Court of Appeals Reverses LMK Psychological -- Attorneys' Fees Limited to Aggregate of a Provider's Bills Per Insured & Interest Tolled Regardless of Timeliness of Denial

NO-FAULT – ATTORNEYS' FEES – TOLLING OF INTEREST
LMK Psychological Servs., P.C. v. State Farm Mut. Auto. Ins. Co.
(Ct. Apps., decided 4/2/2009)

In a unanimous opinion authored by Judge Piggott, the New York Court of Appeals today REVERSED the Third Department's 2007 decision in this case and ruled:

• Attorneys' fees on awarded no-fault benefits are to be calculated consistent with the New York State Insurance Department's Office of General Counsel Opinion of October 8, 2003, based on the aggregate of all bills for each insured disputed in a single action or arbitration, and not based on a "per bill" basis.

• If a claimant does not request arbitration or institute a lawsuit within 30 days after receipt of a denial of claim form or payment of benefits, the interest tolling provision of 11 NYCRR 65-3.9 (c) applies regardless of whether the no-fault insurer has issued a proper and timely denial.

As the old Dodge RAM truck commercials used to say, this changes everything. Don't issue those checks today, and start drafting your motions to reargue.

Mura & Storm hosted a 60-minute webinar to review and discuss this decision on Thursday, April 9, 2009 @ noon. A recap of that program is here.

East Acupuncture Decided -- 2nd Department Holds that "Applicant" Refers to Both Provider/Assignee & Injured Party. Interest Tolled Until Arbitration or Suit Filed Even on Untimely Denials

NO-FAULT – STATUTORY INTEREST – 11 NYCRR 65-3.9(C)
East Acupuncture, P.C. v. Allstate Ins. Co.
(2nd Dept., decided 2/17/2009)

Subdivisions (a) and (c) of 11 NYCRR § 65-3.9, Interest on overdue payments, provide:

(a) All 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. When payment is made on an overdue claim, any interest calculated to be due in an amount exceeding $5 shall be paid to the applicant or the applicant’s assignee without demand therefor.

(c) If 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. If any applicant is a member of a class in a class action brought for payment of benefits, but is not a named party, interest shall not accumulate on the disputed claim or element of claim until a class which includes such applicant is certified by court order, or such benefits are authorized in that action by Appellate Court decision, whichever is earlier.

At issue in this case, as in many lower court cases before it, was whether the term "applicant" as used in subdivision (c) of this interest tolling regulation applies only to eligible injured persons or to their medical provider assignees, as well. Resolving conflicting decisions in New York trial courts, and AFFIRMING the Appellate Term's 2007 decision, Second Department ruled that the term "applicant," as used in 11 NYCRR 65-3.9(c), refers to both provider/assignees and injured persons and that the toll on statutory interest provided for therein applies to no-fault claims submitted to insurers by both types of claimants.

In agreeing with the Appellate Term's decision, the Second Department held:

(1) the Insurance Superintendent's interpretation of the term "applicant" in 11 NYCRR 65-3.9(c) as referring to both provider/assignees and injured persons is neither irrational nor unreasonable and, as such, is entitled to deference;

(2) the Superintendent's interpretation conforms with the general principle that an assignee stands in the shoes of an assignor and thus acquires no greater rights than those of its assignor; and

(3) East Acupuncture's reliance upon LMK Psychological Servs., P.C. v State Farm Mut. Auto. Ins. Co. (46 AD3d 1290, 1291-1292, lv granted 10 NY3d 717) and New York & Presbyt. Hosp. v Allstate Ins. Co. (30 AD3d at 494) was misplaced because the Third Department in those cases did not address the precise issue presented by this appeal: whether the term "applicant," as used in 11 NYCRR 65-3.9(c), refers to both injured persons and provider/assignees.

The Second Department reasoned and concluded:

Applying these principles to the matter at bar, we find that the term "applicant" as used in 11 NYCRR 65-3.9(c) refers to both provider/assignees and injured persons. Since the Superintendent's parallel interpretation is neither irrational nor unreasonable, it is entitled to deference (see Matter of 427 W. 51st St. Owners Corp. v Division of Hous. & Community Renewal, 3 NY3d at 342; Matter of Visiting Nurse Serv. of N.Y. Home Care v New York State Dept. of Health, 5 NY3d at 506). In light of the fact that the no-fault regulations do not provide a general definition of the term "applicant," the plain meaning of this term in 11 NYCRR 65-3.9(c) would seem to refer to any entity, whether an injured person or a provider/assignee, who submits a claim or applies to an insurance company for no-fault benefits (see Majewski, 91 NY2d at 583). Indeed, in some instances, these regulations use the term "applicant" as a generic reference to both provider/assignees and injured persons (see e.g. 11 NYCRR 65-3.2[b], 65-3.3[a], 65-4.2[b][1][I]); while, in other instances, the term "applicant" is used to refer specifically to injured persons (see e.g. 11 NYCRR 65-3.5[e], 65-3.8[g]). However, construing the no-fault regulations as a whole and considering their various sections in reference to each other, as we must (see People v Mobil Oil Corp., 48 NY2d at 199), the Superintendent's interpretation of the term "applicant," as used in 11 NYCRR 65-3.9(c), as a generic reference to both provider/assignees and injured persons is entitled to deference not only because the no-fault regulations do not use this term consistently and exclusively as a reference to injured persons, but because the Superintendent's definition is consistent with the manner in which it is used in certain other instances.

The Superintendent's interpretation of 11 NYCRR 65-3.9(c) is additionally consistent with the spirit and purpose of the No-Fault Law (see generally Matter of ATM One v Landaverde, 2 NY3d at 477). One of the primary aims of the no-fault system is to ensure prompt payment of claims (see Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d at 860; Cardinell v Allstate Ins. Co., 302 AD2d at 774). The interest which accrues on overdue no-fault benefits at a rate of two percent per month (see Insurance Law § 5106[a]; 11 NYCRR 65-3.9[a]) is a statutory penalty designed to encourage prompt adjustments of claims and inflict a punitive economic sanction on those insurers who do not comply (see Dermatossian v New York City Tr. Auth., 67 NY2d 219, 224; Cardinell v Allstate Ins. Co., 302 AD2d at 774). Interpreting 11 NYCRR 65-3.9(c) as applying the interest toll only to injured persons would allow a provider/assignee, who delays commencing legal action or requesting arbitration on denied claims, to continue to accrue interest pursuant to Insurance Law § 5106(a) throughout this period of delay. Rewarding such delay with what amounts to essentially a windfall of punitive interest payments is at odds with the legislative goal of promptly resolving no-fault claims.

* * * * *

In conclusion, we hold that the term "applicant," as used in 11 NYCRR 65-3.9(c), refers to both provider/assignees and injured persons and that the toll on statutory interest provided for therein applies to no-fault claims submitted to insurers by both types of claimants. Accordingly, the Appellate Term properly determined that interest pursuant to Insurance Law § 5106(a) did not begin to accrue on the claims that were untimely denied by Allstate until East Acupuncture filed its complaint. Thus, the Appellate Term properly reversed the order of the Civil Court and remitted the matter for the new interest calculation.

Medical providers likely will continue to argue that this ruling is at odds with the Third Department's holding in LMK Psychological Servs., P.C. v State Farm Mut. Auto. Ins. Co. Suits within the Second Department will, however, be subject to this ruling. It remains to be seen whether East Acupuncture will seek leave to appeal this decision to the Court of Appeals or simply wait to see what that court does with the interest issue when deciding State Farm's appeal in LMK. With much if not most of New York's no-fault litigation occurring within the Second Department, medical providers may want the Court of Appeals to address this issue. If the Court of Appeals does little or nothing with the tolling issue in LMK, there may be more of a possible upside than downside at that point in appealing, if permitted.

A Higher Authority Rings In

Larry Rogak posted an update on the PIP limit reduction question to his Rogak Report earlier today.  For those of you who may not be members of that Yahoo Group, here's Larry's post:

Dear Readers:

For the past day or so, opinions have been flying back and forth on the question of whether interest and attorney fees reduce available PIP limits.  As you know, my opinion, based on my interpreration of an Insurance Department opinion letter, was that they do -- at least in the case of court and arbitration awards, if not settlements.   Other great legal and claims department minds disagreed with me.

As I told you in an earlier posting, I wrote to the New York State Insurance Department for clarification.  Today, I got a phone call from a very highly placed member of that august body, who agreed to give me an informal verbal opinion right away, with a formal written opinion to come much later.

On the condition that I not mention the name of this highly placed figure (other than to say that his first name is, without a doubt, the most handsome and distinguished name in the English language), I was given permission to share with you the following unofficial Insurance Department opinion:

Neither interest, nor statutory attorney's fees, reduce available PIP limits under any circumstances.

It's not easy to say I was wrong.  So I won't say it.  Instead, I will say that my opinion has been superceded by a higher authority.

I did present my point of view to this highly-placed Insurance Department official, to wit, that reducing PIP limits by the amount of interest payments does not hurt claimants because the 24% interest rate is so generous.   But this official begged to differ.  He said that he did not believe that the intent of the Legislature was for such reduction to take place, especially in light of the fee schedules for medical services, which have not been raised to keep up with free-market rates.

For those of you who believe that my opinion is better than the Insurance Department's, let me say this to you: you are very sagacious.  But let me also say that not even the Courts always agree with the Insurance Department's interpretations, and have overruled them from time to time (most recently in the notorious LMK case).

So for the foreseeable future, until some court rules otherwise, the most official word we have on the subject is that neither attorney fees nor interest reduce PIP limits.

While my own personal opinion did not rule the day, give me credit for one thing: I made the effort to get an authoritative answer for a question that had never been definitively addressed before, and I shared it with all of you at no charge.

Larry Rogak

I didn't know that a highly-placed Insurance Department official shared my first name...

Do Interest & Attorneys' Fees on No-Fault Settlements or Awards Reduce PIP Limits?

Those of you who read The Rogak Report know that Larry posted yesterday about whether attorneys' fees and statutory interest on no-fault awards may be applied to reduce the remaining PIP or APIP limits. Larry reads a June 9, 2003 OGC opinion letter to permit such a reduction. I do not, and emailed Larry a reply for posting on his report. Although Larry pointed out in a later post what I had pointed out to him (and a piscator is a fishmerman or angler, btw), I thought I'd post my reply to Larry's intitial post, so everyone interested in this issue can have as much take on this subject as possible:

Gotta disagree with you on this, Larry.

Circular Letter No. 17 (2006), entitled "Fair claims settlement practices: interest on overdue No-fault claims and claim settlement structure", reminds that 11 NYCRR § 65-3.9(e) and 11 NYCRR § 65-3.9(f) require the separate identification of any interest payment from the principal, and that interest payments are not to be included in ratemaking calculations.

That circular letter also states that "insurers are prohibited from taking credit for interest payments in calculating whether the maximum aggregate policy limits have been reached." Other than its use of the passive voice, this proscription could not be more clear.

Interest on overdue claims is intended to encourage prompt payment of claims and has been characterized as a penalty on recalcitrant insurers. If insurers were permitted to pass along interest penalties to insureds by reducing their PIP or APIP limits, the legislative purpose of the interest penalty would be nullified. Don't like your insured? Is she criticizing your claims handling? Complaining to your supervisor? Get her back. Don't pay her claim, wait to be sued, drag out the litigation, have principal, interest and attorneys' fees eventually awarded against you, and then finally pay, but reduce the remaining PIP limit by the total paid amount. Ha. That'll fix her.

Can't possibly work that way.

The opinion letter does not state that attorneys' fees are compensable "by" no-fault, as in BEL benefits, but from a no-fault insurer "based upon the issuance of an award of benefits to the applicant." Big difference.

Larry and I read the 2003 OGC opinion letter differently. I do not believe that letter can be read to permit the reduction of even attorneys' fees awarded from PIP limits. In my opinion, it speaks only to whether court filing and process server fees are recoverable under Regulation 68 from an no-fault insurer as part of a no-fault award, answering that question in the negative, and pointing out that only attorney fees, and not associated court costs, are recoverable from a no-fault insurer as part of an award. The 2003 OGC opinion letter says nothing about reducing remaining PIP limits by any type of fees or payments.

In the heirarchy of missives that come from the New York State Insurance Department, circular letters are generally regarded as having greater weight than OGC opinion letters. Circular Letter No. 17's statement that "insurers are prohibited from taking credit for interest payments in calculating whether the maximum aggregate policy limits have been reached" seems crystal clear and is not, in my opinion, limited to no-fault settlements, as Larry suggests in his later commentary. But I understand that reasonable minds -- especially ones with considerable knowledge and experience on a subject -- can and do sometimes disagree. I prefer to be neither the Donald nor the Rosie on this.

In yesterday's later post, Larry indicates that he fired off a letter to the Department's OGC for clarification of what Larry thinks is a contradiction between the Department's 2003 OGC opinion letter and 2006 circular letter. I look forward to hearing more from Larry on this interesting and important question. And thanks, as always, for generating thought.

Update ~~ Larry has posted the OGC's unofficial response to his question/opinion. Read it here.

Oral Argument of East Acupuncture v. Allstate

By way of an initial email daisy chain, to Larry Rogak for his Rogak Report, as augmented by the self-proclaimed gloriously hirsute Dave Gottlieb over at No-Fault Paradise, comes this report of this morning's oral argument of the East Acupuncture, P.C. v Allstate Ins. Co. case at the Appellate Division, Second Department.

At issue, of course, is whether the tolling provision of 11 NYCRR § 65-3.9(c), which refers only to "an applicant", also applies to assignees. The Appellate Term said it did. We'll see what the Appellate Division says in a few months.

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

NO-FAULT – SPECIAL PROCEEDING TO VACATE MASTER ARBITRATION AWARD – INTEREST – TOLLING – ACCRUAL
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.

Leave Granted to Appeal LMK to Court of Appeals

Hat tip to Dave Gottlieb over at No-Fault Paradise for reporting that the New York Court of Appeals today granted leave to State Farm to appeal the Third Department's decision in LMK Psychological Servs., P.C. v. State Farm Mut. Auto. Ins. Co. case to that court.

My LMK-labeled posts are here.

Thou Shall Not Suggest or Require

Circular Letter No. 14 (2008)
June 10, 2008

Yesterday the New York State Insurance Department issued the following circular letter:

TO: All Authorized Insurers Writing Motor Vehicle Insurance in New York State Motor Vehicle Self-insurers, and the Motor Vehicle Accident Indemnification Corporation (MVAIC)

RE: Unfair Claims Settlement Practices: Interest on Overdue No-Fault Claims and Claim Settlement Structure.

STATUTORY REFERENCE: Section 5106 of the Insurance Law; Section 65-3.9 of Regulation 68-C (11 NYCRR 65-3)

Circular Letter No. 17 (2006), issued on September 15, 2006, reminded insurers of their obligations with respect to settling claims that are subject to Regulation 68-C.

The letter advised insurers that 11 NYCRR § 65-3.9(b) provides that an insurer "shall not suggest or require, as a condition to settlement of a claim, that the interest due be waived." This rule ensures the prompt payment of claims and resolution of disputes while preventing insurers from exercising undue influence on applicants by inducing them to waive their rights to the payment of accrued interest as a condition of obtaining settlement of their claims. Citing 11 NYCRR § 65-3.9(e) and 11 NYCRR § 65-3.9(f), the letter also stated that where the terms of a settlement include interest, the insurer should separately identify the amounts allocable to the principal and the interest.

The purpose of this letter is to advise insurers that the obligations set forth in 11 NYCRR § 65-3.9 fully apply regardless of whether a claim is in litigation or arbitration, and cannot be circumvented by having outside counsel or other representatives of insurers suggest or require, as a condition of settlement of a contested claim, waiver of any interest that is due. The Department expects insurers to take all necessary measures to ensure that the actions of its employees, legal representatives and other claim processors comply fully with all pertinent statutory and regulatory mandates.

The Department will continue to enforce compliance with the law through market conduct examinations of insurers, including targeted investigations of insurers, when warranted.

Moreover, the Department will continue to enforce requests for assistance in obtaining payment of arbitration awards, including the correct identification of applicable interest payments due, as referenced in Circular Letter No. 21 (2005).

************************************************************************************

Most parties, in both no-fault and non no-fault matters, compromise and then settle based on percentages. For example, full payment owed on a $100 bill overdue 1 year is $124. Offering 50% or $62 is not "suggest[ing] or requir[ing]" that interest be waived. It's a compromise offer that actually includes interest which, if accepted, should be separately identified on any payment check.

Although it rarely if ever happens, there is nothing in the reg or this circular letter prohibiting the applicant or applicant's attorney from offering to waive interest, provided the idea first comes from either of them, rather than from the insurer or any "employees, legal representatives and other claim processors[.]"

Lastly, note that the rule prohibiting insurers from suggesting or requiring waiver of interest applies to claims in both litigation and arbitration.