Thursday, January 29, 2009

Court Weighs Impact of Fair Price Medical Decision on No-Fault Fraud-Related Defenses

NO-FAULT – IMPACT OF FAIR PRICE MEDICAL ON NO-FAULT FRAUD-RELATED DEFENSES – MALLELA DEFENSE – STAGED ACCIDENT DEFENSE
Manhattan Med. Imaging, P.C. a/a/o Jessica Rodriguez v. State Farm Mut. Auto. Ins. Co.

(NYC Civil, Richmond Co., decided 9/4/2008)


I spoke about this case at yesterday's NYSSIU quarterly meeting in Cicero. Kudos to all who made it there in spite of the snow, and welcome new NYSSIU officers and directors.

The decision dates back to September of last year, but its rulings are noteworthy and important to no-fault practitioners. I've had some of this post in draft for some time, and yesterday's discussion motivated me to finish it.

When the New York Court of Appeals issued its decision in Fair Price Medical in June of last year, the New York no-fault community wondered what fraud-related defenses could and would survive beyond 30 days from an insurer's receipt of a bill (even for services or devices that may not actually have been administered or delivered to patients) or requested verification of a claim. If billing fraud for services or devices not actually administered or delivered to patients would be subject to the 30-day pay or deny preclusion rule, what other types of no-fault claimant and provider fraud wouldn't be? The incline on the "coverage defense" slipperly slope had just gotten radically steeper.

Enter Judge Katherine Levine of Richmond County New York City Civil Court, whose prodigious vocabulary and prolific writing on no-fault issues provide ample grist for this blawger's mill. In this case, Judge Levine addressed “the murky issue of what precise evidence a defendant insurer must present in support of its late denial based upon fraud to withstand the granting of summary judgment to a plaintiff medical services provider in a No-Fault case.” Also at issue was whether the Court of Appeals’ Fair Price Medical decision requires an insurer to proffer the defense that a provider is fraudulently incorporated within 30 days or whether that defense remains non-waivable.

On the first issue, Judge Levine reiterated that a staged accident defense is not subject to the 30-day preclusion rule and held that State Farm’s proffer of the assignors’ transcribed recorded statements, although unsworn and unsigned but certified by the transcriber, together with a signed and sworn affidavit of State Farm’s special investigator was sufficient to create a question of fact on whether the claim was fraudulent, precluding summary judgment. State Farm’s special investigator memorialized inconsistencies in the various assignors' statements, including the color and make of the car they were in that was supposedly involved in the accident, different reasons as to why they were all together with the same driver, who was seated in the front of the car at the time of the accident and whether the car was stopped at the point of the accident. Judge Levine commented:
While this court does not believe that defendant presents a strong case of a staged accident, it presents enough inconsistencies to rise above the base level of "unsubstantiated hypothesis and suppositions" so as to permit this defense to go to trial. The court is not troubled that the statements of the assignors were not verified or signed since their transcribed statements were certified by the transcriber. See R.M. Newell Co. v. Rice, 236 AD2d 843, 844 (4th Dept. 1997), (deposition transcripts certified as accurate by transcriber admissible on summary judgment motion even though unsigned). Nor is the court concerned that Fink was not present during the taking of the statements. See, e.g., PDG Psychological, supra, Northern Medical, P.C., supra (trial held despite late denial based upon SIU investigator's finding that there was a staged accident based upon his review of the file for the first time a few weeks before the trial and his running a prior claim history on the assignor).
On Fair Price Medical's impact on the Mallela (fraudulent incorporation) defense, Judge Levine also ruled that the Court of Appeals’ decision does not preclude a no-fault insurer from raising a fraudulent incorporation defense beyond 30 days from receipt of billings or verification, provided the insurer presents a "founded belief" that the corporation is ineligible to obtain no-fault benefits by reason of a fraudulent corporate filing:
Defendant herein alleges that Dr. Brownstein is not the sole owner of Manhattan Medical but rather shares his ownership responsibilities with Sam Stern, a non physician. The attorney's affirmation cites a number of certificates of incorporation which allegedly show a labyrinth of interconnections between plaintiff Manhattan Medical and Universal Diagnostic Imaging, the latter of which is purportedly owned by Stern. Defendant also alleges that Brownstein owns at least five other imaging companies and is allegedly facing civil fraud lawsuits stemming from his ownership of other entities. Also attached is an EBT of the assistant office manager of plaintiff who indicates that Stern is one of the other owners of plaintiff and the testimony of plaintiff's business manager in another where she testified that Stern is a general partner of plaintiff.

The court finds that defendant has articulated a "founded belief" that plaintiff is fraudulently incorporated as it is actually controlled by a non-licensed professional. Defendant has therefore made allegations sufficient to raise an issue of fact as to whether plaintiff is fraudulently incorporated.
Through this morning, Judge Levine's decision in this case has been cited only once -- again by Judge Levine in her New Year's Eve ruling in Yklik, Inc. a/a/o Tammy Agosto v. Allstate Ins. Co. concerning a no-fault insurer's fee schedule defense, a decision with which, by the way, I take a most respectful exception for reasons given in my post on that case.

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