Saturday, November 21, 2009

Provider that Ignored Verification Requests Estopped from Arguing that Insurer's Premature Follow-Up Verification Request Precludes Any Defenses

Infinity Health Prods., Ltd. v. Eveready Ins. Co.
(2nd Dept., decided 11/17/2009)

This is for you half-a-loaf folks.

The first sentence of 11 NYCRR § 65-3.6(b) provides:
At a minimum, if any requested verifications has not been supplied to the insurer 30 calendar days after the original request, the insurer shall, within 10 calendar days, follow up with the party from whom the verification was requested, either by telephone call, properly documented in the file, or by mail. (Bold added.)
If a no-fault insurer does not wait the entire 30-day period to issue a follow-up verification request pursuant to § 65-3.6(b), does it "lose" the tolling effect of such verification requests and is it precluded from relying on defenses related to those requests?  Prior to the Second Department's decision in this case, this was the box score on this question:

5 Misc3d 723 (NYC Civil, Queens Co., decided 11/4/2004)
No preclusion.
12 Misc3d 1127 (NYC Civil, Richmond Co., 2006)
Yes, preclusion.
19 Misc 3d 1138(A)(NYC Civil, Richmond Co., decided 5/27/2008)
No preclusion.
21 Misc3d 1 (App. Term, 2nd Dept., decided 7/10/2008)
Yes, preclusion.
2008 NY Slip Op 32365(U) (Sup.Ct., New York Co., decided 8/22/2008)
No preclusion.
23 Misc 3d 130(A) (App. Term, 2nd Dept., decided 4/7//2009)
Yes, preclusion.

In REVERSING the Appellate Term's finding of defense preclusion in this case, the Appellate Division, Second Department, has narrowly ruled that a provider which ignores the no-fault insurer's verification requests altogether is estopped from claiming that the insurer's early or premature follow-up verification request -- sent on Day 27 in this case -- precludes any defenses from being asserted, including the defense that the provider's action is premature because it did not respond to the insurer's verification requests.

It is important to note, as Jason Tenenbaum does over at No Fault Defender, that the Second Department has not ruled that all early or premature follow-up verification requests are okay and inconsequential to the insurer's claim defenses.  That broader question may be answered when the Second Department decides Progressive's appeal in Alur Medical, which does not appear to involve a situation in which the provider completely ignore the insurer's allegedly premature follow-up verification request (sent on Day 30 in that case).

Instead, the Second Department reversed and granted Eveready's cross motion for summary judgment, "on the facts and in the exercise of discretion", dismissing plaintiff's action as premature, "without prejudice to commencement of a new action."  The Second Department held:
There is no dispute here that the defendant timely requested initial verification by sending out its verification request within seven days (on March 21, 2001) after receipt of the plaintiff's claim (on March 14, 2001). There also is no dispute that the plaintiff did not respond to the defendant's timely initial verification request. An insurer does not have to pay or deny a claim until it has received verification of all of the relevant information requested (see 11 NYCRR former 65.15[g][1][i], [2][iii]). The issue in this case is whether an insurer loses the toll of the 30-day rule to pay or deny the claim, which is afforded by an initial timely request for verification, simply because its follow-up verification request is sent 3 days before the expiration of a full 30 days after a plaintiff fails to respond to the initial request. The Insurance regulations stated, in pertinent part, that "if any requested verification has not been supplied to the insurer 30 calendar days after the original request, the insurer shall, within 10 calendar days, follow up with the party from whom the verification was originally requested" (11 NYCRR former 65.15[e][2]).

Although the defendant in this case did not strictly comply with the time limitation set forth in the rule regarding the submission of a second verification request, under the circumstances of this case, the plaintiff is estopped from claiming that the defendant is precluded from asserting any defense to the claim. It would be inequitable to award summary judgment to the plaintiff, which ignored two verification requests, merely because the defendant, slightly prematurely, sent its second verification request a mere 3 days before the expiration of a full 30 days after the first verification request had been sent (see New York & Presbyt. Hosp. v American Tr. Ins. Co., 287 AD2d 699; see generally Chemical Bank v City of Jamestown, 122 AD2d 530; Guberman v William Penn Life Ins. Co. of N.Y., 146 AD2d 8). Indeed, in light of the particular factual circumstances herein, it would be incongruous to conclude that the Insurance regulation regarding follow-up verification, or any other statute or rule, warrants a result which would, in effect, penalize an insurer who diligently attempts to obtain the information necessary to make a determination of a claim, and concomitantly, rewards a plaintiff who makes no attempt to even comply with the insurer's requests. Such a result is not contemplated by the "no-fault law" or its regulations, which should be interpreted to promote the expeditious handling of verification requests and prompt claim resolution.

Furthermore, inasmuch as the plaintiff did not respond to either of the verification requests, the 30-day period within which the defendant was required to pay or deny the claim did not commence to run (see 11 NYCRR former 65.15[g][1][i], [2][iii]; Westchester County Med. Ctr. v New York Cent. Mut. Fire Ins. Co., 262 AD2d 553). Thus, the plaintiff's action is premature (see Hospital for Joint Diseases v New York Cent. Mut. Fire Ins. Co., 44 AD3d 903; Hospital for Joint Diseases v ELRAC, Inc., 11 AD3d 432).
The court could have disposed of this appeal simply by ruling that an early or premature follow-up verification request is of no legal consequence.  It did not do so, however, perhaps suggesting to some that had plaintiff responded to Eveready's verification requests, the result in this case would have been  an affirmance.

I'm not going to speculate on that possibility, but instead await the outcome of Progressive's Alur Medical appeal.   I will say, however, that I believe the Second Department is already incorrect in viewing the 30-day period of 65-3.6(b) as a "time limitation".  If that period truly were a time limitation, such as a statute of limitations period, the early issuance of a follow-up verification request could not be deemed to violate it, since time limitations necessarily connote an outside limit for doing something, rather than proscribe certain conduct during the limitations period. The 30-day period of 65-3.6(b) should properly be viewed as a minimum prescription, rather than an absolute proscription.  

New York statutes contain numerous examples of actual proscriptive waiting periods.  For instance, Insurance Law § 3420(a)(2) effectively requires a judgment creditor to wait at least 30 days after serving an insured and its insurer with notice of entry of a money judgment before suing that insurer to enforce the judgment.  Similarly, General Municipal Law § 50-i requires a party claiming personal injury, wrongful death or property damage due to the negligence of a municipality to wait at least 30 days after serving a notice of claim before commencing suit against the municipality. Legislators and regulators know how to draft proscriptive waiting periods.  The 30-day period of 65-3.6(b) is not such a period. 

When the Second Department revisits the 30-day period of 65-3.6(b), I hope it doesn't overlook the first three words of that section.  "At a minimum" must mean something.  To me, those words must mean that "at a minimum", no-fault insurers must send follow-up verification requests within 30+10 days after their initial additional verification requests.  The "minimum" is the insurer's minimum handling requirement.  Substitute "at the very least" into the first sentence of 65-3.6(b) and the incongruity and inequity of penalizing a no-fault insurer for sending a follow-up verification request sooner than 31 days after the initial additional verification request becomes obvious.  At least to me.  At a minimum.

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