SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE TERM: 2nd, 11th and 13th JUDICIAL DISTRICTS

Appeal from an order of the Civil Court of the City of New York, Kings County (Kenneth P. Sherman, J.), entered September 4, 2007. The order granted defendant’s motion for summary judgment dismissing the complaint.

Order reversed without costs and defendant’s motion for summary judgment dismissing the complaint denied.

In this action by a provider to recover assigned first-party no-fault benefits, defendant moved for summary judgment dismissing the complaint on the ground of lack
of medical necessity. In opposition, plaintiff asserted, inter alia, that defendant did not establish that the subject denial of claim form was timely mailed. The court granted defendant’s motion. This appeal by plaintiff ensued.

The affidavit submitted by defendant’s litigation examiner failed to establish that defendant timely mailed its denial of claim form based upon its standard office practice or procedure designed to ensure that items are properly addressed and mailed, since it merely stated that the denial of claim form was mailed and did not sufficiently set forth the steps which comprise defendant’s mailing practices and procedures (see New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d 547 [2006]; Residential Holding Corp. v Scottsdale Ins. Co., 286 AD2d 679 [2001]; Align for Health Chiropractic, P.C. v New York Cent. Mut. Fire Ins. Co., 20 Misc 3d 144[A], 2008 NY Slip Op 51862[U] [App Term, 2d & 11th Jud Dists 2008]; Horton Med., P.C. v New York Cent. Mut. Fire Ins. Co., 20 Misc 3d 142[A], 2008 NY Slip Op 51682[U] [App Term, 2d & 11th Jud Dists 2008]). As a result, defendant failed to establish that its defense of lack of medical necessity was not precluded (see e.g. Delta Diagnostic Radiology, P.C. v Republic W. Ins. Co., 15 Misc 3d 33 [App Term, 2d & 11th Jud Dists 2007]). [*2]Accordingly, the order granting defendant’s motion for summary judgment is reversed and defendant’s motion is denied.

In light of the foregoing, we reach no other issue.

Weston Patterson, J.P., Rios and Steinhardt, JJ., concur.
Decision Date: February 11, 2009

[*1]

Supreme Court, Nassau County, February 10, 2009

APPEARANCES OF COUNSEL

Stern & Montana, LLP, New York City (Robert A. Stern, Sandra P. Burgos and James A. McKenney of counsel), for AIU Insurance Company and others, plaintiffs, and Allstate Insurance Company and another, declaratory judgment defendants. Edward K. Blodnick & Associates, P.C., Garden City (Edward K. Blodnick of counsel), for Deajess Medical Imaging, P.C. and others, defendants/declaratory jugment plaintiffs. Rivkin Radler, LLP, Uniondale (Michael P. Versichelli of counsel), for State Farm Insurance Company. Short & Billy, P.C., New York City (Skip Short and Ioanna Zevgaras of counsel), for GEICO Insurance Company and another. Katten Muchin Rosenman LLP, New York City (Jay Shapiro of counsel), for Travelers Indemnity Company. Bruno, Gerbino & Soriano, LLP, Melville (Kevin W. O’Leary of counsel), for MetLife Auto and Home Insurance Company and another. Curtis, Vasile, Devine, Merrick (Roy W. Vasile of counsel), for Lancer Insurance Company. Martyn Toher & Martyn, Mineola (David C. Smith of counsel), for Liberty Mutual Fire Insurance Company and others. DeMartini & Yi, Williston Park (Arthur J. DeMartini of counsel), for Lumbermens Mutual Casualty Ins. Co. and others. Epstein, Rayhill & Frankini, Woodbury (Elsa Rodriguez Preston of counsel), for Nationwide Insurance Company. Law Offices of Cohen & Jaffe, LLP, Lake Success (Villard S. Bastien of counsel), for Citiwide Auto Leasing, Inc. Jaffe & Nohavicka, New York City (Paul Koumourdas and Ian T. Williamson of counsel), for Country Wide Insurance Company and another. Law Offices of Moira A. Doherty, Uniondale, for Clarendon Insurance Company. McDonnell & Adels, P.C., Garden City (Patrick McDonnell and John E. McCormack of counsel), for AutoOne Insurance Company and others. [*2]

{**24 Misc 3d at 164} OPINION OF THE COURT

Stephen A. Bucaria, J.

This motion, by defendant (in the initial action) Dr. Robert Schepp and related parties (as plaintiffs in the declaratory judgment action), for summary judgment is granted in part and denied in part.

This is an action for a declaratory judgment that the defendant health care providers are ineligible for no-fault reimbursement because of failure to comply with state licensing requirements. In addition to declaratory relief, plaintiffs seek to recover previously paid no-fault claims, asserting causes of action for fraud and unjust enrichment.

Dr. Robert Schepp is a radiologist whose practice is devoted primarily to patients injured in automobile accidents. He practices through a group of professional service corporations which have submitted a large number of no-fault claims to the plaintiff insurance companies. The insurers have paid many of these claims but have denied many others on the ground that the professional corporations are ineligible for no-fault reimbursement. The insurers assert that the professional corporations are in violation of state licensing requirements because they are controlled by an individual not licensed to practice medicine. The insurers further argue that the corporations are ineligible for reimbursement because the radiology services were performed by independent contractors. Finally, the insurers argue that the corporations lack standing because they assigned the no-fault claims to finance companies pursuant to accounts [*3]receivable financing agreements.

Prior to this declaratory judgment action, the corporations had commenced a large number of civil court actions and demanded a large number of arbitrations, seeking to recover no-fault claims. Some of the actions and arbitrations have been resolved, but many are still pending. Pursuant to a series of{**24 Misc 3d at 165} orders dated January 19, February 2, and March 27, 2006, the court stayed 344 actions and 44 proceedings to stay arbitration and consolidated them with the present declaratory judgment action.

The Schepp parties move for partial summary judgment, asserting that a professional corporation is ineligible for no-fault reimbursement only if the professional who formed the corporation intended to turn control over to an unlicensed individual. They additionally request partial summary judgment as to their standing and independent contractor defenses. Finally, they request partial summary judgment on the grounds that the insurers are raising a “collateral attack” on judgments and arbitration awards previously rendered in the Schepp parties’ favor. Before proceeding to the merits of the parties’ claims, the court will consider whether declaratory relief is appropriate. While declaratory judgment is discretionary, it is not an extraordinary remedy (Church of St. Paul & St. Andrew v Barwick, 67 NY2d 510, 518 [1986]; Matter of Morgenthau v Erlbaum, 59 NY2d 143, 147 [1983]). Declaratory judgment may be an appropriate vehicle for settling disputes as to contract rights and obligations, where a mandatory mechanism is not provided in the agreement (Kalisch-Jarcho, Inc. v City of New York, 72 NY2d 727, 731-732 [1988]). Although the claimant has the option of submitting a no-fault dispute to arbitration, declaratory judgment may be an appropriate vehicle for settling disputes concerning no-fault benefits (see Bennett v State Farm Ins. Co., 147 AD2d 779 [3d Dept 1989]).

Declaratory judgment is not an exception to the principle of res judicata and does not permit a trial court to review another court’s judgment (Goldstein v Massachusetts Mut. Life Ins. Co., 32 AD3d 821 [2d Dept 2006]). Therefore, the concern that the court will “undo thousands of no fault claims” is misplaced. “[D]eclaratory judgment does not entail coercive relief, but only provides a declaration of rights between parties that, it is hoped, will forestall later litigation” (Morgenthau, 59 NY2d at 148). Thus, declaratory relief by this court will not, of itself, result in the vacating of any other court’s judgment. To the extent that this court’s decision is inconsistent with any previously granted arbitration award, it is not intended to provide grounds for vacatur (see CPLR 7511 [a]). To the extent that the court’s decision is inconsistent with the judgment of any other [*4]court, whether to grant relief from that judgment is within the discretion of that court (see Ruggiero v Long Is. R.R., 161 AD2d 622{**24 Misc 3d at 166} [2d Dept 1990]). The court notes that plaintiffs are not requesting this court to take any action with respect to any judgment or arbitration award. Furthermore, the insurers themselves have requested declaratory relief in one of the consolidated declaratory judgment actions. Because of the large number of actions and arbitrations involving the common question of the Schepp entities’ eligibility for no-fault reimbursement, the court concludes that declaratory relief is appropriate.

Pursuant to Insurance Law § 5103, every automobile insurance policy must provide for payment of so-called “no fault,” or “first party benefits,” to occupants of a covered vehicle who sustain loss through the use or operation of the vehicle. Section 5102 (b) of the Insurance Law defines “[f]irst party benefits” as payment to reimburse the injured person for “basic economic loss,” less certain deductions. Under Insurance Law § 5102 (a), “basic economic loss” means necessary medical expenses and lost earnings up to $50,000. Thus, in accordance with the statutory scheme, expenses for necessary x-rays and MRIs are ordinarily reimbursable no-fault benefits.

However, Insurance Department Regulations (11 NYCRR) § 65-3.16 (a) (12) provides

“A provider of health care services is not eligible for reimbursement under § 5102 (a) (1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York or . . . any other state in which such service is performed.”

If the health care provider is a professional service corporation, section 1507 of the Business Corporation Law requires that any individual who holds shares in the professional corporation be licensed to practice the profession. Section 1508 of the Business Corporation Law provides that an individual must be licensed to be a director or officer of a professional service corporation. The insurers assert that Dr. Schepp’s professional corporations fail to meet state licensing requirements because they are owned and controlled by management companies, which are controlled by an unlicensed individual. [*5]

In State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313, 319 [2005]), known to the no-fault bar as “Mallela III,” the Court of Appeals held that an insurer may withhold payment for medical services provided by “fraudulently incorporated” enterprises to which patients have assigned their no-fault claims. In Mallela III, unlicensed individuals paid physicians to use their{**24 Misc 3d at 167} names on certificates of incorporation and other documents filed with the Department of State to establish medical service corporations (4 NY3d at 319). Once the medical service corporations were established under the cover of the nominal physician-owners, the nonphysicians actually operated the companies (id.). The nonphysicians caused the corporations to hire management companies owned by the nonphysicians, which billed the medical corporations at inflated rates for routine services (id. at 319-320). Thus, the corporations’ profits did not go to the nominal owners but were channeled to the nonphysicians who owned the management companies. The court held that although the patients received appropriate care from licensed professionals, the insurers could withhold payment for no-fault benefits.

In moving for partial summary judgment, the Schepp parties argue that a professional service corporation is ineligible for no-fault reimbursement only if it was “fraudulently incorporated.” Movants construe this term as meaning that the professional corporation was formed by a licensed professional who intended to turn control of the corporation over to an unlicensed party. They assert that Dr. Schepp’s professional corporations were not fraudulently incorporated because Dr. Schepp intended to retain control when he formed the professional corporations.

In Mallela III, the question of whether an “unlawfully incorporated” medical corporation was eligible for no-fault law reimbursement had been certified to the Court of Appeals by the United States Court of Appeals for the Second Circuit (State Farm Mut. Auto. Ins. Co. v Mallela, 372 F3d 500, 501 [2d Cir 2004]). In certifying this question, the Second Circuit noted our state’s longstanding concern that the “corporate practice of medicine” would create ethical conflicts and undermine the quality of care afforded to patients (372 F3d at 503). Additionally, the court noted that the corporate practice of medicine was associated with more traditional forms of fraud, such as billing for services not provided, billing for services that were medically unnecessary, and billing for services at the wrong rate (id. at 504, 507).

In answering the certified question, our Court of Appeals stated that the fraud was “in the corporate form rather than in the quality of care provided” (Mallela III, 4 NY3d at 320). The Court indicated that mere failure to observe corporate formalities would not render the provider ineligible (id. at 322). However, “willful and material failure to abide [*6]by state and local law,” conduct tantamount to fraud, would render the{**24 Misc 3d at 168} provider ineligible for no-fault reimbursement (id. at 321). The Court further stated that if a medical service corporation is “fraudulently licensed,” it is not entitled to be reimbursed for no-fault benefits (Mallela, 4 NY3d at 321, 322). Thus, the Court of Appeals intimated that a medical service corporation will be ineligible for no-fault reimbursement if it is in violation of licensing requirements, regardless of whether the doctor intended to yield control to unlicensed parties at the time he formed the corporation.

Moreover, 11 NYCRR 65-3.16 (a) (12) renders a health care provider ineligible for reimbursement if it fails to meet “any applicable” licensing requirement. The regulation does not render a provider ineligible only when it fails to meet licensing requirements at the time of its incorporation. In view of the fraudulent practices associated with the corporate practice of medicine, a regulation prohibiting reimbursement to unlicensed providers is eminently reasonable. Thus, if the Schepp entities are under the control of an unlicensed individual, the insurers will be entitled to a declaration that they may deny defendants no-fault reimbursement, regardless of whether defendants were “fraudulently incorporated.” The declaratory judgment plaintiffs’ motion for partial summary judgment on the ground that the professional corporations were not fraudulently incorporated is denied.

In Mallela III, the Court of Appeals stated that “no cause of action for fraud or unjust enrichment [will] lie for any payments made by the carriers before [the] regulation’s effective date of April 4, 2002” (4 NY3d at 322). Thus, insurers may not recover no-fault claims paid prior to April 4, 2002 on the ground that the provider was ineligible for reimbursement at the time the claim was submitted. Nevertheless, Mallela III left open the question of whether insurers may deny claims submitted prior to April 4, 2002 on the ground that the provider subsequently became ineligible for no-fault reimbursement. Movants argue that the insurers may not deny such claims on the ground of current ineligibility and may not predicate a cause of action for fraud on claims submitted prior to March 29, 2005, the date of the Mallela III decision.

Movants stress that, prior to Mallela III, 11 NYCRR 65-3.16 had not been interpreted as entitling insurers to deny no-fault reimbursement to health care providers who were not in compliance with licensing requirements. Indeed, in certifying the question to our Court of Appeals, the Second Circuit noted that New{**24 Misc 3d at 169} York law was unclear and no “controlling precedent” governed the case (372 F3d at 507). [*7]

Subsequently, in Allstate Ins. Co. v Belt Parkway Imaging, P.C. (33 AD3d 407, 408 [1st Dept 2006]), the Appellate Division held that insurers could deny claims for services performed prior to April 4, 2002 because the “clear import” of the regulation was that unlicensed providers were no longer eligible for reimbursement as of the regulation’s effective date. The court reasoned that “[a]meliorative or remedial legislation” should be given retroactive effect to effectuate its “beneficial purpose,” and similar effect should be given to an ameliorative or remedial regulation (id. at 408). The court noted that the purpose of 11 NYCRR 65-3.16 was “to combat fraud,” and the regulation’s notice of adoption urged that the public receive “the benefits of reduced fraud and abuse . . . at the earliest possible moment” (33 AD3d at 409). The court ruled that section 65-3.16 did not “impair[ ] vested rights” and noted that Mallela itself involved “pre-April 4, 2002 claims” (33 AD3d at 409, 408). Thus, the insurers will be entitled to a further declaration that they may deny no-fault claims for services performed prior to April 4, 2002, if they establish that the Schepp entities are currently ineligible for no-fault reimbursement. Defendants’ motion for partial summary judgment is granted as to claims paid prior to April 4, 2002 but denied as to pre-April 4, 2002 claims which are still pending.

Movants argue that a cause of action for fraud, based upon a no-fault claim submitted prior to the date of Mallela III, is legally insufficient. The essential elements of a cause of action for fraud are a representation of a material existing fact, falsity, scienter, deception, and injury (New York Univ. v Continental Ins. Co., 87 NY2d 308 [1995]). The movants argue that their ineligibility for no-fault reimbursement was not an “existing fact” before Mallela III was decided. Thus, they argue that the insurers may not assert a cause of action for fraud based on pre-Mallela III claims.

The eligibility of a professional corporation for no-fault reimbursement is a mixed question of fact and law which “turns on the combined consideration of factual and legal factors” (Matter of Fisher [Levine], 36 NY2d 146, 150 [1975]). Nevertheless, a representation as to the corporation’s eligibility for no-fault reimbursement may provide the basis for a fraud cause of action. The Court of Appeals has stated that it is an “over-simple dichotomy” to distinguish between law and fact for the{**24 Misc 3d at 170} purposes of an action in deceit (National Conversion Corp. v Cedar Bldg. Corp., 23 NY2d 621, 627 [1969]). “[A] statement as to the law, like a statement as to anything else, may be intended and understood either as one of fact or one of opinion only, according to the circumstances of the case” (id. at 628, quoting Prosser, Torts, at 741 [3d ed]). Indeed, a false opinion of the law, if represented as a “sincere opinion,” may, as any other opinion, give rise to a fraud claim if it is reasonably relied upon by the other party (id.). A misrepresentation as to the law is more likely to induce [*8]reasonable reliance where it is made by one possessing superior knowledge as to the subject of the representation (Lukowsky v Shalit, 110 AD2d 563, 567 [1st Dept 1985]). Since a misrepresentation as to the law may give rise to an action for fraud, so may a misrepresentation as to a mixed question of fact and law, such as eligibility for no-fault reimbursement.

Prior to Mallela III, Dr. Schepp may not have known that his professional corporations were ineligible for no-fault reimbursement. However, in submitting no-fault claims, the Schepp entities impliedly represented that they{**24 Misc 3d at 171} were wholly owned by licensed physicians. They clearly had superior knowledge as to the licensing status of the individual in control of the professional corporations. If a representation as to licensing status was false, the insurers suffered damages by paying the claims in reliance upon the representation, even though the legal effect of the falsity had not yet been determined. In Allstate Ins. (supra), the Appellate Division affirmed the dismissal of the insurer’s cause of action for fraud based upon payments made prior to April 4, 2002. The court’s failure to dismiss a fraud claim as to payments made prior to the date of Mallela III confirms the viability of a fraud cause of action. The motion for partial summary judgment is denied as to claims submitted subsequent to April 4, 2002 but prior to the date of the Mallela III decision.

The movants argue that the insurers’ fraud causes of action have not been stated in sufficient detail pursuant to CPLR 3016 (b). The purpose of this pleading requirement is to inform a defendant of the incidents which form the basis of the action (Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486, 491 [2008]). Where it is impossible to state the circumstances constituting the fraud in detail, CPLR 3016 (b) should not be so strictly interpreted as to prevent plaintiff from asserting an otherwise valid cause of action (id.). As noted above, in submitting no-fault claims, the Schepp entities impliedly represented that they were wholly owned by licensed physicians. While the extent to which they relied upon that representation may vary with the circumstances of the individual claim, the insurers have alleged sufficient detail to comply with CPLR 3016 (b)’s pleading requirement.

11 NYCRR 65-3.11 (a) provides, “An insurer shall pay benefits for any element of loss . . . directly to the applicant or . . . upon assignment by the applicant . . . shall pay benefits directly to providers of health care services.” According to the insurers, the Department of Insurance has issued an opinion letter to the effect that a health care provider is not permitted to seek reimbursement for services provided by an independent contractor (see NY Ins Dept op letter, Feb. 21, 2001). The movants do not dispute [*9]the insurers’ interpretation of the opinion letter but claim that, as a matter of law, the radiology technicians who performed the services were employees of the professional corporations.

On a motion for summary judgment, it is the proponent’s burden to make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact (JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 384 [2005]). Failure to make such a prima facie showing requires denial of the motion, regardless of the sufficiency of the opposing papers (id.). However, if this showing is made, the burden shifts to the party opposing the summary judgment motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]).

The Schepp entities submit the affidavit of Dr. Schepp which states that all of the MRI technicians worked under his supervision and control. Dr. Schepp further states that while the technicians worked for different corporations, they were paid by Robert Scott Schepp, M.D., P.C., they received W-2 tax forms, and their salary expenses were apportioned among the various corporations. The court concludes that the Schepp entities have established, prima facie, that the MRI technicians were employees, and the burden shifts to the insurers to come forward with evidence showing that the technicians were independent contractors.

In opposition to the motion, the insurers have submitted considerable evidence indicating that Dr. Schepp may have yielded control of the professional corporations to a management{**24 Misc 3d at 172} company. However, they have submitted no evidence that the MRI technicians were not employees of the professional corporations. The court concludes that the Schepp entities are entitled to a declaration that the professional corporations are not ineligible for no-fault reimbursement by reason of utilizing MRI technicians who were not employees. The motion for partial summary judgment is granted as to the independent contractor defense.

The insurers argue that the professional corporations lack standing because they assigned their no-fault claims to finance companies pursuant to accounts receivable financing agreements. The movants respond that they purported to assign only the proceeds because a medical provider is not permitted to assign a no-fault claim. [*10]

An unequivocal and complete assignment extinguishes the assignor’s rights against the obligor and leaves the assignor without standing to sue the obligor upon the assigned claim (Aaron Ferer & Sons Ltd. v Chase Manhattan Bank, N.A., 731 F2d 112, 125 [2d Cir 1984]). However, implicit in any assignment for security is a reservation to the assignor of a right to pursue the claim if the assignee chooses not to do so (Fifty States Mgt. Corp. v Pioneer Auto Parks, 44 AD2d 887 [4th Dept 1974]). Where no-fault claims are factored, it is particularly appropriate for the assignor to retain standing because the assignee is not permitted to seek no-fault arbitration (Insurance Law § 5106 [b]; Insurance Department Regulations [11 NYCRR] § 65-4.2 [b]).

Article 9 of the Uniform Commercial Code, governing secured transactions, ordinarily applies to a sale of accounts intended as a financing arrangement (UCC 9-109 [a] [3]). Pursuant to UCC 9-406 (a), an account debtor may discharge its obligation by paying the assignor, until the account debtor has received notice of the assignment. Thus, a no-fault insurer who pays the health care provider is not exposed to the risk of double-paying a factored claim. The court concludes that the Schepp entities are entitled to a declaration that the professional corporations are not ineligible for no-fault reimbursement by reason of having assigned the claims pursuant to an accounts receivable financing agreement. The motion for partial summary judgment is granted as to insurers’ defense of lack of standing.

The Schepp entities’ motion for summary judgment is granted and denied to the extent indicated above. The court will defer granting a declaratory judgment in accordance with this decision{**24 Misc 3d at 173} pending resolution of whether the professional corporations are controlled by an individual not licensed to practice medicine.

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE TERM: 2nd, 11th and 13th JUDICIAL DISTRICTS

Appeal from an order of the Civil Court of the City of New York, Queens County (Diane A. Lebedeff, J.), entered December 5, 2007. The order denied defendant’s motion for summary judgment.

Order reversed without costs and defendant’s motion for summary judgment dismissing the complaint granted.

In this action by a provider to recover assigned first-party no-fault benefits, defendant moved for summary judgment dismissing the complaint on the ground that the services allegedly rendered to plaintiff’s assignor lacked medical necessity. Although the Civil Court found that defendant had timely denied the claims, the court denied defendant’s motion, apparently on the ground that the independent chiropractic examination report, upon which defendant had based its denials, was not in admissible form, notwithstanding the accompanying affidavit executed by the chiropractor. This appeal by defendant ensued.

Defendant demonstrated that it had timely mailed the denial of claim forms at issue based upon its standard office practice or procedure designed to ensure that items are properly addressed and mailed (Residential Holding Corp. v Scottsdale Ins. Co., 286 AD2d 679 [2001]; Delta Diagnostic Radiology, P.C. v Chubb Group of Ins., 17 Misc 3d 16 [App Term, 2d & 11th Jud Dists 2007]). Defendant’s independent chiropractic examination report, together with the affidavit of the chiropractor, provided a factual basis and medical rationale for the chiropractor’s [*2]opinion that the services rendered were not medically necessary (see Delta Diagnostic Radiology, P.C. v Progressive Cas. Ins. Co., 21 Misc 3d 142[A], 2008 NY Slip Op 52450[U] [App Term, 2d & 11th Jud Dists 2008]; Crossbridge Diagnostic Radiology, P.C. v Progressive Ins. Co., 20 Misc 3d 143[A], 2008 NY Slip Op 51761[U] [App Term, 2d & 11th Jud Dists 2008]). As plaintiff failed to present any evidence to refute that showing, defendant’s motion for summary judgment dismissing the complaint should have been granted (see Delta Diagnostic Radiology, P.C., 21 Misc 3d 142[A], 2008 NY Slip Op 52450[U]; A. KhodadadiRadiology, P.C. v N.Y. Cent. Mut. Fire Ins. Co., 16 Misc 3d 131[A], 2007 NY Slip Op 51342[U] [App Term, 2d & 11th Jud Dists 2007]).

Pesce, P.J., Weston Patterson and Steinhardt, JJ., concur.
Decision Date: February 09, 2009

—[*1] Joseph Henig, P.C., Bellmore, N.Y., for appellants.

Huenke & Rodriguez, Melville, N.Y. (Christopher C. Vassallo of counsel), for respondent.

In an action to recover no-fault medical benefits under insurance contracts, the plaintiffs St. Vincent’s Hospital & Medical Center and Mount Sinai Hospital appeal from an order of the Supreme Court, Nassau County (Murphy, J.), dated September 5, 2008, which denied the motion of the plaintiff St. Vincent’s Hospital & Medical Center to hold the defendant in contempt for failure to comply with an information subpoena, and granted the defendant’s cross motion, inter alia, to vacate a judgment of the same court entered January 24, 2008, upon its default in appearing or answering the complaint, which was in favor of the plaintiff St. Vincent’s Hospital & Medical Center and against the defendant in the principal sum of $72,721.53.

Ordered that the appeal by the plaintiff Mount Sinai Hospital is dismissed, as it is not aggrieved by the order appealed from (see CPLR 5511); and it is further,

Ordered that the order is affirmed on the appeal by the plaintiff St. Vincent’s Hospital & Medical Center; and it is further,

Ordered that one bill of costs is awarded to the defendant payable by the plaintiff St. Vincent’s Hospital & Medical Center.

Under the circumstances of this case, the Supreme Court properly exercised its discretion in [*2]vacating the default judgment (see New York & Presbyt. Hosp. v American Home Assur. Co., 28 AD3d 442 [2006]; see also DeStaso v Bottiglieri, 52 AD3d 453 [2008]). The remaining contentions of the plaintiff St. Vincent’s Hospital & Medical Center are without merit (see CPLR 3211 [a] [1]; Wheels Am. N.Y., Ltd v Montalvo, 50 AD3d 1130 [2008]), or not properly before this Court. Santucci, J.P., Angiolillo, Belen and Chambers, JJ., concur.

Civil Court of the City of New York, Richmond County

42103/04

Katherine A. Levine, J.

This case raises again the issue of what type of evidence a defendant insurance company must present, in support of its claim that a medical service provider is fraudulently incorporated, to warrant an order from the court directing extensive discovery or EBT’s. .

Plaintiff Lenox Neuropsychiatry Medical (“Lenox” or “plaintiff”) commenced this action against defendant pursuant to Insurance Law § 5106 (a) to recover $ 3,888.79 in unpaid bills for acupuncture services rendered to its assignor Leon Murray (“Murray”). The defendant, State Farm Insurance Co., (“State Farm” or “defendant”) alleges that plaintiff is fraudulently incorporated in violation of 11 NYCRR § 65.3.16(a)(12) and moves to dismiss plaintiff’s complaint, with prejudice, for plaintiff’s failure to provide complete and meaningful responses to defendant’s discovery demands. In the alternative, defendant moves to compel plaintiff to fully comply with plaintiff’s discovery demands and to produce plaintiff’s purported owner, Dr. Azim Etemadi (“Etemadi”) for an EBT, pursuant to CPLR §3124. In support of its motion, defendant presents an affirmation from its attorney chronicling the web of fraud allegedly surrounding plaintiff and a number of other medical providers as well as an affidavit from one Dr. Ahmed Halima (“Halima”), a doctor who has worked for a number of medical providers, that purportedly implicates Etemadi in this fraudulent scheme.

Plaintiff opposes the motion, stating that defendant is not entitled to extensive discovery or to take an EBT since it has failed to provide any coherent evidence to support its allegation that plaintiff is fraudulently incorporated. Accordingly, plaintiff moves this court for a protective order pursuant to CPLR §3103(a).Plaintiff also alleges that the defendant’s motion is defective since it failed to annex a denial of claim to its motion.

Article 31 of the CPLR governs discovery actions and its disclosure provisions do not [*2]condition discovery upon a showing of “good cause.”The guiding principle behind Article 31 of the CPLR is that there should be “full disclosure of all matter material and necessary in the prosecution and defense of an action” (CPLR §3101 (a)). The words “material and necessary” are to be interpreted liberally and the test is “one of usefulness and reason” to assist in the preparation for trial by sharpening the issues. Cambridge Medical v. Nationwide Prop. & Cas. Ins. Co., 19 Misc 3d 1110A, 859 NYS2d 901(Civil Ct., Richmond Co. 2008), citing Carothers v. Insurance Companies et al, 13 Misc 3d 970, 973 (Civil Ct., Richmond Co. 2006). Although the bar against which to measure whether the defendant has shown that its discovery requests are warranted on the issue of fraudulent incorporation is quite low, Bay Plaza Chiropractic v. State Farm Mutual Automobile Ins. Co., 2008 NY Slip Op 51925U, 21 Misc 3d 1102A (Civil Ct., Richmond Co.2008), citing Carothers, supra , unsupported conclusions and “suspicions” as well as “unsubstantiated hypotheses and suppositions” are nevertheless insufficient to raise a triable issue of fact pertaining to the assignor’s alleged fraud. A.B. Medical Services PLLC v Eagle Ins. Co., 3 Misc 3d 8, 10 (App. Term, 2d Dept. 2003).

Insurers have the burden to come forward with proof in admissible form to establish the factual basis of their allegations. Mt. Sinai Hospital v Triboro Coach Inc., 263 AD2d 11, 20 (2d Dept 1999). In fact, in Mallela, the Court of Appeals specifically permitted insurers to “look beyond the face of licensing documents to identify willful and material failure to abide by state and local law,” State Farm Mutual Automobile Insurance Co., Appellant, v. Mallela et al., 4 NY3d 313, 321 [3d Dept 2005], in assessing whether to withhold reimbursement of no-fault claims to medical corporations they believe to be fraudulently incorporated. Id., see, One Beacon Ins. Co. v. Midland Medical Care, 54 AD3d 738, (2d Dept 2008).

In Bay Plaza v. State Farm, this court addressed the issue of what constitutes a sufficient showing for purposes of allowing defendant additional discovery into plaintiff’s matters to determine if it is fraudulently incorporated. There, the defendant submitted an affidavit from its Special Investigations Unit (“SIU”) investigator with personal knowledge of the investigation as well as other documentation which included clearly marked insurance claim forms evidencing duplicative claims and even of more importance, affirmation from defendant’s attorney, explaining the logical connection between the plaintiff and fraud. Accordingly, this court found that defendant has articulated a “founded belief” that plaintiff is actually controlled by a non-licensed professional and made allegations sufficient to raise an issue of fact as to whether plaintiff was fraudulently incorporated.

In contrast, here, the defendant has submitted unsubstantiated hypotheses and suppositions and has not articulated a founded belief that Lenox is fraudulently incorporated so as to warrant the extensive discovery it is seeking. Defendant attempts to question whether Dr. Etemadi is the true owner of Lenox by weaving an intricate pattern of alleged fraud premised upon the fact that defendant received bills from Dr. Etemadi for services he allegedly rendered while working at different medical providers. Since Lenox, as well as the other medical [*3]providers from whom Dr. Etemadi submitted. bills use the same billing companies, and since two of these billing companies have the same address and phone numbers,” a hallmark of improperly owned PCs” is present (affirmation of Joseph A. Schwarzenberg , Esq, “attorney’s affirmation, ¶¶ 7-9 ). Defendant then asserts that Dr. Etemadi also renders services for another entity, “Livingston Medical,” which along with its purported owner have been implicated in “doc in the box activity” (attorney affirmation, ¶13, 14) because the U.S. Attorney indicted an attorney who was associated with Livingston and other medical clinics, with “participating in a conspiracy to commit health care and insurance fraud related to automobile accidents “(attorney affirmation, ¶¶ 13-16). However, even this assertion does not implicate Livingston per se much less Lenox or Dr. Etemadi.

Finally, defendant refers to an affidavit of Dr. Halima that has no caption or index number, and is dated 2006, which laboriously details clinics which are purportedly owned and controlled by individuals who are not doctors. It is salient to note that Dr. Halima never implicates Lenox is this scheme and only refers to once to a Dr. Atamedi, which defendant’s attorney argues in reality is Etemadi. Defendant also attempts to implicate Etemadi because one medical facility he worked for lists a service of process contact name that sounds similar to a name of individual Halima claims is implicated in fraud.

The court finds this alleged web of fraud to be beyond the six degrees of separation that could conceivably connect these various medical providers to one another ^[FN1].The court first takes issue with defendant’s claim that Dr. Etemadi is synonymous with the Dr. Atamedi mentioned in Halima’s affidavit. Furthermore, the court can give little credence to Dr. Halima’s affidavit since it apparently was borrowed from some unknown and unrelated case and does not even mention Lenox Neuropsychiatry! Second, while defendant has made a valiant attempt to implicate Lenox and Neuropsychiatry with numerous billing companies and one other medical provider which somehow may be implicated in a fraudulent scheme by virtue of the acts of an attorney, there simply is no direct or indirect connection between Lenox or Etemadi and actual or attempted fraud.

Given the above, this court does not find defendant has articulated a “founded belief” that plaintiff is actually controlled by a non-licensed professional so as to warrant a broad based trial on fraud or to warrant extensive discovery on fraudulent incorporation. In fact, defendant’s attempts to link plaintiff to fraudulent incorporation are too convoluted as to even provide guidance as to what reasonable discovery would be warranted. However, although not specifically articulated by defendant, this court is curious as to why Dr. Etemadi would render services for a number of medical clinics if he is in fact the owner of Lenox, which would [*4]theoretically require him to devote his time and energy to overseeing the operation of Lenox. As such, this court finds that it is material and necessary for defendant to conduct a limited EBT of Etemadi to ascertain the extent of his work with clinics separate and apart of Lenox, whether any of these clinics have actually been found by a court to have been fraudulently incorporated, and the extent of his knowledge as to the actual operations of these other clinics.

In light of the above, the motion is denied except for the limited EBT that will be allowed of Dr. Etemadi. The court directs defendant to notice Etemadi for an EBT within the next twenty days of receipt of this decision and that the EBT be conducted within the next 45 days.

The foregoing constitutes the decision and order of the court.

Dated:January 29, 2009

Staten Island, NYHON. KATHERINE A. LEVINE

Judge, Civil Court

ASN by ________ on ____________.

___

Footnotes

Footnote 1:Six degrees of separation is the theory that anyone on the planet can be connected to each other through a chain of acquaintances that has no more than five intermediaries. The theory was first proposed in 1929 by the Hungarian writer Frigyes Karinthy in a short story called “Chains”.

APPELLATE TERM OF THE SUPREME COURT, FIRST DEPARTMENT

Defendant appeals from an order of the Civil Court of the City of New York, New York County (Shlomo S. Hagler, J.), entered March 14, 2007, which denied its motion to “revise” the award of attorney’s fees issued to plaintiff in this first party no-fault benefits action.

Per Curiam.
Order (Shlomo S. Hagler, J.), entered March 14, 2007 affirmed, with $10 costs, for the reasons stated by Shlomo S. Hagler, J., at Civil Court. (See 15 Misc 3d 766 2007). (See also LMK Psychological Servs., P.C. v State Farm Mut. Auto. Ins. Co., 46 AD3d 1290, 1292 [2007], lv granted 10 NY3d 717 [2008].)

THIS CONSTITUTES THE ORDER OF THE COURT.
Decision Date: January 29, 2009

—[*1] Taylor & Associates, Albany (Keith M. Frary of counsel), for appellant.

Taller & Wizman, P.C., Forest Hills (David Taller of counsel), for respondent.

Kavanagh, J. Appeal from an order of the Supreme Court (Hard, J.), entered March 19, 2008 in Albany County, which denied petitioner’s application pursuant to CPLR 7503 to stay arbitration between the parties.

In October 2004, respondent was involved in an automobile accident when the vehicle he was driving was rear-ended by an automobile operated by Syed Chowdhury and owned by Mohammed Ali. Three weeks after the accident, respondent’s counsel sent a letter to petitioner, respondent’s insurer, notifying it that respondent had been injured in an automobile accident, had incurred medical expenses, lost wages from work and would be seeking no-fault benefits under his insurance policy. The letter also stated that “if our investigation reveals that the offending vehicle was not insured or underinsured, we are therefore reserving our rights to pursue [uninsured motorist/supplemental uninsured/underinsured motorist] benefits under [said] endorsement in the policy.” More than two years later, in December 2006, respondent’s counsel notified petitioner that he was in the process of settling a lawsuit that respondent had commenced against Ali for the limits of Ali’s insurance policy and that respondent, upon such settlement, intended to seek supplemental uninsured/underinsured motorist (hereinafter SUM) benefits under his policy with petitioner. On January 3, 2007, petitioner notified respondent that it was disclaiming coverage under the policy on the grounds that respondent had failed to provide it with timely notice not only of his lawsuit against Ali, but also of his claim for SUM benefits. [*2]After respondent served petitioner with a notice to compel arbitration, petitioner commenced this CPLR article 75 proceeding requesting that arbitration be permanently stayed. Supreme Court dismissed the petition, prompting this appeal.

We affirm. Petitioner argues, and we agree, that respondent, on the facts presented, has failed to comply with the provisions of the policy that require prompt notice be given of any third-party litigation or any claim for SUM benefits^[FN*] (see Matter of Allstate Ins. Co. [Earl], 284 AD2d 1002, 1003 [2001]). However, for petitioner to effectively disclaim any liability under the SUM provision of the policy, it is still obligated to establish that it has been prejudiced in some meaningful way by this delay (see Rekemeyer v State Farm Mut. Auto. Ins. Co., 4 NY3d 468, 475 [2005]; Matter of Brandon [Nationwide Mut. Ins. Co.], 97 NY2d 491, 498 [2002]; Matter of New York Cent. Mut. Ins. Co. v Davalos, 39 AD3d 654, 655 [2007]; Matter of New York Cent. Mut. Fire Ins. Co. v Ward, 38 AD3d 898, 899 [2007]; Matter of Nationwide Mut. Ins. Co. [Mackey], 25 AD3d 905, 906 [2006]). While respondent’s letter did not satisfy his obligation to provide prompt notice, it did put petitioner on notice of the existence of the accident and the potential implications it held for its policy.

There is no dispute that petitioner was put on notice of the existence of the accident within three weeks of its occurrence and that respondent would be submitting a claim pursuant to the no-fault provisions of the policy. With that notice, petitioner also received the police report prepared in connection with the accident that identified the individuals involved in the accident as well as the vehicle each individual was operating. Petitioner was also notified at that time that respondent would seek SUM coverage under its policy if the tortfeasor’s policy proved inadequate to fully compensate him for the injuries that he sustained in the accident. Under the circumstances, petitioner had ample information at its disposal shortly after the accident occurred to properly investigate this claim and ensure that its interests under the policy were fully protected. Equally important, petitioner has failed to demonstrate that respondent’s delay in notifying it of the third-party action or the SUM claim in any way compromised its ability to investigate the circumstances surrounding the accident or to protect its interests under this policy (see Rekemeyer v State Farm Mut. Auto. Ins. Co., 4 NY3d at 475; Matter of Nationwide Mut. Ins. Co. [Mackey], 25 AD3d at 907). As such, its application to stay arbitration was properly denied.

Peters, J.P., Rose and Kane, JJ., concur; Spain, J., not taking part. Ordered that the order is affirmed, with costs.

Footnotes

Footnote *: Petitioner’s SUM policy required that “[a]s soon as practicable, the insured or other person making claim shall give us written notice of claim under this SUM coverage.” Additionally, the SUM endorsement provided that “if the insured . . . brings any lawsuit against any person or organization legally responsible for the use of a motor vehicle involved in the accident, a copy of the summons and complaint or other process served in connection with the lawsuit shall be forwarded immediately” to petitioner.

—[*1] Joseph Henig, P.C., Bellmore, N.Y., for appellant.

Stewart H. Friedman (John T. Ryan and Robert F. Horvat of counsel), for respondents.

In an action to recover no-fault insurance benefits, the plaintiff appeals from an order of the Supreme Court, Nassau County (Martin, J.), dated August 5, 2008, which granted the defendants’ motion, inter alia, to vacate a judgment of the same court entered April 10, 2008, upon the defendants’ default in appearing and answering the complaint, in favor of the plaintiff and against the defendants in the principal sum of $16,571.91.

Ordered that the order is affirmed, with costs.

A defendant seeking to vacate a judgment entered upon its default in appearing and answering the complaint must demonstrate a reasonable excuse for its delay in appearing and answering, as well as a meritorious defense to the action (see CPLR 5015 [a] [1]; Verde Elec. Corp. v Federal Ins. Co., 50 AD3d 672, 672-673 [2008]). Here, the defendants established that their employee reasonably believed that the action had been discontinued after she advised the plaintiff’s counsel’s office that no-fault benefits had been exhausted, thereby demonstrating a reasonable excuse for the short period of time in which they failed either to appear or to answer the complaint (see New York Univ. Hosp. Tisch Inst. v Merchants Mut. Ins. Co., 15 AD3d 554, 554-555 [2005]). In addition, the defendants established that the policy limits had been partially exhausted through the payment of claims for prior services (see 11 NYCRR 65-3.15; Nyack [*2]Hosp. v General Motors Acceptance Corp., 8 NY3d 294, 301 [2007]; Montefiore Med. Ctr. v Government Empls. Ins. Co., 34 AD3d 771, 772 [2006]; New York & Presbyt. Hosp. v Allstate Ins. Co., 28 AD3d 528, 528-529 [2006]), thereby demonstrating the existence of a potentially meritorious defense to the action. Finally, the plaintiff did not demonstrate prejudice from the defendants’ relatively short delay in appearing and answering, and public policy favors the resolution of cases on the merits (see Verde Elec. Corp. v Federal Ins. Co., 50 AD3d at 673). Under these circumstances, the Supreme Court providently exercised its discretion in granting that branch of the defendants’ motion which was to vacate the judgment (see St. Vincent’s Hosp. & Med. Ctr. v Allstate Ins. Co., 42 AD3d 525 [2007]; New York & Presbyt. Hosp. v American Home Assur. Co., 28 AD3d 442, 443 [2006]; New York Univ. Hosp. Tisch Inst. v Merchants Mut. Ins. Co., 15 AD3d at 555; cf. New York Univ. Hosp. Rusk Inst. v Illinois Natl. Ins. Co., 31 AD3d 511 [2006]).

The plaintiff’s remaining contentions are without merit. Spolzino, J.P., Covello, McCarthy and Belen, JJ., concur.

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE TERM: 2nd, 11th and 13th JUDICIAL DISTRICTS

Appeal from an order of the Civil Court of the City of New York, Queens County (Lee A. Mayerson, J.), entered July 24, 2006, deemed from a judgment of the same court entered September 12, 2006 (see CPLR 5501 [c]). The judgment, entered pursuant to the July 31, 2006 order granting plaintiff’s motion for summary judgment, awarded plaintiff the principal sum of $3,970.99.

Judgment affirmed without costs.

In this action by a provider to recover assigned first-party no-fault benefits, defendant contends that plaintiff failed to establish a prima facie case because plaintiff did not allege that defendant’s denial of claim forms were untimely. This contention
lacks merit since a plaintiff provider generally establishes its prima facie entitlement to summary judgment by proof of the submission of a claim form, setting forth the fact and the amount of the loss sustained, and that payment of no-fault benefits is overdue (see Insurance Law § 5106; Mary Immaculate Hosp. v Allstate Ins. Co., 5 AD3d 742 [2004]). Payments are overdue “if not paid within thirty days after the claimant supplies proof of the fact and amount of loss sustained” (Insurance Law § 5106 [a]). In the instant case, inasmuch as defendant raises no other issue with respect to plaintiff’s prima facie case, we do not pass upon the propriety of the court’s determination with respect thereto.

To the extent that defendant sought to demonstrate the existence of an issue of fact as to the medical necessity of the services rendered, the affidavit of defendant’s claims representative neither established actual mailing of the denials nor gave rise to a presumption that they were mailed because it did not set forth the standard office practice or procedure designed to ensure that items are properly addressed and mailed which was utilized in the office from which the subject denial of claim forms were allegedly mailed (see New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d 547 [2006]; Residential Holding Corp. v Scottsdale Ins. Co., 286 AD2d 679 [2001]). Therefore, defendant is precluded from raising its proffered defense of lack of medical [*2]necessity (see Presbyterian Hosp. in City of NY v Maryland Cas. Co., 90 NY2d 274, 282 [1997]; New York & Presbyt. Hosp. v Allstate Ins. Co., 30 AD3d 492 [2006]). Consequently, the judgment is affirmed.

Pesce, P.J., and Rios, J., concur.
Decision Date: January 26, 2009

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE TERM: 2nd, 11th and 13th JUDICIAL DISTRICTS

Appeal from a judgment of the Civil Court of the City of New York, Queens County (Thomas D. Raffaele, J.), entered October 27, 2006. The judgment, entered pursuant to an order granting defendant’s motion to dismiss the complaint and denying, as academic, plaintiff’s cross motion to strike defendant’s answer pursuant to CPLR 3126, dismissed the complaint and awarded defendant attorney’s fees and costs totaling $6,904.

Judgment reversed without costs, so much of the order as granted the branches of defendant’s motion which sought to dismiss the causes of action seeking to recover the sum of $593.94 for services allegedly provided by Dr. Patricia D’Imperio on April 5,
1999 and April 19, 1999, and the sum of $188.39 for services allegedly provided by Franklin Immediate Medical Care, P.C. on January 12, 1999, and so much of the order as awarded costs and attorney’s fees to defendant, vacated, the branches of defendant’s motion seeking dismissal of the aforesaid causes of action denied, and matter remanded to the court below for determination de novo of plaintiff’s cross motion to strike defendant’s answer pursuant to CPLR 3126.

Plaintiff commenced this action to recover the sum of $25,000, representing first-party no-fault benefits for medical expenses she allegedly incurred after she was injured in an automobile accident on November 9, 1998. The Civil Court granted defendant’s motion to dismiss the complaint pursuant to CPLR 3211 (a) (7) and awarded defendant attorney’s fees, finding that plaintiff had assigned her rights to collect no-fault benefits, and that, in any event, [*2]she did not plead or prove that she had paid her providers for the bills upon which she was suing, and did not demonstrate that payment was overdue. The court denied, as academic, plaintiff’s cross motion seeking to strike defendant’s answer pursuant to CPLR 3126. Judgment was entered, and plaintiff now appeals.

Defendant argued in its motion to dismiss (1) that plaintiff failed to state in her complaint that “a complete and proper proof of claim was submitted to the insurance company and the Insurance Company failed to pay or deny the claim within thirty (30) days,” (2) that defendant has no record of having received any notices of claims being made by plaintiff or documentation from plaintiff evidencing her out-of-pocket expenses
or direct payments to providers, and (3) that plaintiff lacks standing to sue because she has assigned all of her rights under the policy of insurance. We note that plaintiff is not required to prove that she issued payment for treatment (see Todaro v GEICO Gen. Ins. Co., 46 AD3d 1086, 1088 [2007]).

In opposition to defendant’s motion, plaintiff submitted, inter alia, NF-10 denial of claim forms, allegedly issued by defendant, denying claims for services rendered to plaintiff, submitted by Franklin Immediate Medical Care, P.C., Dr. John G. Rupolo, D.C., P.C., All County Open MRI & Diagnostic Radiology, and Dr. Patricia D’Imperio. To the extent that plaintiff seeks payment of the claims identified in her bill of particulars other than those submitted by these four providers, we find at the outset that plaintiff failed to defeat defendant’s CPLR 3211 (a) (7) motion (see Peter F. Gaito Architecture, LLC v Simone Dev. Corp., 46 AD3d 530, 530 [2007] [where evidence is submitted on a CPLR 3211 [a] [7] motion to dismiss, the court may consider whether the plaintiff has a cause of action, rather than whether it has stated one]) by a showing that said claims were in fact submitted to defendant and that defendant failed to pay them within 30 days (see Insurance Law § 5106 [a]; Mary Immaculate Hosp. v Allstate Ins. Co., 5 AD3d 742 [2004]).

Where a provider commences suit to recover first-party no-fault benefits, the submission of an NF-10 denial of claim form, while not sufficient on its own to make out a no-fault provider’s prima facie case on its motion for summary judgment (see Dan Med., P.C. v New York Cent. Mut. Fire Ins. Co., 14 Misc 3d 44 [App Term, 2d & 11th Jud Dists 2006]), does establish prima facie that the insurer received the claims referenced therein as having been submitted by the provider (see e.g. Midborough Acupuncture, P.C. v New York Cent. Mut. Fire Ins. Co., 13 Misc 3d 132[A], 2006 NY Slip Op 51879[U] [App Term, 2d & 11th Jud Dists 2006]), and that the insurer did not pay the claim. Accordingly, the submission of denial of claim forms must be deemed sufficient to defeat a CPLR 3211 (a) (7) motion to dismiss a provider’s action in which the defendant argues that the provider failed to allege that a claim was submitted and not paid within 30 days. The question before this court is whether, as in the instant case brought by the eligible injured person (EIP), the demonstration that an insurer received a claim from a provider for services rendered to such EIP, and that the claim was not paid, is sufficient to show that the plaintiff EIP has a cause of action for payment of that claim so that the insurer’s CPLR 3211 (a) (7) motion to dismiss should be denied.

The no-fault regulations contemplate payment directly to an EIP or her legal representative, unless said individual has executed an assignment, in which case payment shall be made directly to providers of health care services (Insurance [*3]
Department Regulations [11 NYCRR] § 65-3.11 [a]). In the absence of an assignment, a claim submitted by a health care provider must be deemed to have been submitted on behalf of the individual who has the right to be paid under the no-fault regulations. An insurer seeking dismissal pursuant to CPLR 3211 (a) (7), on the ground that the claim has been assigned by the plaintiff EIP to a provider, bears the burden of demonstrating that the claim submitted by the health care provider was submitted on such provider’s own behalf by demonstrating that there was an assignment.

Defendant proffered documents that, it claims, demonstrate that plaintiff assigned her claims under the no-fault regulations to Franklin Immediate Medical Care, P.C., Dr. John G. Rupolo, D.C., P.C., and All County Open MRI & Diagnostic Radiology. Defendants did not submit any documentation purporting to demonstrate that plaintiff assigned her claims for any services rendered by Dr. Patricia D’Imperio. As plaintiff demonstrated that claims totaling $593.94 were submitted by Dr. D’Imperio for services rendered to plaintiff, and in the absence of an assignment demonstrating that the claim was submitted on the provider’s own behalf, plaintiff’s claim should not have been dismissed to the extent that it seeks reimbursement for those services.

On the other hand, defendant submitted documents that clearly assign plaintiff’s claims for services rendered by Dr. John G. Rupolo, D.C., P.C., and All County Open MRI & Diagnostic Radiology to those providers, respectively. As a result, plaintiff’s causes of action seeking reimbursement for said services were properly dismissed under CPLR 3211 (a) (7), because defendant demonstrated that the providers submitted the claims on their own behalf and the causes of action are being asserted by an individual without standing.

Defendant argues that the claim submitted by Franklin Immediate Medical Care, P.C., should be dismissed because plaintiff assigned that claim as well. We disagree. The document signed by plaintiff states:
“I hereby authorize payment directly to the above named medical provider of the automobile no-fault benefits otherwise payable to me but not to exceed the balance due of the medical provider’s permissible charges under Article 18 of the Insurance Law for services rendered. I understand that I am financially responsible to the medical doctor for charges not covered by this authorization and permitted under Article 18.”
Such an authorization is specifically addressed by the current no-fault regulations, which state that the “[e]xecution of an authorization to pay benefits shall not constitute or operate as a transfer of all rights from the eligible injured person to the provider” (Insurance Department Regulations [11 NYCRR] § 65-3.11 [b] [1], previously Insurance Department Regulations [11 NYCRR] § 65.15 [j] [amended December 31, 2001]). An assignment, pursuant to the current regulation, must state that it assigns “all rights, privileges and remedies” to the assignee (Insurance Department Regulations [11 NYCRR] § 65-3.11 [b] [2], previously Insurance Department Regulations [11 NYCRR] § 65.15 [j] [amended December 31, 2001]; Insurance [*4]Department Regulations Appendix 13 [NYS Form NF-3, NF-4, NF-5, NF-AOB]). Under the clear and unambiguous language of the current regulations, the above-quoted document is not an assignment. However, this language was added on December 31, 2001, and therefore was not in effect during the relevant time periods involved herein. Nevertheless, assignment language must show “the intention of the owner of a right to transfer it” (Suraleb, Inc. v International Trade Club, Inc., 13 AD3d 612, 612 [2004]), and we find that the document executed by plaintiff does not show her intention to transfer her rights under the No-Fault Law to Franklin Immediate Medical Care, P.C. As plaintiff demonstrated that a claim in the amount of $188.39 was submitted by Franklin Immediate Medical Care, P.C. for services rendered to plaintiff, and in the absence of an assignment demonstrating that the claim was submitted on the provider’s own behalf, plaintiff’s claim should not have been dismissed to the extent that it seeks reimbursement for those services.

In view of the foregoing, the court below improperly awarded defendant attorney’s fees, as plaintiff has demonstrated that she has a cause of action and this litigation cannot be deemed frivolous (see Rules of the Chief Administrator [22 NYCRR] § 130-1.1).

Inasmuch as the lower court denied plaintiff’s cross motion to strike the answer pursuant to CPLR 3126 as academic in light of its dismissal of the complaint, the matter is remanded to the court below for a determination de novo of said cross motion.

Pesce, P.J., and Steinhardt, J., concur.

Golia, J., dissents in a separate memorandum.

Golia, J., dissents and votes to affirm the judgment in the following memorandum:

In the first instance, it should be understood that plaintiff is an individual who was involved as a pedestrian in an automobile accident which occurred on or about November 9, 1998. As a result of that accident, Ms. Lopes sought a variety of medical treatments, and consequently she executed documents which, at the very least, authorized each of the providers of those health care treatments to obtain payment directly from the responsible no-fault insurance carrier.

Those health care providers who had rendered treatment to Ms. Lopes without receiving payment from her then submitted claims to the no-fault insurance carrier. Each of those claims was denied. The reason for the denial was the insurance carrier’s assertion that the eligible injured person, Ms. Lopes, failed to submit to independent medical examinations on four separate occasions. Some of those health care providers nevertheless commenced legal proceedings seeking payment.

Ms. Lopes also commenced her own direct action, the instant action, against the no-fault insurance carrier, demanding the payment of $25,000 for no-fault benefits and $20,000 for legal fees. In support of her claims, she submitted a bill of particulars purporting to establish bills for treatment that amount to slightly more than $4,500. There is no explanation as to how she or her attorney arrived at a $25,000 demand based upon approximately $4,500 of unpaid bills.

I note at the outset that in opposition to defendant’s motion to dismiss pursuant to CPLR 3211 (a) (7), plaintiff’s counsel asserted that various “documents” were attached to his affirmation when, in fact, they either were not attached at all, or, if attached, consisted of [*5]photocopies that are completely blacked out and therefore unreadable. Additionally, several purported bills that were attached to the bill of particulars did not include the service date in the photocopy submitted, or were simply handwritten pieces of paper and were not presented on a medical provider’s letterhead.

It is for these reasons and all of the facts within that I find it perfectly understandable why the motion court exercised its discretion in awarding counsel fees in favor of defendant in the sum of $6,904. Indeed, even a cursory reading of the majority opinion shows that, at best, plaintiff’s cause of action seeking $25,000 in compensatory damages and $20,000 in legal fees should be dismissed for failing to state a cause of action except for claims for $593.94 and $188.39, which amounts to a total of $782.33 out of $25,000. Indeed, those items are only allowed after a detailed analysis of the differences between an “authorization” and an “assignment,” a distinction plaintiff was clearly unaware of inasmuch as she demanded payment as to both. The majority’s finding that a claim filed by the provider for payment to it (the provider) may be deemed as a claim filed by the pro se plaintiff is unrealistic.

Here, the cause of action, as stated by Ms. Lopes in her complaint, contains the following facts she alleges establishes her claim:
“6. …The policy of insurance issued by defendant LIBERTY INSURANCE COMPANY, provided for payment of so-called no-fault benefits…’
7. The plaintiff was a pedestrian.
8. That plaintiff was involved in a no-fault’ accident on November 9, 1998 when the vehicle…insured by said defendant…was involved in a motor vehicle accident.
9. That solely as a result of that no-fault’ car accident, plaintiff sustained personal injuries.
10. That as a result…plaintiff sought hospital expenses, medical bills, loss of earnings…
11. That the defendant LIBERTY INSURANCE COMPANY has refused to pay and/or reimburse plaintiff for plaintiff’s hospital expenses, medical bills …”

I have included this reproduction of plaintiff’s complaint to emphasize the fact that there is no mention of any notice of claim being filed with the insurance carrier seeking payment. It certainly was not due to an understandable ignorance of the law or some oversight as occurs in complaints drafted by pro se litigants. Specifically, this complaint was drawn by an attorney. However, such fact is not of much significance. I submit the reason that there was no mention that a claim was filed by Ms. Lopes is simple: Ms. Lopes did not file any claims. [*6]

This failure, in and of itself, should prove to be fatal to the maintenance of this complaint.

Notwithstanding the foregoing, however, and for reasons to which I cannot subscribe, the majority herein finds that plaintiff not only does not have to assert this most elemental aspect of a no-fault cause of action, but also that plaintiff need not actually file the claim at all. While I have noted my disagreement therewith, both this Appellate Term and the Appellate Division, Second Department, have held that a plaintiff in a no-fault action need not provide any proof as to the validity of a claim (Uptodate Med. Servs., P.C. v Lumbermens Mut. Cas. Co., 20 Misc 3d 135[A], 2008 NY Slip Op 51502[U] [App Term, 2d & 11th Jud Dists and dissenting op of Golia, J., 2008]; see e.g. Westchester Med. Ctr. v AIG, Inc., 36 AD3d 900 [2007]; Mary Immaculate Hosp. v Allstate Ins. Co., 5 AD3d 742 [2004]). The minimum requirement set by these courts is that a plaintiff need only make two assertions:

1) That a claim was filed, and

2) That payment is overdue.
By the holding in this case, the majority now provides that a plaintiff need only make one assertion, to wit, that payment is overdue. The majority reasons that it then can search the record and determine if any claim was filed. Indeed, the claim does not even have to come from the plaintiff, who is presumably seeking payment for the claim. It is now sufficient if the plaintiff’s medical provider has filed a claim, even though the claim was filed by the medical provider on its own behalf and not on behalf of the plaintiff.

For me, it is remarkable to find that an individual can commence an action for the nonpayment of a claim that the individual never submitted. Indeed, the individual may not even know whether any claim was ever submitted and certainly does not know when it was submitted or what information was included in the claim form. Further, I do not understand how the majority reaches the conclusion that the NF-10 denial of claim form by the insurance company relates to a certain claim of which plaintiff is unable to assert any knowledge.

Nevertheless, by implication, the majority’s ruling in effect will serve as a predicate for defendant insurer to be exposed to two lawsuits for the same claim, a claim that was denied here due to plaintiff’s refusal to submit to no less than four medical examinations by defendant’s doctor.In this case it is clear and not refuted that:

1. Ms. Lopes assigned (or authorized) her rights to receive payment to the medical providers;
2. She did not pay for any treatments;
3. She did not file any claims seeking payment for covered expenses;
4. She did not appear at any of the four independent medical examinations she was required to submit to as a condition precedent;
5. She or her attorney failed to annex certain exhibits that were stated to be annexed;
6. She or her attorney annexed obviously unreadable “blacked out” photocopies of other purported exhibits; and
7. Generally, she and her attorney filed a baseless action, as stated by the Court below.
All of the above occurred without plaintiff even knowing whether any claim was filed.

The majority, in support of its holding, asserts that pursuant to the regulations concerning “assignments” of benefits that were in effect at that time, there is a distinction to be made between a complete “assignment” of rights and a mere “authorization” to pay benefits directly to a provider.

As the majority has applied that proposition to this case, I disagree.

Instead, I am in accord with the reasoning of the Civil Court, Queens County case of Gingold v State Farm Ins. Co. (168 Misc 2d 62 [1996]), which relied on the 1981 Appellate Term, First Department case of Vasquez v Aetna Cas. & Sur Co. (NYLJ, Jan. 27, 1981, at 5, col 1). The Civil Court quoted the Appellate Term in Vasquez as stating, “We construe the hospital insurance form . . . authorizing payment directly to the hospital … as an assignment of first party benefits . . .” (Gingold, 169 Misc 2d at 64). The Gingold court went on to state that the assignee of a claim is the real party in interest and he alone can bring suit; the assignor loses control . . . when he makes the assignment” (id.).

In considering the import of the instant decision as it applies to the vast majority of auto accidents involving no-fault benefits, the typical eligible injured person seeks and obtains medical services shortly after the accident without any out-of-pocket expenses. The reason that the eligible injured person does not pay out-of-pocket expenses is that the medical provider, in general terms, accepts an “assignment” from its patient in lieu of payment. In other words, it is willing to provide medical services in expectation of subsequently receiving payment from the insurance carrier within 30 days of submission of the bill.

If the action by this plaintiff were to become commonplace, it would, I submit, ultimately lead to a medical provider’s refusing to provide medical treatment without first receiving immediate payment from the eligible injured person. If the provider did not require immediate payment, it may then subsequently discover that its patient, which it treated without immediate payment, has demanded and received payment from the insurance carrier for the services which the provider rendered. This is doubly troublesome in that, if medical providers refuse to provide treatment in exchange for an “assignment,” then the eligible injured person must not only pay up front, he/she must also seek reimbursement from the insurance carrier and comply with all the complex rules and regulations of the No-Fault Law.

It is also small comfort to the insurance company to know that after making payment to either the provider pursuant to the authorization or to the eligible injured person pursuant to the majority decision herein, that when it is sued by the one or the other upon nonpayment, it would have a valid defense of payment. Despite this valid defense, the lawsuit would nevertheless necessitate the opening of a litigation file by the insurance carrier with the associated expense of an employee’s time and loss of productivity; the insurance carrier would have to hire an attorney [*7]to answer the complaint and subsequently move for summary judgment with the associated expenses of attorney’s fees and court costs; it must also restrict and separately maintain certain of its liquid assets as a reserve against the file and even if the reserve is set at zero, it would nevertheless have to justify that to the Insurance Department at an audit — an unnecessary and protracted circumstance.

Further, I submit this could only lead to additional litigation, not only additional costs and fees associated with such litigation, but also increased insurance carrier rates vis-a-vis the public and, certainly, needless use of additional court resources, all of which negate the intended and speedy purpose of the No-Fault Law.

It is for all these reasons that I agree with and support the Civil Court’s granting of defendant’s motion to dismiss and its awarding defendant attorney’s fees and costs in the amount of $6,904 as against this plaintiff.

I vote to affirm.

Decision Date: January 26, 2009