court has made it clear that without such stipulation and without objection by the plaintiff, the defendant's expert should be permitted to testify as to his/her opinion regarding the lack of medical necessity for the services rendered.

Endnotes:

[1] In State Farm Mut. Auto. Ins. Co. v. Mallela (4 N.Y.3d 313 (2005), the New York Court of Appeals held that “a medical corporation that was fraudulently incorporated under N.Y. Business Corporation Law §§1507, 1508, and N.Y. Education Law §6507(4)(c)” is not entitled to reimbursement of no-fault insurance benefits.

[2] 11 NYCRR 65-3.16(b)(12) provides: “A provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York or meet any applicable licensing requirement necessary to perform such service in any other state in which such service is performed.”

[3] BCL §1507(a) provides, inter alia: “(a) A professional service corporation may issue shares only to individuals who are authorized by law to practice in this state a profession which such corporation is authorized to practice and who are or have been engaged in the practice of such profession in such corporation or a predecessor entity, or who will engage in the practice of such profession in such corporation within thirty days of the date such shares are issued.”

BCL §1508(a) provides, inter alia: “(a) No individual may be a director or officer of a professional service corporation unless he is authorized by law to practice in this state a profession which such corporation is authorized to practice and is either a shareholder of such corporation or engaged in the practice of his profession in such corporation.”

[4] The insurer also raised a defense that the medical provider failed to attend requested examinations under oath. However, the arbitrator held, and the court agreed, that the insurer failed to timely mail its EUO re-scheduling notice in violation of the No-Fault regulations.

David M. Barshay is a member of Baker Sanders, in Garden City. Steven J. Neuwirth, a member of the firm, assisted in the preparation of this article.

Prior to April 5, 2002, the No-Fault Regulations provided for interest to be paid on overdue claims at the rate of 2 percent compounded (11 NYCRR 65.15(h)(1)). For accidents occurring on or after April 5, 2002, interest is calculated at 2 percent per month, simple (11 NYCRR 65-3.9). Under the old regulations, then, interest on an unpaid claim will surpass the principal amount in under three years.

The recent case B.Z. Chiropractic, P.C. v. Allstate Ins. Co. , 56 Misc 3d 139(A) (App. Term 2d, 11th & 13th Jud. Dists. 2017) presented a scenario wherein a judgement on a claim for no-fault benefits remained unpaid, at least partially, for approximately 15 years. In that case, the plaintiff medical provider obtained a default judgment against the defendant insurer in 2001 for the amount of $8,847.49 (combined principal, statutory interest, attorney fees and costs). In June 2015, the plaintiff's counsel attempted to collect on the judgment and advised the defendant insurer that with statutory interest continuing to accrue on the claim, the interest had reached over $221,000. In July 2015, the defendant apparently paid the original judgment amount of $8,847.49 and moved, among other things, to toll the accrual of post-judgment interest, arguing that the plaintiff should not be rewarded with additional interest for failing to take any action to enforce the judgment for an extended period of time. The lower court granted the defendant's motion to the extent of tolling interest for approximately 10 years, reducing post-judgment interest to approximately $14,000, which the defendant paid.

On appeal, the Appellate Term reversed, holding “Postjudgment interest is awarded as a penalty for the delayed payment of a judgment” (citing ERHAL Holding v. Rusin , 252 A.D.2d 473, 474 (2d Dept. 1998)). The court thus reinstated the entire 15+ years of interest, crediting the defendant for partial payments made.

Although the court has previously tolled interest on matters involving long delays in prosecution of cases (see, e.g., Aminov v. Country Wide Ins. Co., 43 Misc.3d 87 (App. Term 2d, 11^th & 13^th Jud. Dists. 2014); Arzu v. NYC Transit Authority , 35 Misc.3d 210 (NYC Civ. Ct., Kings Cty. 2012)), the distinction between those cases and the instant one is in this case, the plaintiff had already obtained a judgment and “plaintiff, as the prevailing party, was not required to make a demand for the money … and did not cause the delay in paying the judgment.” The court further held, perhaps to some consolation to the defendant, that “postjudgment interest should be calculated pursuant to CPLR 5004 [9 percent per year] and not at the two percent per month rate provided for in 11 NYCRR 65-3.9(a).”

Arbitration Award Rejecting 'Mallela' Defense Upheld

In Country-Wide Insurance Company v. TC Acupuncture, P.C. (2017 NY Slip Op 32007(U) (Sup. Ct., NY Cty. 2017)), the insurer commenced a special proceeding, pursuant to CPLR Article 75, to vacate a master arbitration award which upheld the lower arbitration award, finding in favor of the applicant medical provider. At the arbitration hearing and in the Article 75 proceeding, the insurer, citing State Farm Mut. Auto. Ins. Co. v. Mallela , 4 N.Y.3d 313 (2005) [see note 1], raised the defense that pursuant to 11 NYCRR 65-3.16(a)(12) [see note 2], the medical provider was not eligible for payment of no-fault benefits because, inter alia, an unlicensed individual associated with the medical provider professional corporation had pleaded guilty in federal court to health care billing fraud and mail fraud and agreed, as part of the terms of his plea, to forfeit his rights, title and interest in the medical provider's account. Thus, according to the insurer, this proved that the medical provider was owned, operated and/or controlled by the unlicensed individual, in violation of NY BCL §1507(a) and 1508 [see note 3] and Education Law §6507 (provisions regarding the licensing of professionals and the registration of professional corporations) and is therefore ineligible for payment of no-fault benefits. The insurer further argued that the medical provider bore the burden to prove its corporate structure compliance with aforementioned professional licensing statutes, but failed to satisfy it burden.

The court (Justice Billings) rejected the insurer's arguments and held, inter alia, that the individual's conviction and plea agreement:

show neither that [the individual] engaged in the unlicensed performance of healthcare services, nor that he owned or controlled any interest in the seized funds he agreed to forfeit or in the entity [the medical provider] that held those funds … In fact, [the individual's] lack of control may have been the basis for the billing fraud to which he pleaded guilty.

With respect to the argument that the medical provider bore the burden to prove its compliance with the corporate structure statutes, the court held:

Neither the regulation [11 NYCRR 65-3.16(a)(12)] nor any of the statutes affirmatively places the burden on a health care provider seeking reimbursement to show that the provider meets licensing requirements for a professional corporation.

The operative wording supporting this holding is that the:

regulation dictates only that a 'provider … is not eligible for reimbursement … if the provider fails to meet any … licensing requirement' suggesting that a party seeking to show the failure to meet any requirement bears the burden to do so.

Finding that the lower and the master arbitrators' awards were rational and supported by the evidence, the court found no reason to disturb these awards, denied the insurer's petition and confirmed the awards. [see note 4]

Motion to Vacate Default Denied

A default judgment obtained, whether by failure to answer a complaint or failure to oppose a summary judgment motion, may be vacated if the moving party demonstrates both a reasonable excuse for the default and a meritorious defense. CPLR R 5015(a). In Bayshore Chiropractic, P.C. v. Allstate Ins. Co., 56 Misc.3d 141(A) (App. Term 2d, 11th & 13th Jud. Dists. 2017), the plaintiff medical provider's motion for summary judgment was granted on default after the defendant insurer failed to oppose the motion. The defendant subsequently moved to vacate the judgment, relying upon the often-used law office failure as its reasonable excuse for failing to oppose the plaintiff's motion. According to the defendant, the law office failure occurred during the transfer of the file from prior counsel to the current one.

CPLR §2005 provides:

Upon an application satisfying the requirements of subdivision (d) of section 3012 or subdivision (a) of rule 5015, the court shall not, as a matter of law, be precluded from exercising its discretion in the interests of justice to excuse delay or default resulting from law office failure.

The lower court denied the defendant's motion and the defendant appealed, arguing that the lower court improvidently exercised its discretion in rejecting the proffered excuse for default. The Appellate Term affirmed, holding:

While a claim of law office failure may be accepted as a reasonable excuse (see CPLR 2005), the claim must be supported by a “detailed and credible” explanation of the default (Henry v Kuveke, 9 AD3d 476, 479 [2004]; see State Farm Mut. Auto. Ins. Co. v Preferred Trucking Serv. Corp., 42 Misc 3d 88 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2013]). In this case, defendant's claim of law office failure during the transfer of the case file from defendant's prior counsel was insufficient to constitute a reasonable excuse for the default, as the explanation offered by defense counsel indicated that the default was the result of attorney neglect.

Although the courts have recognized and applied miscommunications between prior counsel and newly retained counsel as satisfying law office failure (see, e.g., Madonna Management Services v. R.S. Naghavi , 123 A.D.3d 986 (2d Dept. 2014)), here, the court apparently found that the “drop” by counsel was inexcusable neglect.

Substitute Peer Doctor May Testify Without Admission of Peer Report

In Promed Orthocare Supply v. Geico Ins. Co. , 2017 NY Slip Op 51264(U) (App. term 2d, 11th & 13th Jud. Dists. 2017), the defendant insurer denied the plaintiff's claim based on a peer review report of a physician. At trial, the defendant presented the testimony of a different physician who did not prepare, but who reviewed and apparently agreed with the peer review report (commonly known as a “substitute peer”). The peer report was not admitted into evidence. The court stated it had no choice but to hold in favor of the plaintiff because without the peer report, it had no way of knowing whether the substitute peer agreed or disagreed with the original peer review physician. On appeal, the Appellate Term reversed, holding:

The Civil Court erred in refusing to consider expert testimony from the witness who did not prepare the peer review report on the ground that the peer review report was not admitted into evidence, and in indicating that testimony from the author of the peer review report was required. Testimony of an expert witness who did not prepare the peer review report upon which an insurer's denial of claim was based can be used to prove a lack of medical necessity (see e.g. Metropolitan Med. Supplies, LLC v GEICO Ins. Co., 36 Misc 3d 141[A], 2012 NY Slip Op 51490[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]). Moreover, at trial, an insurer cannot use a peer review report to prove its defense of lack of medical necessity (see e.g. A-Quality Med. Supply v GEICO Gen. Ins. Co., 39 Misc 3d 24 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2013]). While the expert witness's testimony should be limited to the basis for the denial as set forth in the peer review report (e.g. Park Slope Med. & Surgical Supply, Inc. v Progressive Ins. Co., 34 Misc 3d 154[A], 2012 NY Slip Op 50349[U] [App Term, 2d, 11th & 13th Jud Dists 2012]), it is plaintiff's burden to make an appropriate objection in the event the testimony goes beyond the basis for the denial and, if necessary, produce the peer review report. As plaintiff here failed to make an appropriate objection, it was error for the Civil Court to have disregarded the testimony of defendant's witness. Consequently, a new trial is required on the second cause of action.

In many trials involving a peer review medical necessity defense, peer review reports are often, as a matter of course, admitted into evidence by stipulation of both parties, in order to assist the court in following along with the peer review and, where applicable, to support a plaintiff's objection to defendant's expert's testimony going beyond the scope of the peer. In this case, however, the court has made it clear that without such stipulation and without objection by the plaintiff, the defendant's expert should be permitted to testify as to his/her opinion regarding the lack of medical necessity for the services rendered.

Endnotes:

[1] In State Farm Mut. Auto. Ins. Co. v. Mallela (4 N.Y.3d 313 (2005), the New York Court of Appeals held that “a medical corporation that was fraudulently incorporated under N.Y. Business Corporation Law §§1507, 1508, and N.Y. Education Law §6507(4)(c)” is not entitled to reimbursement of no-fault insurance benefits.

[2] 11 NYCRR 65-3.16(b)(12) provides: “A provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York or meet any applicable licensing requirement necessary to perform such service in any other state in which such service is performed.”

[3] BCL §1507(a) provides, inter alia: “(a) A professional service corporation may issue shares only to individuals who are authorized by law to practice in this state a profession which such corporation is authorized to practice and who are or have been engaged in the practice of such profession in such corporation or a predecessor entity, or who will engage in the practice of such profession in such corporation within thirty days of the date such shares are issued.”

BCL §1508(a) provides, inter alia: “(a) No individual may be a director or officer of a professional service corporation unless he is authorized by law to practice in this state a profession which such corporation is authorized to practice and is either a shareholder of such corporation or engaged in the practice of his profession in such corporation.”

[4] The insurer also raised a defense that the medical provider failed to attend requested examinations under oath. However, the arbitrator held, and the court agreed, that the insurer failed to timely mail its EUO re-scheduling notice in violation of the No-Fault regulations.

David M. Barshay is a member of Baker Sanders, in Garden City. Steven J. Neuwirth, a member of the firm, assisted in the preparation of this article.