Manhattan Med. Imaging, P.C. v State Farm Mut. Auto. Ins. Co. (2008 NY Slip Op 51844(U))

Civil Court of the City of New York, Richmond County

11330/07

Katherine A. Levine, J.

This case raises 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. It also raises anew whether the recent Court of Appeals decision in Fair Price Medical Supply Corp. V. Travelers Indemnity Co., 10 NY3d 556 (2008) requires an insurer to proffer the defense that a provider is fraudulently incorporated within 30 days or whether that defense remains non waivable.

Plaintiff, Manhattan Medical Imaging (“Manhattan Medical “or “plaintiff”), a medical service provider, seeks an order granting it summary judgment based upon a claimed prima facie showing that the bills were properly submitted and that the defendant State Farm Automobile Ins. Co. (“State Farm” or “defendant”) failed to pay or deny the claim within 30 days. Plaintiff also

asserts that defendant’s denial was untimely.

To grant summary judgment, “it must clearly appear that no material and triable issue of fact is presented” Forrest v. Jewish Guild for the Blind, 3 NY3d 295 (2004); Zuckerman v, City of New York, 49 NY2d 557 (1980). A plaintiff establishes a prima facie entitlement to judgment as a matter of law “by submitting evidentiary proof that the prescribed statutory billing form has been mailed and received, and that payment of no -fault benefits was overdue.” Mary Immaculate Hosp. v. Allstate Ins.,, 5 AD3d 742, 743 (2d Dept. 2004); Second Medical v. Auto One Ins., 20 Misc 3d 291, 293 (Civil Ct., Kings Co. 2008).

State Farm asserts that plaintiff has failed to establish a prima facie case since the affidavit of plaintiff’s billing manager is “boilerplate” and not based upon her personal knowledge and therefore does not come in under the business records exception to the hearsay rule. The affidavit of plaintiff’s billing manager, Bella Kirzhner, clearly comes within the business records exception, as contained in CPLR 4518(a), as it exhaustively details the record keeping procedures of the business that created the records and clearly details the dates of the services, the amounts due, and her personal knowledge of the billing practices. See, Second Medical v. Auto One supra at 294-95. It details that the bills were made and kept in the ordinary course of business at the time the services were rendered and sets forth the precise mailing procedure which were followed. In fact, Kirzhner “personally packaged, sealed, applied postage to and mailed the bill.” As such, plaintiff has made a prima facie showing of entitlement.

The burden then shifts to the defendant in a no fault case to show a triable issue of fact. Alvarez v Prospect [*2]Hosp., 68 NY2d 320, 324 (1986). To defeat an award of summary judgment to plaintiff, defendant must provide proof, in evidentiary form, that it either paid or denied the claim within 30 days of receipt or that it asserts a non- precludable defense. Carle Place Chiropractic v. NY Central Mutual Fire Ins. Co., 2008 NY Slip Op 51065U at 7, 19 Misc 3d 1139A (Dist. Ct. Nass. Co. 2008). See Central General Hospital v. Chubb Insurance Co, 90 NY2d 195 (1997); Presbyterian Hosp. City of NY v. Maryland Casualty Co., 90 NY2d 274 (1997).

Defendant contends that plaintiff’s motion should be denied because the evidence strongly suggests that 1) plaintiff’s assignor was engaged in a “staged accident” caused in furtherance of an insurance fraud scheme and therefore there is no coverage; and 2) plaintiff may be fraudulently incorporated since it’s facility may “possibly” be owned by a non licensed physician thereby violating the Business Corporation Law, the No Fault Regulations. Defendant asserts that these are non-precludable defenses, regardless of when it issued its denials. In fact, the denial of claim forms( NF-10′) dated December 12th and 26th 2001 assert as the basis of denial that the loss was not caused by a covered accident but by intentional collusive acts and also because there were violations of the fraud provision.

STAGED ACCIDENT DEFENSE

In Fair Price Medical v. Travelers Ins., 10 NY3d 556 (2008), the Court of Appeals clarified when an insurance company would not be precluded from offering a defense to its refusal to pay no – fault benefits even though it denied the claims beyond the 30 day period. There, Travelers issued its denial nearly two years after receiving the claim, based upon the assignor’s statement that he had never received medical supplies from the plaintiff. The Civil Court denied plaintiff’s motion for summary judgment, finding that defendant was not precluded by the 30 day rule since it had asserted fraud as a defense. The Appellate Division affirmed the Appellate Term’s reversal of the lower court’s order denying plaintiff summary judgment on the grounds that :

in this case, unlike a staged accident case, there was an actual automobile accident, which

caused Nivelo to sustain actual injuries, for which he was treated by actual health care providers, who issued actual prescriptions for medical supplies to treat his injuries. Nivelo’s undisputably real accident had resulting injuries triggered with the coverage provided for in his insurance policy with the defendant” Fair Price Med. Supply Corp. V. Travelers Indem. Co. 42 AD3d 277, 284 (2d Dept. 2007) affg 9 Misc3d 76 (App. Term 2d and 11th Jud. Dist 2005).

In sum, the Appellate Division concluded that while Travelers could contest the assignor’s claim as fraudulent, it must do so within the tight deadlines imposed by the no -fault system. 42 AD3d at 286.

The Court of Appeals affirmed . It first cited to its recent review of the legal framework behind the No – Fault Law in Hospital for Joint Diseases v. Travelers Prop. Cas. Ins., 9 NY3d 312, 317 (2007); namely that the no fault insurance system was designed 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. ” In furtherance of these goals, the Superintendent of Insurance promulgated regulations implementing the No Fault Law ( Ins. Law art. 51) including “circumscribed time frames for claim procedures” 9 NY3d at 317. The accident victim must submit a notice of claim to the insurer no later than 30 days after the accident (11 NYCRR 651.1, 65-2.4(b) and the insurance company must pay or deny the claim within 30 days after receipt of the proof of the claim (see Ins. Law §5106 (a), 11 NYCRR 65-3.8 ©). Substantial consequences flow from an insurer’s failure to company with this 30 day requirement including preclusion from asserting a defense against payment of a claim. Fair Price , 10 NY3d at 563 citing Hospital for Joint Diseases, 9 NY3d at 317-318. See, Presbyterian Hosp., supra, 90 NY2d at 278 (1997);Mt. Sinai Hosp. V. Chubb Group of Ins. Co., 43 AD3d 889-90 (2d Dept. 2007).

In Hospital for Joint Diseases, supra, the Court, citing to its prior decision in Central General Hospital, supra, cautioned that there was only one “narrow” exception to the preclusion rule for those situations where an insurance company raises the defense of lack of coverage. 9 NY3d at 318 . The Court explained that in such cases [*3]“an insurer who fails to issue a timely disclaimer is not prohibited from later raising the defense because the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed. Fair Price, 10 NY3d at at 563 citing Joint Diseases, 9 NY3d at 318. See, e.g. Tahir v. Progressive Casualty Ins. Co., 12 Misc 3d 657, 662 (Civil Ct., NY Co., 2006) (“staged accident fraud” actually posed an issue of non coverage as opposed to fraud because under no -fault concepts, insurance coverage is limited to an “accident” ).

Thus, the “key issue” in every case is whether the ” facts fit within the narrow no-coverage exception to the preclusion rule” 10 NY3d at 564. A court, in determining whether a specific defense is precluded under the 30 day rule or falls within the exception entails a judgment as to whether the defense is more like a “normal exception ” from coverage such as a policy exclusion or a lack of coverage in the first instance, i.e. a defense “implicating a coverage matter”. 10 NY3d at 565.

It is well settled, as noted by the Appellate Division in Fair Price, that the defense of a staged automobile accident survives preclusion and, if substantiated would constitute a “complete defense to the action. 42 A.D. at 354. See, Mtr of Liberty Mutual Insurance Co. v Goddard, 29 AD3d 698, 699 (2d Dept. 2006); Melbourne Medical P.C. v Utica Mutual Ins. Co., 4 Misc 3d 92, 94 ( App. Term 2d Dept. 2004). A court must first ascertain , however, whether a defendant has adduced proof in admissible form sufficient to create a triable issue of fact. Melbourne Medical, supra. Plaintiff herein alleges that the defendant failed to rebut its prima facie case since the allegations of a non covered accident or a “staged” event are not supported by evidence in admissible form and that defendant failed to present a “founded belief” that the injuries did not arise out of the accident .

The general standard the insurer must assert for a lack of coverage or fraud defense is one “premised on the fact or founded belief that the alleged injury does not arise out of an insured

incident” but was a deliberate event staged in furtherance of a scheme to defraud the insurer.” Central General Hospital v Chubb Group of Ins. Cos., 90 NY2d at 199., See also, Metro Medical Diagnostics, P.C. v Eagle Ins. Co., 293 AD2d 751 (2d Dept 2002). Thus, the insurer has the burden to come forward with proof in admissible form to establish “the fact” or “foundation for its belief” that the alleged incident was a staged event to defraud the insurer. Mt. Sinai Hospital v Triboro Coach Inc., 263 AD2d 11(2d Dept 1999).

While opposition papers often stumble upon the failure to present evidentiary material in admissible form, an insurer may avoid this pitfall by submitting an opposition affidavit which “sets forth names of witnesses, the substance of their testimony, how it was known what their testimony would be and how the witnesses acquired their knowledge.” Complete Orthopedic Supplies, Inc. V. State Farm Insurance Co., 16 Misc 3d 996 (Civil Ct., Queens Co. 2007) citing Phillips v. Kantor & Co., 31 NY2d 307, 311-12 (1972). It is clear that “unsubstantiated hypotheses and suppositions,” such as an unsworn report of an investigator alleging that an “uncooperative” insured (but not assignor) had been involved in prior accidents alleged to be suspicious , are insufficient to raise a triable issue of the assignor’s fraud. A.B Medical Services PLLC v. Eagle Insurance Co., 3 Misc 3d 8, 10 (App. Term, 2 Dept. 2003). However, there is a dearth of case law as to what what precisely must be included within an investigator’s affidavit so as to defeat a plaintiff’s motion for summary judgment. See, Complete Orthopedic Supplies. Supra; PDG Psychological, P.C. v. State Farm Ins., Co, 12 Misc 3d 1183A, 824 N.Y.S. 2d 766 (Civil Ct., Kings Co. 2006); Inwood Hill Medical P.C. Bronx Neurodiagnostics v. Allstate Ins. Co., 3 Misc 3d 1110A, 787 N.Y.S.2d 678 (Civil Court, NY, Co. County 2004).

In a number of cases, defendant insurers have been permitted to proceed to trial based upon affidavits of investigators employed by the insurance company’s Special Investigations Unit (“SIU”) who allege personal knowledge of the alleged fraud. See, American Honda Finance Corp. V Progressive Casualty Ins. Co., 290 AD2d 850 (3d Dept. 2002) (“at this preliminary stage of the proceeding, a question of fact is lurking as to whether Perez committed fraud or made other material representations such that policy exclusion would preclude recovery); Northern Medical v. State Farm Mutual Automobile I ns. Co., 2008 NY Slip Op. 50753U, 19 Misc 3d 1117A (Civil Ct., Queens Co., 2008). [*4]

In PDG Psychological v. State Farm Ins. Co., 12 Misc 3d 1183 A, 824 N.Y.S. 2d 766 (Civil Ct. Kings Co. 2006), the defendant, in support of its defense of an intentional collision, proffered the testimony of an SIU investigator who stated that the claims had been denied because the accident occurred two months after the assignor’s policy had been instituted and because there were several discrepancies between the transcripts of the examinations under oath (“EUOs”) of the passengers and the assignor, including where they were going, when they all met, the time of the accident, where the car was at the time of the impact and the names of the passengers. These discrepancies, coupled

with the other driver’s statement, raised factual issues.

The evidence presented by defendant is somewhat similar to that presented in PDG Psychological, supra. Defendant presented statements of the assignors which, although unsworn and unsigned, were certified by the transcriber, and the signed and sworn to affidavit of Lee Ann Fink, who is employed in the Special Investigations Unit (“SIU”). Fink memorialized the somewhat minor 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.

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 investigators’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).

In sum, this court denies plaintiff’s motion for summary judgment with respect to defendant’s denial based upon a staged accident.

PROVIDER FRAUD

Defendant similarly is not precluded from raising its defense that plaintiff may be fraudulently incorporated since it is ” possibly” owned by both a physician and non physician, the latter of which is prohibited by both the Business Incorporation Law, the No – fault regulations and the seminal case of State Farm Mutual Auto Ins. V. Mallela, 4 NY3d 313 (2005).^[FN1]

`In Mallela, the Court of Appeals held that insurers may withhold payment for medical services provided by fraudulently licensed medical service corporations to which patients, who are covered by no-fault insurance, have assigned their claims. Insurance Law §5102 requires no-fault carriers to reimburse patients or their medical provider assignees for “basic economic loss”. In order to combat incidences of fraud, the Superintendent of Insurance promulgated 11 NYCRR 65-3.16(a)(12) , which excludes payments made to fraudulently licensed providers from the meaning of basic economic loss as contained in Section 5102. 4 NY3d at 320. After finding this regulation valid, the Court held that carriers “may look beyond the face of licensing documents to identify wilful and material failure to abide by state and local law.” Id at 321-22. See Cambridge Medical P.C. v. Nationwide Property and Casualty Ins. Co., 19 Misc 3d 1110A, 859 N.Y.S. 2d 901 ( Civil Ct., Richmond Co. 2008).

In Eastern Medical P.C. v. Allstate Ins. Co., 19 Misc 3d 775 (Dist. Ct. Nassau Co. 2008), the court rejected [*5]Allstate’s contention that Fair Price had reshaped the analysis of fraud based defenses so as to make a Mallela/ fraudulent incorporation defense untimely if not made within the 30 day denial period. The court first noted that there was no support for the premise behind defendant’s argument: that the Court of Appeals was ignorant of its own precedent when it decided Mallela and that the Fair Price Court chose to somehow abrogate Mallela in its decision. The court then noted that while the Court of Appeals precedent cited in Fair Price ^[FN2] dealt “with contract interpretation” or “the interplay between policies of insurance and applicable laws and regulations,” the Malella court dealt solely with statutory interpretation, 19 Misc 3d at 779. The Mallela defense was thus not predicated upon a policy exclusion or the extent of coverage provided by a contract of insurance but rather upon a statutory defense arising from a claimant’s failure to comply with applicable sections of the Business Corporation, Limited Liability and Education Laws. Id at 780.

The court then noted that even though there was no contention in Mallela that medical payments were not otherwise required by the policy, the Mallela court did not qualify the insurer’s right to deny payment to the fraudulently incorporated provider by requiring a timely denial. 19 Misc 3d at 780. Rather, the challenged regulation in Mallela did not create a new category of exclusion but rather was “a condition precedent with which all claimants must comply in order to receive benefits.” Id at 780 citing 4 NY3d at 321 n.3. Therefore, Fair Price did not alter, much less address prior precedent that a fraudulent incorporation defense “is a non- waivable defense .and is therefore not subject to the 30-day preclusion rule” ( Midwood Acupuncture P.C. v. State Farm Mutual Auto, 14 Misc 3d 131A, 2007 N.Y Slip Op 50052 U ( App. Ter, 2d Dept. 2007). Id at 781. Nor is such a defense waived by the failure to assert it in a denial of claim form. Multiquest v. Allstate Ins. Co., 17 Misc 3d 37, 39 ( App. Term, 2d Dept. 2007).

Defendant is therefore not precluded from raising its defense of fraudulent incorporation provided that it presents a “founded belief”that the corporation is ineligible to obtain no-fault benefits by reason of a fraudulent corporate filing. Central General Hospital., supra,; Inwood Hill Medical AB Medical Services v. Prudential Property & Casualty Insurance Company, 11 Misc 3d 137 (A) (Appellate Term Second Dept. 2006). 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. See,

Tahir v. Progressive Casualty Ins. Co., 12 Misc 3d 657, 664 (Civil Ct., NY Co. 2006)(“fraudulent intent is rarely established by direct proof, but we nevertheless conclude that there are sufficient badges of fraud’ in this case from which such intention can be inferred “citing Spires v. Mihou, 13 AD3d 1056,57 (4th Dept. 2007)).

The court directs plaintiff to respond to defendant’s discovery request within 60 days of this decision.

The foregoing constitutes the Decision and Order of the Court.

DATED: September 4, 2008

Hon. Katherine A. Levine [*6]

Judge, Civil Court

ASN byon

Footnotes

Footnote 1:This defense is typically referred to as the “Malella defense” or “fraudulent incorporation” defense.

Footnote 2:he precedents followed by Fair Price were Presbyterian Hospital ,supra and Central General Hosp., supra.