Fair Price Medical -- Oral Argument Scheduled at Court of Appeals

The long awaited oral argument at the Court of Appeals of the 2nd Department's decision in Fair Price Medical Supply Corp. v. Travelers Indem. Co. is scheduled for Wednesday, April 30, 2008. In Fair Price, the 2nd Department upheld the lower court's ruling that fraudulent no-fault billings (DMEs never delivered or supplied) is not a lack of coverage defense and, thus, must be included in a timely NF-10. At stake in this appeal are millions of dollars in bills for no-fault services or supplieds that either were not rendered or were rendered to people who were not really injured in either real accidents or staged events. Coverage Counsel expects to have an observer in court to report how oral argument went.

One would have thought the logic as being straightforward and self-evident: the no-fault endorsement provides reimbursement "for basic economic loss sustained by an eligible injured person on account of personal injuries caused by an accident", BEL which by definition includes health service benefits, lost earnings and other necessary expenses. Even the greenest coverage attorney knows that something not covered by reason of lack of inclusion cannot implicate waiver, estoppel or statutory preclusion. If there has been no BEL "sustained", such as the non-delivery of DMEs, there can be no coverage obligation -- not because of the appplicability of an exclusion or breach of condition subsequent to coverage, but because the facts (and non-existence of covered services or expenses) do not trigger coverage in the first place. Similarly, if there has been no "accident", PIP coverage does not lie, again not because of the appplicability of an exclusion or breach of condition subsequent to coverage, but because the insuring agreement of the PIP endorsement has not been triggered. The New York courts have repeatedly and correctly noted this tenet of insurance coverage in 3rd-party liability coverage cases, and yet seem to have overlooked it in the no-fault claim context, instead focusing slavishly on the 30-day pay or deny rule of Insurance Law § 5106(a) and the ever-expanding legacy of the Court of Appeals' decisions in Presbyterian Hosp. in City of N.Y. v. Maryland Cas. Co., 90 NY2d 274 (1997) and Central Gen. Hosp. v. Chubb Group of Ins. Cos., 90 NY2d 195 (1997).

Fair Price continues to cause consternation in the courts. Recently, Judge William A. Viscovich of Queens Civil in Northern Medical P.C., a/a/o Jose Rodriguez, v. State Farm Mut. Auto. Ins. Co., 2008 NY Slip Op 50753U, 2008 N.Y. Misc. LEXIS 2030 (NY City Civ. Ct., Queens Co., 3/19/08), in "regretfully" awarding judgment to the plaintiff, wistfully observed:

Unfortunately, the only issue which this court may address under Fair Price is whether there was a lack of coverage as contended by defendant on the basis that the alleged July 31, 2002 accident was "staged". Any testimony by Rodriguez regarding his treatment or lack thereof is being used by the court solely as evidence as to whether the loss in question resulted from an actual "covered" accident or arose from a staged collision. Any evidence that Mr. Rodriguez was not treated as claimed by the plaintiff provider or was treated to a lesser extent than claimed, has relevance only to the extent that common sense dictates that it is less likely that the participants in such a "staged" collision would actually receive treatment than in a true accident. It also follows that the alleged victim of a "staged" accident would be less likely to actually accept the risk of real injury arising from an unnecessary course of treatment (Keep in mind that this court does concede that a real injury may arise from a staged accident, but does not believe this to be the case herein).

What distresses the court is that while the defendant was not able to meet its burden of proof as to a "staged accident", there was credible evidence of provider fraud. While a full trial on that issue may reveal that there was no fraud and that services were in fact rendered, the holding in Fair Price assures that neither the court nor the defendant are able to delve further into that issue. The end result is that this court is put in the potential position of having to make an award to a possibly unethical provider.

This is exactly the concern expressed by Justice Joseph Golia in his dissent in the Appellate Term rendering of Fair Price Medical Supply Corp. a/a/o Nivelo v. Travelers Indemnity Company, 9 Misc 3rd 76 [ App. Term, 2nd & 11th Jud. Dists. 2005], in which the majority decision was upheld by the Appellate Division in the Fair Price decision that controls herein. Like Justice Golia, this court is "under the firm and unshakable belief that neither the Legislature nor the Insurance Department ever intended for an insurance carrier, or anyone else for that matter, to be forced to pay for medical equipment [or in this case, medical treatment] that was never provided "(Fair Price, supra, dissent at 82). But, alas, that is the potential outcome all but acknowledged by both the Appellate Term and Appellate Division Fair Price holdings.

It's time for the Court of Appeals to re-read its seminal decision in Zappone v. Home Ins. Co., 55 NY2d 131 (1982) and apply its principle to fraudulent no-fault billings. Not rendered. Not covered.