Lincoln Gen. Ins. Co. v. Alev Med. Supply Inc
(Nassau Co. Dist. Ct., 1st Dist., decided 9/28/2009)
Lewis Carroll wrote Jabberwocky for his brothers and sisters in 1857 when he was 23 years old. Fair Price Medical was decided by the New York Court of Appeals in 2008 when New York's no-fault law was 31 years old. For over 150 years, the academic debate has continued over what the text of Jabberwocky means. In just over a year, Fair Price continues to spawn unusual decisions such as this one. In the words of young Alice from the Wonderland fame, "It seems very pretty, but it's rather hard to understand."
Andrey Armstrong was injured in an automobile accident on September 5, 2008. On October 4, 2008 and October 9, 2008, defendant Alev Medical Supply, Inc. purportedly provided medical supplies to Armstrong. Armstrong assigned his right to no-fault benefits for these items to Alev, which submitted bills for the medical supplies to the plaintiff, Lincoln General Insurance Company.
Lincoln received the bills from Alev on November 10, 2008 and paid the bills in part and denied the bills in part 24 days later on December 4, 2008. Lincoln issued checks to Alev for the portions of the bills it paid and issued denials for the balance of the bills. Lincoln denied a portion of the bills on the ground the charges for the medical supplies and equipment were not in accordance with the no-fault payment schedule, 11 NYCRR Part 68. Alev received and deposited the checks issued in payment of the claims.
On December 18, 2008, Armstrong testified at an examination under oath that he never received any of the equipment Alev claims it provided to him. Based on that testimony, Lincoln commenced this action seeking to recover the money it paid to Alev on the claim. Alev defaulted in the action, and Lincoln moved for a default judgment against Alev.
In denying Lincoln General's unopposed motion for a default judgment, Nassau County District Court Judge Fred Hirsh relied principally on the Court of Appeals' decision in Fair Price Medical and held that since Lincoln General had not denied Alev's bills within 30 days for fraud, it could not seek to recover its payment of those bills based on fraud:
With due respect to Judge Hirsh and an appreciation of the case law context in which he was required to consider Lincoln General's motion, there is no indication that as of December 4, 2008, only three months after the accident, Lincoln General "could have denied [Alev's bills] on the grounds [sic] that [the claim] was fraudulent" or even had reason to request verification of those billings from Alev. Fair Price Medical addresses the legal consequence of a no-fault insurer doing nothing within 30 days of receiving what may be fraudulent billings. It does not, in this blogger's opinion, support or require the holding that a no-fault insurer which, in good faith, makes timely payment of a bill later discovered to be fraudulent cannot sue the provider on a fraud theory to recover that payment. Fair Price Medical and its ilk address only the preclusion of defenses to payment under Insurance Law § 5106(a) and Regulation 68.An insurer's time to pay or deny a claim is tolled or extended if the insurer timely requests verification and/or upon receipt of the verification, timely requests additional verification of the claim. St. Barnabas Hospital v. American Transit Ins. Co., 57 AD3d 517 (2nd Dept. 2008); and Central Suffolk Hosp. v. New York Central Mut. Fire Ins. Co., 24 AD3d 492 (2nd Dept. 2005); lv. dnd. 7NY3d 704 (2006)[FN1]When a insurer timely requests additional verification, the 30 day period in which to pay or deny the claim is tolled pending receipt of the additional verification. Kingsbrook Jewish Medical Center v. Allstate Ins. Co., supra ; and Montefiore Medical Center v. Government Employees Ins. Co., 34 AD3d 771 (2nd Dept. 2006).
Lincoln did not request verification of the claim submitted by Alev.
With limited exception, none of which are relevant to this case, an insurer is precluded from raising defenses including fraud not asserted in a timely denial. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., 10 NY3d 556 (2008); Hospital for Joint Disease v. Travelers Property Casualty Ins. Co., supra ; and Careplus Medical Supply, Inc. v. Selective Ins. Co of America, -Misc.3d-, 2009 WL 679251 (App.Term 9th & 10th Jud. Distrs. 2009).
Lincoln could have denied the claim on the grounds it was fraudulent. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra . Lincoln did not. It paid the claim in part and denied the claim in part. The denial of the claim was based not upon fraud but upon the charges not being in accordance with the no-fault payment schedule.
The purpose of the no-fault law is "...to ensure prompt compensation for losses incurred by accident victims without regard to fault or negligence, to reduce the burden on the courts and to provide substantial premium savings to New York motorists." Medical Society of the State of New York v. Serio, 100 NY2d 854, 860 (2003). See, Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra ; and Hospital for Joint Disease v. Travelers Property Casualty Ins. Co., supra . An insurer can contest an illegitimate or fraudulent claim, but it must do so within the strict time periods and processes established by the no-fault law and regulations. Presbyterian Hosp. in the City of New York v. Maryland Cas. Co., 90 NY2d 274(1997).
The core objective of the no fault law and regulations is "...to provide a tightly timed process of claim, disputation and payment." Id. at 281. See, LMK Psychological Services, P.C. v. State Farm Mutual Auto Ins. Co., 12 NY3d 217 (2009).
Permitting Lincoln to recover in this action would allow an insurer to avoid or evade the time restrictions of the no fault law and regulations by paying and then investigating a claim and suing to recover the previously paid benefits if the investigation reveals the claim was fraudulent. To permit this would subvert the entire no-fault system which establishes strict time limits by which an insurer must process, dispute and pay a claim.
The no-fault law and regulations require insurers to promptly investigate and pay claims. The regulations provide insurers with the verification process in order to obtain additional information designed to ferret out illegitimate or fraudulent claims.
While the 30 day period plus any applicable tolls for paying or denying a claim may be "...too short of a time frame in which to detect billing fraud, any change is up to the Legislature." Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra at 565.
All bases that an in insurer has for denying a no fault claim, except for specific and limited exceptions, must be raised in a timely denial.[FN2] The only way an insurer can avoid paying a fraudulent no fault claim is to deny the claim as fraudulent in a timely denial and to assert and prove the defense at trial. Id.; and Lenox Hill Radiology and MIA, P.C. v. Global Liberty Ins. Co. of New York, 24 Misc 3d 1225(A) (NY Civil Ct. 2009).
Lincoln General was not seeking to "avoid or evade the time restrictions of the no fault law and regulations" in this case; it paid Alev's bills in a timely fashion. That fact alone should render the preclusion rule of § 5106(a) inapplicable. Permitting no-fault no-fault insurers that have timely paid bills later discovered to be fraudulent to sue the providers to recover those payments would not "subvert the entire no-fault system which establishes strict time limits by which an insurer must process, dispute and pay a claim." The system's objectives are met if, in the first instance, bills are timely paid. Certainly New York courts would not have no-fault insurers delay payment of bills by requesting verification of them when there is no apparent reason to do so. The 30-day preclusion rule is not a period of incontestability; it is a defense to payment rule. Once timely payment is made, the rule should be irrelevant. No further extension of that rule, from its genesis in Presbyterian Hospital through its unusual manifestation and application in Fair Price Medical is needed or warranted as respects an insurer's right to recover payments that it was fraudulently induced into making.
All mimsy were the borogoves, and the mome raths outgrabe.
Galumph.
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