A De Novo Action is Not the Same as a Special Proceeding to Vacate a Master Arbitration Award of New York No-Fault Benefits

NO-FAULT – DE NOVO ACTION – INSURANCE LAW § 5106(C)
Allstate Ins. Co. v Nalbandian
(2nd Dept., decided 11/1/2011) 

After receiving a no-fault master arbitration award for more than $5,000, Allstate commenced this action for a de novo determination of the defendant's PIP claim pursuant to New York Insurance Law § 5106(c), which provides in pertinent part:

where the amount of such master arbitrator's award is five thousand dollars or greater, exclusive of interest and attorney's fees, the insurer or the claimant may institute a court action to adjudicate the dispute de novo.

De novo means from the beginning, and a de novo action relitigates all issues relevant to the disputed no-fault claim.  Believing that Allstate was seeking instead to vacate the master arbitration award, defendant counterclaimed to confirm the award and cross-moved for summary judgment, contending that the master arbitrator's award was not arbitrary and capricious.  Supreme Court, Kings County (Schack, J.), granted defendant's cross motion and Allstate appealed.

In REVERSING the lower court's order, the Appellate Division, Second Department, noted the important difference between a special proceeding to vacate an arbitration award and a de novo action to determine one's entitlement to no-fault benefits, finding that the lower court erred in overlooking or misapprehending that difference:

The Supreme Court erred in denying the plaintiff's motion for summary judgment on the complaint solely on the basis that the award of the master arbitrator was not arbitrary and capricious. The plaintiff did not seek to vacate the award of the master arbitrator, and, once the plaintiff properly invoked its right to de novo review, the issue of whether the award was arbitrary and capricious was rendered academic. For the same reason, the Supreme Court also erred in granting the defendant's cross motion to confirm the award of the master arbitrator and for summary judgment dismissing the complaint and on his counterclaims, based on the conclusion that the award was not arbitrary and capricious (see Progressive Ins. Co. v Strough, 55 AD3d 1402; Matter of Capuano v Allstate Ins. Co., 122 AD2d 138; see also Matter of Gerstein v American Tr. Ins. Co., 161 Misc 2d 57).

Master No-Fault Arbitration Award Not Vacated

NO-FAULT – GROUNDS FOR VACATING MASTER ARBITRATION AWARD – CPLR ARTICLE 75 PROCEEDING
Matter of Travelers Indem. Co. v. United Diagnostic Imaging, P.C.
(2nd Dept., decided 2/23/2010)

New York Civil Practice Law and Rules section 7511(b) sets forth the grounds upon which a court may vacate an arbitration award:

(b) Grounds for vacating. 

1. The award shall be vacated on the application of a party who either participated in the arbitration or was served with a notice of intention to arbitrate if the court finds that the rights of that party were prejudiced by: 

(i) corruption, fraud or misconduct in procuring the award; or 

(ii) partiality of an arbitrator appointed as a neutral, except where the award was by confession; or 

(iii) an arbitrator, or agency or person making the award exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made; or

(iv) failure to follow the procedure of this article, unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection.

Case law makes it clear that New York courts apply these four grounds narrowly, declining more times than not to vacate arbitration awards.   This case is no different, the Second Department affirming the lower court's denial of Travelers' petition to vacate the master arbitration award, with costs.

In support of its petition to vacate, Travelers argued that the arbitration award should be vacated pursuant to CPLR 7511(b)(1)(iii) because the master arbitrator had exceeded his power in confirming the award.  Travelers also contended that both the arbitrator and master arbitrator "acted in a manner that was arbitrary, capricious, irrational, and without a plausible basis."  Both the Supreme Court and Second Department disagreed, the appellate court holding:

"Consistent with the public policy in favor of arbitration, the grounds specified in CPLR 7511 for vacating or modifying a no-fault arbitration award are few in number and narrowly applied" (Matter of Mercury Cas. Co. v Healthmakers Med. Group, P.C., 67 AD3d 1017, 1017).  * * * * *

"An arbitration award in a mandatory arbitration proceeding will be upheld if it is supported by the evidence and is not arbitrary and capricious" (Matter of State Farm Mut. Auto. Ins. Co. v City of Yonkers, 21 AD3d 1110, 1111). "On review, an award may be found to be rational if any basis for such a conclusion is apparent to the court based upon a reading of the record" (id.; see Caso v Coffey, 41 NY2d 153, 158).

Here, the petitioner failed to demonstrate that the master arbitrator's award should have been vacated pursuant to CPLR 7511(b)(1)(iii) (see generally Matter of New York City Tr. Auth. v Transport Workers' Union of Am., Local 100, AFL-CIO, 6 NY3d 332, 336). Moreover, the determination of the master arbitrator confirming the original arbitration award had evidentiary support and a rational basis, and was not arbitrary and capricious. Accordingly, the Supreme Court properly denied the petition to vacate the award.

Remember that pursuant to New York Insurance Law § 5106(c) and 11 NYCRR § 65-4.10(h)(1)(ii), if the master arbitrator's award is $5,000 or more, exclusive of interest and attorney’s fees, either party may, in lieu of commencing a CPLR article 75 proceeding, institute a court action to adjudicate the dispute de novo.  Can't do both, however.  It's either commence a special proceeding to vacate the award pursuant to CPLR 7511(b) or commence an action to adjudicate the disputed claim de novo.  Pursuant to 11 NYCRR § 65-4.10(h)(2) and CPLR 7511(a), the deadline for commencing either a special proceeding or de novo action is 90 days after delivery of the master arbitrator's award to that party.  "Delivery" has been held to mean receipt for purposes of CPLR 7511(a)'s 90-day statute of limitations.  Matter of Lowe v. Erie Ins. Co., 56 AD3d 130 (4th Dept. 2008).

NF-10 Wars -- Arbitrator Held to Have Erroneously Invalidated PT Denial Based on Lack of Medical Rationale Set Forth in Denial

NO-FAULT – NCV-EMG COSTS – SPECIAL PROCEEDING TO VACATE MASTER ARBITRATION AWARD – NF-10 SUFFICIENCY – MEDICAL RATIONALE – PROVIDING COPY OF IME-PEER REVIEW REPORT WITH DENIAL
American Transit Ins. Co. v. 21st Ave. Medical Plaza, P.C. a/a/o Dennene Baker
(Sup. Ct., New York Co., decided 5/8/2008)

In April 2007, the Second Department issued its decision in A.B. Med. Servs., PLLC v. GEICO Cas. Ins. Co., 39 AD3d 778, holding that a no-fault insurer is not required to set forth with sufficient particularity the factual basis and medical rationale upon which NF-10 denial of claim forms are based:

The applicable regulations provide that if a no-fault claim is denied in whole or in part based on a medical examination or peer review report requested by the insurer, then the insurer shall release a copy of that report to, among others, the applicant or its attorney, upon written request (see 11 NYCRR 65-3.8 [b] [4]). Had it been the intent of the Department of Insurance to require the carrier to set forth a medical rationale in the prescribed denial of claim form (see NYS Form N-F 10; 11 NYCRR 65-3.4 [c] [11]), it would have so provided.

In this case, defendant conducted NCV/EMG (nerve conduction velocities/electromyography) studies of and provided PT (physical therapy) to the defendant's assignor in conjunction with defendant's treatment of her. American Transit denied payment of both the NCV/EMG and PT billings, based on negative peer review and IME reports, respectively. Plaintiff provider sought payment of those services in compulsory no-fault arbitration.

One day before the Second Department decided A.B. Med. Services, PLLC v. GEICO, the arbitrator ruled against American Transit, finding: (1) that the peer review report relied upon to deny payment of the NCV/EMG studies was "not very persuasive"; and (2) that American Transit's denial of reimbursement for PT treatments based on the negative IME performed by a consulting physiatrist was defective because a copy of the IME report had not been sent to the assignor within thirty days of the date American Transit issued the denial. The lower arbitrator stated that because the IME report was not timely sent to the claimant, she was "constrained to
preclude the IME report."

American Transit appealed the lower arbitrator's decision to a master arbitrator, who, based on the Appellate Term's (not Division's) decision in A.B. Med. Services, PLLC v. GEICO, upheld the arbitrator's decision in both respects. American Transit then brought this CPLR article 75 special proceeding to vacate the master arbitrator's decision.

In partly denying and partly granting American Transit's petition, New York County Supreme Court Justice Kibbie F. Payne found: (1) that the lower arbitrator acted within her authority in considering but rejecting as legally and factually deficient and unpersuasive the peer review report concerning the NCV/EMG studies; and (2) that the master arbitrator's decision upholding the lower arbitrator's refusal to consider the IME report and invalidation of America Transit's NF-10 for PT services violated existing law and was not rationally based.