Article 51 of the insurance law mandates that injured parties in motor vehicle accidents may be compensated for basic economic loss, which is defined as losses up to $50,000 for certain necessary expenses such as medical costs.

No-fault cases revolve around the same repetitive issues—Medical Necessity, IME or EUO no-show, fee schedule, the prima facie case etc. Once in a while, a decision from the appellate courts would come along and have an impact on how different no-fault issues are decided. Issues influenced by case law include fraud (Fair Price Med. Supply v. Travelers Indem., 10 N.Y.3d 556 (2008), State Farm Mut. Auto. Ins. Co. v. Mallela, 4 N.Y.3d 313, 319 (2005)), precludable defenses (Fair Price Med. Supply Corp. v. Travelers Indem. Co, A.M. Med. Servs., P.C. v. Progressive Cas. Ins. Co., 101 A.D.3d 535 (2012)), conditions precedent to coverage (Unitrin Advantage Ins. Co. v. Bayshore Physical Therapy, 82 A.D.3d 559 (1st Dept. 2011), Westchester Med. Ctr. v. Lincoln Gen. Ins. Co., 60 A.D.3d 1045 (2009)), the prima facie case (Viviane Etienne Med. Care, P.C. v. Country-Wide Ins. Co., 25 N.Y.3d 498 (2015)), and fee schedule (Great Wall Acupuncture v. GEICO Gen. Ins. Co., 16 Misc.3d 23 (App. Term, 2d & 11th Jud. Dists. 2007), Gaba Medical P.C. v. Progressive Specialty Ins. Co., 2012 NY Slip Op 51448(U) (App. Term, 2d & 11th Jud. Dists. 2012)). For some of these issues, there are differing opinions between judicial departments.

Currently, there is a pending case waiting to be heard in the Appellate Division, Second Department, which can alter how cases are currently decided, but even more significantly, it can impact the way insurance companies do business.

The no-fault regulations provide that an insurer is required to pay claims in the order the services were rendered. Section 65-3.15 of Regulation 68 states the following:

65-3.15 Computation of basic economic loss.

When claims aggregate to more than $50,000, payments for basic economic loss shall be made to the applicant and/or an assignee in the order in which each service was rendered or each expense was incurred, provided claims therefor were made to the insurer prior to the exhaustion of the $50,000. If the insurer pays the $50,000 before receiving claims for services rendered prior in time to those which were paid, the insurer will not be liable to pay such late claims. If the insurer receives claims of a number of providers of services, at the same time, the payments shall be made in the order of rendition of services.

The Appellate Division is slated to hear an appeal from the Appellate Term decision in Alleviation Med. Servs., P.C. v. Allstate Ins. Co., 55 Misc.3d 44 (App. Term, 2d Dept., 2d, 11th & 13th Jud. Dists. 2017). In Alleviation Med. Servs., P.C, the Appellate Term ruled that a claim that was denied on medical necessity prior to the exhaustion of the no-fault policy, retains its position in the pecking order of priority of payments as a result of the implicit acknowledgment by the insurance company that the claim was fully verified when it issued a denial for that particular bill. Therefore, when the denial was later determined to be unsupported, the insurance company was still obligated to pay the outstanding bill, regardless of the fact that the underlying insurance policy had already been exhausted. In making its decision, the Appellate Term reached a conclusion antithetical to that of the First Department. Ironically, both departments relied on the same Court of Appeals case of Nyack Hosp. v. General Motors Acceptance, 8 N.Y.3d 294, 300 (2007) to support their positions.

'Nyack Hosp.'

In Nyack Hospital, the Court of Appeals was faced with a case where the plaintiff, Nyack Hospital, submitted a claim for reimbursement under the no-fault regulations, but the defendant insurer, General Motors, issued verification requests asking for the patient's complete hospital records. By the time the hospital's responses were received by the insurer, the insurer had already paid other claims, causing the exhaustion of the policy.

The plaintiff argued “that once it submitted the requisite forms to make a claim that caused aggregate claims to exceed $50,000, the insurer had a duty under 11 NYCRR 65-3.15, the priority-of-payment regulation, to keep the money that was due the [hospital] in reserve (up to the policy limits),” id., and therefore the “insurer should have delayed paying no-fault claims subsequently received from other health service providers, pending the hospital's response to the insurer's request for additional verification,” id.

The Court of Appeals ruled in favor of the insurer and reasoned that “[t]o adopt the priority-of-payment regime advocated by the hospital, we would have to interpret 'claims' in section 65-3.15 to encompass claims that have not been verified in accordance with section 65-3.5. This approach runs counter to the no-fault regulatory scheme, which is designed to promote prompt payment of legitimate claims.” Id.

The Court of Appeals thus established that an unverified claim does not maintain a right to payment so long as it remains incomplete.

First Department

The First Department crystalized its position in a number of cases decided in the Appellate Term. In Harmonic Physical Therapy, P.C. v. Praetorian Ins. Co., 47 Misc.3d 137[A], 2015 NY Slip Op 50525[U] (App. Term, 1st Dept. 2015), the court was faced with a question that directly mirrors the case in Alleviation: Is a claimant entitled to payment on a claim that was denied based on medical necessity, but whose insurance policy had since been exhausted prior to the determination that the claim's denial was unmeritorious? Basing its decision on Nyack Hospital, the court in Harmonic Physical Therapy, P.C. stated that “[a]dopting plaintiff's position, which would require defendant to delay payment on uncontested claims, or, as here, on binding arbitration awards—pending resolution of plaintiff's disputed claim—'runs counter to the no-fault regulatory scheme, which is designed to promote prompt payment of legitimate claims' (Nyack Hosp. v. General Motors Accept. Corp., 8 N.Y.3d at 300).” Id.

The Appellate Term reiterated its position almost verbatim in Allstate Property and Casualty Ins. Co. v. Northeast Anesthesia and Pain Management, 2016 NY Slip Op 50828[U] (App. Term, 1st Dept. 2016), stating that “[a]dopting respondent's position, which would require petitioner to delay payment on uncontested claims pending resolution of respondent's disputed claim 'runs counter to the no-fault regulatory scheme, which is designed to promote prompt payment of legitimate claims' (Nyack Hosp. v. General Motors Acceptance Corp., 8 N.Y.3d 294, 300 (2007); Harmonic Physical Therapy, P.C. v. Praetorian Ins. Co., 47 Misc.3d 137[A], supra).” Id.

Second Department

In New York & Presbyt. Hosp. v. Allstate Ins. Co., 12 A.D.3d 579 (2004), plaintiff's claim was submitted prior to subsequently paid claims. However, Allstate issued verification requests in order to verify the plaintiff's claim. By the time the insurer received plaintiff's verification responses, the insurance policy was already exhausted. The Appellate Division ruled “that it had exhausted the policy's coverage limits before it became obligated to pay the hospital's claim and that such payments were made in compliance with 11 NYCRR 65-3.15.” Id. Therefore, unlike the First Department, the Second Department's focus was on when, if at all, an insurer's obligation to pay a particular claim arose. Incidentally, the Appellate Division in the second department also relied on Nyack Hospital.

Based on this reasoning, the Appellate Term in Alleviation ruled “by denying the claim …, defendant implicitly declared that the claim at issue was fully verified. As we read Nyack Hosp. to hold that fully verified claims are payable in the order they are received (see 11 NYCRR 65-3.8[b][3]; 65-3.15; Nyack Hosp., 8 N.Y.3d 294), defendant's argument—that it need not pay the claim at issue because defendant paid other claims after it had denied the instant claim, which subsequent payments exhausted the available coverage—lacks merit (see 11 NYCRR 65-3.15; cf. Nyack Hosp., 8 N.Y.3d 294; but see Harmonic Physical Therapy, P.C. v. Praetorian Ins. Co., 47 Misc.3d 137[A], 2015 NY Slip Op 50525[U] (App. Term, 1st Dept. 2015)).” Id.

Conclusion

Of course, one can find proponents on both sides of the fence. Attorneys who favor the approach taken by the First Department argue that:

(1) Under a no-fault insurance policy, an insured is entitled to a maximum coverage of $50,000 (unless additional insurance had been procured). Since an assignee stands in the shoes of its assignor, the assignee is not entitled to additional monies that the assignor could not have recovered himself.

(2) Adopting the position that an insurer should place monies in reserve for all denied claims- and delay subsequently received claims- would create pragmatic obstacles for an insurance company, and more importantly, undermine the essence of the no-fault regulations.

On the other hand, advocates of the position taken by the Second Department emphasize the following points:

(1) There is an inherent unfairness of justifying the non-payment of a bill that was properly submitted but ultimately determined to have been unjustifiably denied. The unfairness, they argue, is further exacerbated under the system adopted by the First Department, when two bills by different providers for services rendered on the same day, are adjudicated at different speeds. Take for example when one of those bills is expeditiously decided in arbitration causing the exhaustion of the policy, but the other has stalled while having it adjudicated in litigation. Both bills were submitted properly at a time where coverage was available for both, but due to the varying speeds in the chosen forums, one provider's bill would remain unpaid.

(2) The Second Department is correct in that the syntax of the regulations indicate that a verified claim should be satisfied if at the time of its receipt the policy has not yet been exhausted.

Inconsistency between the two departments may result in illogical outcomes. Hypothetically, provider A can ultimately secure a judgment in the Second Department for its unpaid bill, all the while provider B's bill, which is for services rendered prior to the services rendered by Provider A, will remain unrecoverable in the First Department due to policy exhaustion.

The tug of war of values seems to pull both ways and the ultimate decision may very well come from the Court of Appeals.

Henry R. Guindi is a trial attorney with the Korsunskiy Legal Group.