Tuesday, October 7, 2008

Interesting Decision on Interest -- Court Holds Tolling Provision of Regulation 68 Is Not Contrary to Insurance Law § 5106 (a)

Canarsie Medical Health, P.C. a/a/o Ricky Barry v. National Grange Mut. Ins. Co.
(Sup. Ct., New York Co., decided 9/17/2008)

These three things we know:
  1. 11 NYCRR § 65-3.9(a) provides that "[a]ll overdue mandatory and additional personal injury protection benefits due an applicant or assignee shall bear interest at a rate of two percent per month, calculated on a pro rata basis using a 30-day month."

  2. 11 NYCRR § 65-3.9(c) states that "[i[f an applicant does not request arbitration or institute a lawsuit within 30 days after the receipt of a denial of claim form or payment of benefits calculated pursuant to Insurance Department regulations, interest shall not accumulate on the disputed claim or element of claim until such action is taken."

  3. Assignees think they're special and should get interest from 30 days of the insurers' receipt of their billings regardless of when the assignees arbitrate or litigate denials.
So thought Carnarsie Medical Health, PC, in this case, having made the creative argument that 65-3.9(c) conflicts with and is contrary to Insurance Law § 5106(a), which provides:
Fair claims settlement. (a) Payments of first party benefits and additional first party benefits shall be made as the loss is incurred. Such benefits are overdue if not paid within thirty days after the claimant supplies proof of the fact and amount of loss sustained. If proof is not supplied as to the entire claim, the amount which is supported by proof is overdue if not paid within thirty days after such proof is supplied. All overdue payments shall bear interest at the rate of two percent per month. If a valid claim or portion was overdue, the claimant shall also be entitled to recover his attorney's reasonable fee, for services necessarily performed in connection with securing payment of the overdue claim, subject to limitations promulgated by the superintendent in regulations.
Although National Grange had timely denied plaintiff's bills in November and December 2003, its denials were not upheld in arbitration, which Canarsie did not file for until August 2006. Canarsie argued that when National Grange lost in arbitration, its bills should have been deemed "overdue" dating back to the time when they were wrongfully (but timely) denied and, therefore, statutory/regulatory interest accrued at that time.

In a lengthy and studious opinion, New York County Supreme Court Justice Paul Feinman rejected plaintiff's argument, holding:
Petitioner points to the two clauses in Insurance Law § 5106(a) stating that benefits are “overdue” if not paid within 30 days after proof of the injury and loss is supplied, and that “overdue” payments bear interest at the rate of two percent per month, and argues that the statutory language does not include any abeyance for either the payment of a loss where an insurer wrongly denies a claimant’s claim or in the accrual of interest. Petitioner thus argues that Insurance Regulation 65-3.9 (c), which provides for possible abeyance in the accrual of interest until the applicant seeks arbitration or files a lawsuit to contest the failure to pay, is in derogation of the statute’s clear language.

* * * * *

New York’s No-Fault Law is designed in part to ensure that accident victims receive “prompt compensation for losses” (Fair Price Med. Supply Corp. v Travelers Indem. Co., 10 NY3d 556, 562 [2008]). However, as fully discussed in Matter of Medical Socy. of State of N. Y. v Serio, supra, 100 NY2d at 86 1-863, over the years of implementation of the No-Fault Law, the superintendent has had to focus on no-fault fraud and abuse, and the regulations have been revised in an attempt to close windows of opportunity for the parties to take advantage of each other’s positions, and as well to better effectuate the legislative intent of providing prompt compensation “as the loss is incurred” pursuant to Insurance Law § 5106 (a).

* * * * *

Employing the methodology used in Medical Socy., and examining both the statute and the regulation at issue, the court finds petitioner’s arguments concerning the illegality of the regulation to be unpersuasive when analyzed within the entire framework of the No-Fault Law and the implementing regulations, all of which seek fairness and promptness in the resolution of auto accident injury claims. Petitioner argues that where a claim has been timely denied but is ultimately found meritorious by an arbitrator or court, the payment will be “overdue” and interest should have accrued from the time of the denial. It argues, in essence, that it should be understood that the Insurance Law includes an additional penalty to be assessed against an insurer that denies a claim and is later found to have improperly done so. Notably, Insurance Law § 5106 (a) only addresses payments by insurers, including overdue payments, and includes a provision for an interest penalty where payments are overdue. However, an insurer is also allowed to timely deny a request for reimbursement (see, Presbyterian Hosp. , supra, 90 NY2d 274), and Regulation 65-3.9(c), was enacted to address those instances. The regulation provides that where the insurer timely denies, then the applicant is to seek redress within 30 days, after which interest will accrue. As noted in East Acupuncture, P. C. v Allstate Ins. Co. , “[t]he interest provision, presently at 24% per mum, is punitive in nature . . . and designed to inflict an economic sanction or penalty on those insurers who do not comply” with the No-Fault time frames (15 Misc 3d 104, 108 [App. Term 2d Dept. 2007], citations and quotation omitted).

The regulation contains, in addition to an economic sanction against recalcitrant insurers, a built-in protection against potential delay by providing that where an applicant chooses not to timely press forward to seek redress for a denial, there will be no interest penalty assessed against the insurer until such time as the applicant chooses a remedy. This is in keeping with the intent of the No-Fault Law as a whole because it seeks to encourage the parties moving forward toward a quick resolution, while not economically favoring one side or the other.

* * * * *

The agency’s interpretation of one of its promulgated regulations “is entitled to deference” (Matter of 427 W. 51st St. Owners Corp. v Division of Hous. & Community Renewal, 3 NY3d 337,342 [2004], internal quotation marks omitted). Here, the agency’s promulgation of the Regulation is rationally based and is consistent with the No-Fault statute and the other enabling regulations.
So, if a no-fault insurer issues a timely but subsequently overturned denial, but the assignee does not file arbitration or commence litigation within 30 days of its receipt of the NF-10, then section 65-3.9(c) applies to toll interest until the filing or commencement date, at least in the opinion of this court.

1 comment:

Hugh Fustercluck said...

What's that you say? The positions taken by the Insurance Department as to the interpretation of its own regulations are to be given due deference? Balderdash! Did not the prophets Mugglin, Mercure, Rose, Lahtinen and Kane, of the Third Department, sayeth in LMK v. State Farm, thusly, "The Departmenteth shalt not interpret a Statute, other than the Statute shall speaketh unto thee; as it is said, the Legislature spaketh to Israel, and to Baker, and to all of their kind; and across the land there was much wailing and gnashing of teeth." Indeed, 'tis a conundrum!