DECISION AND ORDER USAA General Indemnity Company (hereinafter, “Petitioner”) submitted this petition to vacate an arbitration award granted in favor of New York Chiropractic & Physical Therapy, PLLC (hereinafter, “Respondent”) for first-party no fault benefits assigned by Richard Toliver (hereinafter, “Assignor”).This matter is based on the provision of a lumbar-sacral orthosis (hereinafter, “LSO”) to Assignor by Respondent, for which Respondent sought reimbursement from Petitioner in the amount of $995.00. Petitioner denied the claim for lack of medical necessity, citing a peer review conducted by John Murphy, DC. Respondent then submitted a demand for arbitration. In response, Petitioner submitted written contentions raising two defenses: (1) the services provided were not medically necessary, and (2) Respondent failed to prove that the LSO was billed in accordance with the relevant fee schedule.The matter was heard by Arbitrator John Kannengieser on February 7, 2017, and Respondent called Anthony Palumbo, DC, the treating provider, as a witness to rebut Dr. Murphy’s peer review. Dr. Palumbo did not offer testimony with respect to Petitioner’s fee schedule defense or the invoice cost of the LSO. Arbitrator Kannengieser found that Respondent satisfied its burden of proving that the services were medically necessary, and that Petitioner failed to preserve its fee schedule defense before trial. Arbitrator Kannengieser did take judicial notice of the relevant fee schedule, however, and awarded $806.64 to Respondent rather than the full claim of $995.00.Petitioner requested and received a review of the decision, and the award was upheld by Master Arbitrator Alfred J. Weiner on May 16, 2017. Petitioner now seeks vacatur of the award under Article 75 of the CPLR.Issue #1: Was Respondent required to produce proof of the LSO’s cost?No-fault insurance claims do not have their own fee schedules and health service providers are compensated under worker’s compensation codes (Insurance Law §5108). The worker’s compensation fee schedule was incorporated by reference into the Insurance Department Regulations (see 11 NYCRR 68.1 [a]; LVOV Acupuncture, P.C. v. GEICO Ins. Co., 32 Misc 3d 144[A] [App Term 2d Dept 2011]).Petitioner argued that Respondent ran afoul of the fee schedule ground rules by failing to offer proof of the LSO’s cost from the supplier. General Ground Rule 3 of the New York Worker’s Compensation Chiropractic Fee Schedule states, “The specific items provided must be identified. Payment shall not exceed the invoice cost of the item(s), applicable taxes, and any shipping and handling costs associated with delivery from the supplier of the item to the chiropractor’s office.”Respondent contended that Petitioner missed its opportunity to seek the invoice via a verification request before trial. The Court disagrees. Prior to an amendment to the New York no-fault regulations on January 30, 20131 (hereinafter, “the 2013 Amendment”), a line of cases maintained that an insurer’s fee schedule defense would be unavailable at trial if it was never preserved upon its denial of payment to the medical provider (see Mercury Cas. Co. v. Encare, Inc., 90 AD3d 475 [App Div 1st Dept 2011]). The regulations now state:“Proof of the fact and amount of loss sustained pursuant to Insurance Law section 5106 (a) shall not be deemed supplied by an applicant to an insurer and no payment shall be due for such claimed medical services under any circumstances…for those claimed medical service fees that exceed the charges permissible pursuant to Insurance Law sections 5108 (a) and (b) and the regulations promulgated thereunder for services rendered by medical providers” (11 NYCRR §65-3.8 [g] [1] [ii]).The Court finds that the 2013 Amendment has effectively put an end to the preclusion rule as supported by Mercury Cas. Co. v. Encare, Inc. and its forebears, and Petitioner was within its rights to raise a defense that Respondent failed to adhere to the fee schedule ground rules.Issue #2: Should the arbitration award be vacated?Where an arbitrator has made an error of law, the court may not disturb the arbitrator’s decision (Matter of Falzone v. New York Cent. Mut. Fire Ins. Co., 15 NY3d 530, 534 [Ct App 2010]) save for very specific instances. An arbitration award can be vacated by the Court where the rights of a party have been prejudiced by (i) corruption, fraud, or misconduct; (ii) impartiality; or (iii) the arbitrator exceeded his/her power or so imperfectly executed it that a final and definite award was not made (CPLR §7511 [b] [1]). As the Court of Appeals illustrated in Matter of Kowaleski, an arbitrator exceeds his/her power when an award violates a strong public policy, is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator’s power (16 NY3d 85, 90 [Ct App 2010], citing N.Y. City Transit Auth. v. Transp. Workers’ Union, Local 100, 6 NY3d 332 [Ct App 2005]).The arbitration award held that Petitioner’s fee schedule defense was waived by failing to seek a copy of the invoice through a verification request, but made no mention of the 2013 Amendment or how it should be applied to Respondent’s claim. The question to be determined is whether upholding an arbitration award in contradiction to the 2013 Amendment violates a strong public policy, and the Court finds that it does.In its impact statement on the 2013 Amendment, the Department of Financial Services explained:“[C]ourts have ruled that an insurer that fails to timely deny a claim is precluded from asserting as a defense the fact that the provider overbilled or fraudulently billed for services never rendered. As a result, consumers have their benefits unjustly reduced.”and further…“In order to protect consumers from unjust depletion of benefits, the proposed amendment provides that proof of the fact and amount of loss sustained shall not be deemed to be received by an insurer when the applicant for benefits has billed in excess of the mandated fee schedule and/or for services not rendered. This provision will protect consumers from these fraudulent or abusive practices.”2Considering the amendment’s intent, its relative freshness, and how it is being applied by the courts to overcome the preclusion rule (Surgicare Surgical Assoc. v. National Interstate Ins. Co., 50 Misc3d 85 [App Term 1st Dept 2015]; Allstate Ins. Co. v. Health E. Ambulatory Surgical Ctr., 2017 NYMisc LEXIS 1552 [Sup Ct 2017]; Saddle Brook Surgicenter, LLC v. All State Ins. Co., 48 Misc3d 336 [Civ Ct, Bronx County 2015]; Tyorkin v. Garrison Prop. & Cas. Ins. Co., 2016 NYMisc LEXIS 1970 [Civ Ct, Kings County, 2016]), upholding this arbitration award in contradiction to the 2013 Amendment would violate a strong public policy.USAA General Indemnity Company’s petition seeking to vacate the master arbitration award dated May 16, 2017 is granted without prejudice.The foregoing constitutes the decision and order of the Court.Dated: May 1, 2018Staten Island, NY
