Country-Wide Ins. Co. v Yao Jian Ping (2024 NY Slip Op 24033)

Reported in New York Official Reports at Country-Wide Ins. Co. v Yao Jian Ping (2024 NY Slip Op 24033)

[*1]
Country-Wide Ins. Co. v Yao Jian Ping
2024 NY Slip Op 24033
Decided on January 22, 2024
Civil Court Of The City Of New York, New York County
Tsai, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the printed Official Reports.


Decided on January 22, 2024
Civil Court of the City of New York, New York County


Country-Wide Insurance Company, Plaintiff,

against

Yao Jian Ping, Defendant.




Index No. CV-022995-17/NY



Jaffe & Velasquez, LLP, New York City, Kim Rasin and Margaret Nolan, of counsel), for plaintiff.

Law Office of Jason Tenenbaum, P.C., Garden City (Jason Tenenbaum, of counsel), for defendant.
Richard Tsai, J.

On October 11, 2017, plaintiff Country-Wide Insurance commenced this action against defendant Yao Jian Ping, seeking an adjudication de novo of a no-fault insurance claim pursuant to Insurance Law § 5106 (c), following a master arbitrator’s award in defendant’s favor in excess of $5,000.

PRIOR PROCEDURAL HISTORY

Defendant made a pre-answer motion to dismiss the action, arguing that the “trial de novo” was another form of a declaratory judgment action for which the Civil Court lacked subject matter jurisdiction (Seq. No. 001). By a decision and order dated June 13, 2018, another judge of the Civil Court denied defendant’s motion (see Court Exhibit I), which was affirmed on appeal (Country-Wide Ins. Co. v Yao Jian Ping, 62 Misc 3d 144[A], 2019 NY Slip Op 50160[U] [App Term, 1st Dept 2019]).

Issued was joined on or about July 13, 2018.[FN1] A notice of trial was filed on December 13, 2019.

By a decision and order dated March 2, 2020, another judge of the Civil Court granted [*2]defendant’s motion to strike the notice of trial (Seq. No. 3), only to the extent of directing further discovery and adjourning the trial.

By a decision and order dated August 17, 2020, another judge of the Civil Court granted defendant’s motion to strike the notice of trial (Seq. No. 4), only to the extent of directing further discovery.

By a decision and order dated March 26, 2021, another judge of the Civil Court denied defendant’s motion to amend the answer to assert a counterclaim against plaintiff for $24,938.59 (Seq. No. 005) and denied defendant’s motion to strike the complaint (Seq. No. 006) (see Court Exhibit I), which was affirmed on appeal (Country-Wide Ins. Co. v Ping, 73 Misc 3d 132[A], 2021 NY Slip Op 50997[U] [App Term, 1st Dept 2021]). The Appellate Term reasoned, in relevant part, “the proposed amendment would prejudice plaintiff at this stage of the proceedings, where discovery had been completed, a notice of trial had been filed and defendant previously limited his recovery to $15,251.76 based upon the fee schedule” (id. at *2).

By a decision and order dated March 15, 2022, another judge of the Civil Court denied defendant’s “Motion in Limine for a Directed Verdict” (Seq. No. 007), reasoning, “[a]s trial in this matter has not yet commenced a motion upon these grounds is premature and must be denied” (see Court Exhibit I).

By a so-ordered stipulation dated May 19, 2022, the parties resolved plaintiff’s order to show cause to quash defendant’s trial subpoenas (Seq. No. 008), which was withdrawn (Defendant’s Exhibit B). The so-ordered stipulation provided, in relevant part, “Plaintiff acknowledges that the subject no-fault bill of NY Spine Specialists, LLP, for medical services rendered to defendant on April 20, 2010, in the sum of $63,800.00 that was included with defendant’s arbitration submission to the AAA file on January 20, 2016.”

On June 8, 2022, this court held a nonjury trial of this action on the stenographic record (Robin Lindner, court reporter) in courtroom 419 at 111 Centre Street, New York, New York.

On behalf of plaintiff, Jessica Mena was sworn and testified at the trial. Plaintiff submitted two exhibits which were received in evidence on consent, marked as Plaintiff’s Exhibits 1 and 2 (Tr. 4, lines 6-14).

Defendant did not call any witnesses at trial. Defendant submitted three exhibits that were accepted into evidence, marked as Defendant’s Exhibits A, B, and C.[FN2] Defendant’s Exhibits A and B were received in evidence on consent (Tr. 4, lines 15-21). Defendant’s Exhibit C was received in evidence over plaintiff’s objection, solely for the purpose of establishing that they were certified business records of non-party New York Spine Specialist (Tr. 8, lines 15-18).

The court also marked, as Court Exhibit I, the prior decision and orders issued in this case, the notices of appeal thereof, and the decisions from the Appellate Term, with notice of entry.

After defendant rested, both plaintiff and defendant moved for directed verdict in their favor, and this court reserved decision (see Vera v Knolls Ambulance Serv. Inc., 160 AD2d 494, 496 [1st Dept 1990] [“it is far better practice to withhold any ruling on an application to dismiss until after the jury has returned a verdict”]).

The matter was adjourned to July 20, 2022, for the parties to submit proposed findings of fact. On December 1, 2022, this court heard post-trial arguments on the digital record (FTR, courtroom 421, 10:12 am-11:15 a.m.). Following the post-trial arguments, this court directed the parties to submit supplemental post-trial memos of law and adjourned the matter to February 17, 2023 for submission of papers only.

On February 17, 2023, the matter was fully submitted.


FINDINGS OF FACT

Recitation, as required by CPLR 4213 (b), of the findings of essential facts relied upon by the court:

Jessica Mena credibly testified as follows: she has worked for plaintiff since March 2007, and that she is familiar with the practices and procedures of how no-fault claims are received and processed at Country Wide Insurance Company (Tr. 16, lines 1-9). She started as a claims examiner, responsible for handling and processing all no-fault claims that are assigned to her, including sending out verification request letters to providers and denials (Tr. 18, lines 14-25). She became a litigation arbitration analyst, handling anything litigation/arbitration-related, including preparing documents for court (Tr. 19, lines 1-5). She was then the operations supervisor for two years, overseeing the operations department, which is the mailing room department and scanning department, and the data entry clerk (Tr. 19, lines 6-12). Her current position is Litigation Arbitration Supervisor, overseeing the litigation/arbitration analyst (Tr. 15, lines 24-25, id. at 19 lines 16-17).

Mena admitted on cross examination that plaintiff had received notice that defendant was involved in a motor vehicle accident on October 5, 2006 (Tr. 26, lines 5-8). According to plaintiff’s answer to defendant’s interrogatories, plaintiff learned of the motor vehicle accident “on October 12, 2006 via a letter from the Insurance Broker” (see Defendant’s Exhibit A [answer to interrogatory no. 5]). It is undisputed that plaintiff offered no-fault coverage for the motor vehicle accident (see plaintiff’s proposed findings of fact ¶ 2; see defendant’s proposed findings of fact ¶ 2).

Mena also credibly testified that plaintiff scheduled a medical examination of defendant (Tr. 26, lines 9-11). Mena credibly testified that, based on an orthopedic medical examination, plaintiff issued a denial (NF-10) (Tr. 43, lines 16-19). The NF-10 global denial dated November 29, 2006 states, in relevant part, “Based on the results of the orthopedic independent medical exam you attended on 11/28/06, which indicated that no further medical treatment or other related services are necessary, all no-fault benefits are denied as of 12/04/06” (see Defendant’s Exhibit A).

Mena credibly testified that the claim at issue in this action was not submitted to plaintiff through its standardized procedures (Tr. 16, lines 13-25, id. at 17, lines 11-17). She credibly stated that plaintiff’s first notice that defendant had any involvement with New York Spine Specialist was the statement of account (see Defendant’s Exhibit C), which was received during the arbitration process, as part of the AR-1 demand for arbitration (Tr. 29, lines 4-16).

Mena credibly stated that, when plaintiff received that statement of account, plaintiff then prepared a defense package for arbitration (Tr. 30, lines 14-17). She credibly testified that no verification request was sent to defendant or the provider after plaintiff had received the [*3]statement of account (Tr. 33, lines 21-24; id. at 34, lines 1-3), because the statement of account was not received from the provider through the no-fault department, and was not received by the no-fault examiner (Tr. 36, lines 19-22).

According to Mena, receipt of the AR-1 marks the commencement of arbitration, so

“They [bills] are not reviewed for payment the same way a claims examiner would review it. If we determine to settle the case at arbitration, that our—we see if we are going to settle or going to choose a defense. So it’s not a payment like a claims examiner would issue payment. . . .So it’s not the same process as a claim’s examiner receiving a bill through the no-fault”
(Tr. 37, lines 6-15).

Mena credibly testified that, for a claim to be considered for reimbursement, a claimant would need to submit certain documents, including proof of payment of the services, and a reversal of the assignment of benefits to the provider who performed the service, and an actual bill (Tr. 48, lines 13-23). Mena admitted that there was a reversal of the assignment of benefits in the AR-1 which plaintiff received (Tr. 48, lines 24-25; id. at 49, line 1).

Mena credibly testified that plaintiff did not receive any proof that defendant had paid the amount reflected on the statement of account (Tr. 49, line 1).

According to Mena, plaintiff did not consider the statement of account to be a no-fault bill because it was not on an NF-3, NF-4 or NF-5 no-fault form (Tr. 49, lines 20-22). Unlike the statement of account, Mena credibly testified that the no-fault form would be signed and dated, have the provider’s information, claimant’s information, the date of loss, who rendered the services, the owner of the facility, CPT codes and modifiers, the total amount, and the tax ID of the provider, among other things (Tr. 50, lines 20-25; id. at 51, lines 1-3).

By an arbitration award dated May 18, 2017, the no-fault arbitrator Phillip Wolf awarded defendant $15,251.75, with prejudgment interest as of January 2, 2016, for a lumbar spine laminectomy, spinal fusion, and pedicle fixation which non-party Sebastian Lattuga, M.D., performed on defendant on April 20, 2010 (see Defendant’s Exhibit A).

Arbitrator Wolf rejected plaintiff’s argument that defendant’s claim was not ripe for arbitration because plaintiff had never received a bill for the April 20, 20210 operative procedure, reasoning,

“Based upon the holding set forth in Domotor [Matter of State Farm Ins. Co. v Domotor, 266 AD2d 219 (2d Dept 1999)], I agree with counsel for Applicant’s argument that Applicant [defendant] was no longer required to submit bills to Respondent [plaintiff] effective December 4, 2006. As the service in dispute took place after December 4, 2006, Applicant [defendant] was not required to submit the subject bill to Respondent prior to commencing arbitration. . . . Accordingly, I find the subject bill ripe for arbitration”
(see id., at Page 3/6).

By a master arbitrator award dated August 25, 2016 [sic],[FN3] Master Arbitrator Robert Trestman affirmed the no-fault arbitration award, stating, “I find that the arbitrator’s application of the Domotor holding was not an error of law” (see Defendant’s Exhibit A, Master Arbitration Award at 2).


CONCLUSIONS OF LAW
“The standard of proof applicable in a civil case is generally that of proving the case by a fair preponderance of the evidence. . . . The evidence must be of such weight as to produce a reasonable belief in the truth of the facts asserted; mere proof of a possibility is insufficient to establish a fact by a preponderance of the evidence”
(8 Carmody-Wait 2d § 56:14).
“The preponderance of the evidence means the greater part of the evidence. It does not mean the greater number of witnesses or the greater length of time taken by any party.
The phrase refers to the quality of the evidence, that is, its convincing quality, the weight and effect it has on [the mind of the trier of fact], not to the quantity. The law requires that for [plaintiff] to prevail on a claim, the evidence that supports [plaintiff’s] claim must appeal to [the trier of fact] as more nearly representing what took place than the evidence opposed to [plaintiff’s] claim. If it does not, or if it weighs so evenly that [the trier of fact is] unable to say there is a preponderance on any side, then [the trier of fact] must decide the question against [plaintiff]”
(PJI 1:23).

As plaintiff points out, a de novo adjudication pursuant to CPLR 5106 (c) is “something very different from judicial review of some other entity’s determination” (Matter of Greenberg [Ryder Truck Rental, Inc.], 70 NY2d 573, 577 [1987]). De novo adjudication of the liability issue is not barred, under an estoppel-like theory, by the prior determinations of the arbitrator (id.).

Plaintiff’s Prima Facie Case

As a threshold matter, this court must address the issue of the insurer’s prima facie burden at trial in a de novo adjudication of a no-fault insurance claim, where the insurer is the plaintiff. At trial, the plaintiff bears the burden of proof.

“Generally, the claims process for health service bills for No-Fault compensation begins with the submission by a health service provider of a claim form (usually, but not always, a Form NF-3 verification of treatment by attending physician or other provider of health service). Besides providing information regarding the injured person, diagnoses, [*4]projected treatment, etc., the claim form includes a bill for services performed. The claim form can be submitted directly by the injured person to the No-Fault insurer but over many decades a practice developed by which the health service providers submit the claim forms. . . . The insurer must then either pay or deny the bill within 30 days, or seek additional verification within 15 business days. If it denies payment, it must issue a Form NF-10 denial of claim explaining why the bill was not paid”
(Matter of American Tr. Ins. Co. v Nexray Med. Imaging PC, 79 Misc 3d 1206[A], 2023 NY Slip Op 50538[U] [Sup Ct, NY County 2023] [internal footnotes omitted]).

In actions seeking the recovery of first-party no-fault benefits, the no-fault plaintiff is generally the provider who rendered services to an eligible injured person, and the defendant is the insurer. There, it is well-settled that “[a]t a trial, a no-fault plaintiff’s prima facie burden is to demonstrate that the claim forms at issue were received by the defendant insurer and that the claims were not paid” (Wave Med. Services, P.C. v Hertz Vehicles, LLC, 76 Misc 3d 131[A], 2022 NY Slip Op 50908[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2022]; see V.S. Med. Servs., P.C. v Travelers Ins. Co., 49 Misc 3d 152[A], 2015 NY Slip Op 51760[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2015]).

Here, however, the parties are reversed—plaintiff is the insurer who sought de novo adjudication, whereas the defendant is the eligible injured person. It therefore follows that the insurer’s prima facie burden at trial would be to disprove what the provider would have established at trial to be entitled to payment. That is, at trial in a de novo adjudication of a no-fault claim, the prima facie burden of the insurer, as plaintiff, is to establish either that (1) the claim forms were not received by the insurer, or (2) that the claim was paid. For if the insurer’s proof could negate either of those two elements, then the insurer would have defeated the provider/eligible injured person’s entitlement to recovery.

Alternatively, as the plaintiff in a de novo adjudication, the insurer could also meet its prima facie burden by submitting proof of the elements of a valid legal defense to the insurer’s obligation to pay all or part of the submitted claim.

Once the plaintiff-insurer has met its prima facie burden at trial, the burden would then shift to the defendant-provider to prove (1) that the insurer received the claim form, and (2) that the claim was either (a) not paid at all, or (b) not paid in full. If the plaintiff-insurer had proven the elements of a valid legal defense to payment of the claim as part of its case-in-chief, then the defendant-provider would also have the burden of proving that the insurer’s proffered defense was either precluded or without merit in order to obtain a verdict in the provider’s favor (i.e., a money judgment against the insurer for the unpaid or partially paid claim).

Here, it is undisputed that the claim at issue was not paid. The evidence at trial also established that plaintiff did not receive any claim forms from defendant.

The no-fault regulations require that,

“In the case of a claim for health service expenses, the eligible injured person or that person’s assignee or representative shall submit written proof of claim to the Company [the insurer], including full particulars of the nature and extent of the injuries and treatment received and contemplated, as soon as reasonably practicable but, in no event later than 45 days after the date services are rendered”

(11 NYCRR 65-1.1 [d] [mandatory personal injury protection endorsement]). Here, the claim at issue was not submitted on the no-fault forms prescribed by the Department of Financial Services (i.e., NF-3, NF-4, NF-5 Forms). However, “[a]n insurer must accept proof of claim submitted on a form other than a prescribed form if it contains substantially the same information as the prescribed form” (11 NYCRR 65-3.5 [f]).

Here, Mena credibly testified that plaintiff’s first notice that defendant had any involvement with New York Spine Specialist was the statement of account included in the AR-1 demand for arbitration which plaintiff had received. Mena credibly testified that the statement of account does not contain substantially the same information as the prescribed forms. Notably, the statement of account does not contain the claimant’s information (i.e., information of the policyholder, policy number, date of accident, claim number) or the treating provider’s name, which the insurer would need to determine whether the particular claim received should be paid.

Because the statement of account was not submitted on a form that contained substantially the same information as the prescribed forms, plaintiff was therefore not required to accept the statement of account as a proof of claim. Because the statement of account was not the functional equivalent of a prescribed form, its receipt by the insurer did not trigger the 30-day period in which the no-fault insurer must pay or deny the claim, or seek additional verification (see Sound Shore Med. Ctr. v New York Cent. Mut. Fire Ins. Co., 106 AD3d 157, 164 [2d Dept 2013] [UB-04 form, which did not include the policy number, a description of the accident, or the admitting and discharge diagnosis, did not trigger 30-day period]).

Thus, the insurer met its prima facie burden.

Defendant’s Case in Chief

Citing Matter of State Farm Insurance Company v Domotor (266 AD2d 219, 220 [2d Dept 1999]), defendant argues that, in light of plaintiff’s global denial of no-fault benefits for all future orthopedic treatment, defendant was not required to submit any claims forms to defendant in advance of the arbitration. Rather, defendant contends that the statement of account which plaintiff admittedly received in the AR-1 demand for arbitration was sufficient to trigger plaintiff’s obligation to pay or deny the claim.

Plaintiff argues that Domotor is distinguishable and would not excuse defendant from a submitting a claim to plaintiff, which is required under the no-fault regulations, and which plaintiff contends is a condition precedent to coverage. Plaintiff counters that, following defendant’s logic, “a claimant can write up a bill on a napkin, doesn’t have to submit it to a claim rep and can wait years and can then commence lawsuits based on that napkin written bill and they’re entitled to payment” (Tr. at 63, lines 13-17).

As defendant pointed out at trial, if a prescribed claim form was missing any information, the insurer could seek additional verification within 15 business days of receipt of the prescribed forms, pursuant to 11 NYCRR 65-3.5 (b). Indeed, the Appellate Term rejected the argument that an illegible claim form was a valid ground for the insurer’s failure to process the claim, noting, “defendant did not timely deny this claim, seek verification or otherwise notify plaintiff of why defendant believed it could not process the claim” (New Way Med. Supply Corp. v State Farm Mut. Auto. Ins. Co., 49 Misc 3d 147[A], 2015 NY Slip Op 51678[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2015]).

Defendant correctly points out that the facts of this case are almost identical to the facts in Domotor. However, this court is persuaded that Domotor does not apply here.

“An insured’s failure to comply with its obligations under an insurance policy is generally a defense to an action on the policy. However, ‘an insurer cannot insist upon cooperation or adherence to the terms of its policy after it has repudiated liability on the claim … by sending a letter denying liability.’ Thus, ‘[o]nce an insurer repudiates liability … the [in]sured is excused from any of its obligations under the policy'”


(American Ref-Fuel Co. of Hempstead v Resource Recycling, Inc., 281 AD2d 573, 574 [2d Dept 2001] [internal citations omitted]). “Such a repudiation excuses the filing of proofs of loss, the production of books and documents, the submission to examination, and the taking of any other preliminary steps by the insured” (Beckley v Otsego County Farmers Co-op. Fire Ins. Co., 3 AD2d 190, 194 [3d Dept 1957]).

In Domotor, the insurer had notified the appellant that it was denying all no-fault benefits, based upon the opinion of its medical expert that the appellant no longer required treatment (266 AD2d at 220). “The appellant nevertheless continued under medical care although she submitted no further claims to the petitioner” (id.). Like defendant in this case, the appellant then demanded arbitration to resolve the issue of the insurer’s liability (id.). The no-fault arbitrator denied the appellant’s claim for failure to file timely proof of loss, but the master arbitrator vacated the award (id.). Supreme Court vacated the master arbitrator’s award, and the Appellate Division, Second Department reversed and reinstated the master arbitrator’s award.

The Appellate Division reasoned,

“This disclaimer of coverage excused the appellant from further compliance with conditions precedent regarding time limitations for submitting medical proofs of loss for the treatments she nevertheless continued to undergo. An insurance carrier may not, after repudiating liability, create grounds for its refusal to pay by demanding compliance with proof of loss provisions of the policy. Rather, the insurance carrier must stand or fall upon the defense upon which it based its refusal to pay … i.e., because no treatment [was] necessary. Accordingly, inasmuch as the master arbitrator possessed the authority to vacate the initial arbitrator’s legally incorrect award denying the appellant’s claims for failure to file timely proof of loss, the Supreme Court erred in vacating the master arbitrator’s award”
(Domotor, 266 AD2d at 220-21 [internal citations omitted]).

Plaintiff points out that, after Domotor was decided on November 1, 1999, proposed Insurance Department regulations, which required submission of a claim to the insurer within 45 days after the date when services were rendered, became effective February 1, 2000 (see Matter of Medical Socy. of State of NY v Serio, 100 NY2d 854, 862 [2003] [discussing amended Regulation 68]). Plaintiff reads Domotor to hold that, once the insurer disclaimed coverage, the eligible injured person was no longer required to comply with policy obligations of coverage, but is still required to comply with statutory obligations. Plaintiff cites an opinion from the Department of Insurance dated September 2, 2004, which concluded that a no-fault applicant [*5]must timely submit claims for no-fault benefits even when the insurance carrier has previously denied future benefits based upon a negative medical exam (Ops Gen Counsel NY Ins Dept No. 04-09-03 [Sept 2004]), available at https://www.dfs.ny.gov/insurance/ogco2004/rg040903.htm [last accessed Jan. 22, 2024]).

In this court’s view, the Department of Insurance’s opinion is of limited value, because it does not discuss or even mention Domotor. Neither is this court required to defer to the agency’s interpretation of case law.

There appears to be only two reported cases involving the failure to submit claims which applied Domotor after the regulations became effective (Greater Forest Hills Physical Therapy, PC v State Farm Mut. Auto. Ins. Co., 45 Misc 3d 1215[A], 2014 NY Slip Op 51594[U] [Nassau Dist Ct 2014]; Matter of NY Med. Health, P.C. v New York City Tr. Auth., 24 Misc 3d 1219[A], 2009 NY Slip Op 51526[U] [Civ Ct, King County 2009]). Both cases ruled in favor of the provider/eligible injured person.

In Matter of NY Medical Health P.C., the New York City Transit Authority (TA) notified the provider’s assignor that it was denying all no-fault benefits based upon its contention that the accident did not arise out of the use and operation of a TA bus (Matter of NY Med. Health, P.C. v New York City Tr. Auth., 24 Misc 3d 1219[A], 2009 NY Slip Op 51526[U]). The provider’s assignor continued treatment, and the provider demanded no-fault arbitration. As part of its arbitration submission, the provider had annexed the medical bills for which it was seeking payment, which had never been submitted to the TA beforehand (id.). The no-fault arbitrator found that the provider had established that the accident was due to the use or operation of a TA motor vehicle and issued an award in the provider’s favor (id.). Citing Domotor, Supreme Court denied vacatur of the master arbitrator’s award affirming the no-fault arbitration award.

In Greater Forest Hills Physical Therapy, PC, the court ruled, “this court is constrained to follow the Second Department that plaintiffs are not obligated to timely submit claims for no-fault benefits once an insurance carrier denies coverage” (45 Misc 3d 1215[A], 2014 NY Slip Op 51594[U] [Nassau Dist Ct 2014]).

However, Equilibrium of Life Acupuncture, P.C. v MVAIC (74 Misc 3d 129[A], 2022 NY Slip Op 50113[U] [App Term, 1st Dept 2022]) appears to support plaintiff’s reading of Domotor. There, the defendant moved for summary judgment on the ground that, among other things, plaintiff had not timely filed a notice of intention to make claim with defendant, as required by Insurance Law § 5208(a), so as to be entitled to no-fault benefits. Relying upon Domotor, the Civil Court denied the defendant’s motion. The Appellate Term ruled that the Civil Court erred in relying upon Domotor, stating, “Matter of State Farm Ins. Co. v Domotor, 266 AD2d 219 (1999), relied upon by Civil Court, involved a waiver of a condition precedent to payment of claims as required under an insurance policy, not a condition precedent to coverage under Insurance Law § 5208″ (id.).

Thus, based on the Appellate Term’s decision in Equilibrium of Life Acupuncture, P.C., the court agrees with plaintiff’s reading of Domotor—that the insurer’s repudiation of liability does not excuse the provider/eligible injured person from compliance with regulatory or statutory requirements of notice of the loss.

In this court’s view, the regulatory requirement of submission of a claim to a no-fault insurer on a prescribed claim form (or its substantial equivalent) is not identical to the policy [*6]requirement of submission of a proof of loss.[FN4] If no claim form is submitted to the insurer, the insurer has no notice of the loss at all.

Accepting defendant’s reading of Domotor would lead to absurd results, as illustrated by the facts of this case.

Defendant acknowledges that, under defendant’s own reading of Domotor, plaintiff would not have any right to seek additional verification from defendant for any information missing from the statement of account which would have been required on the claim forms prescribed by the Department of Financial Services. To accept defendant’s argument would, in effect, expand 11 NYCRR 65-3.5 (f) to require the insurer to accept any form that did not contain substantially the same information as the prescribed forms, even if the information was illegibly scribbled on a crumpled cocktail napkin, as plaintiff illustrated. This would be fundamentally unfair to the insurer, which would be left almost completely in the dark as to whether or not such a claim ought to be paid or denied.

Accepting defendant’s expansive reading of Domotor would up-end the processing of no-fault claims, and undermine the aims of no-fault, which includes reducing the burden on the courts (Viviane Etienne Med. Care, P.C. v Country-Wide Ins. Co., 25 NY3d 498, 504-05 [2015]). Following defendant’s logic, where Domotor would apply (i.e., where the insurer had repudiated coverage), a provider could commence action to recover no-fault benefits without ever having to submit any claim form in advance to the insurer, so long as something less than substantially similar to the information on a prescribed claim form was attached as an exhibit to the complaint. Because the insurer has received such a claim, the insurer would then have to start and finish claims processing by the time the answer to the complaint was due. Every no-fault claim that would have been submitted in advance to the insurer could now be filed with the courts instead, because the provider would not be required to submit the claim to the insurer before the lawsuit.

For all the reasons above, Domotor does not apply.

Because defendant has not successfully challenged any part of plaintiff’s prima facie case, the verdict, after trial, is granted in plaintiff’s favor.

Plaintiff’s and Defendant’s Motions for Directed Verdict

Plaintiff’s motion for a directed verdict in its favor is denied as academic.

Defendant’s motion for a directed verdict in defendant’s favor is denied. Affording plaintiff every inference which may properly be drawn from the facts presented and considering the facts in a light most favorable to plaintiff—that no claim form or its substantial equivalent was ever submitted to plaintiff—this court cannot conclude that “there is no rational process by which the fact trier could base a finding in favor of plaintiff” (Szczerbiak v Pilat, 90 NY2d 553, [*7]556 [1997]). As discussed above, Domotor does not apply.

The Appropriate Relief to Be Granted to the Prevailing Party

The relief to be granted to plaintiff presents a novel issue.

Had a provider or eligible injured person been the plaintiff, the answer would be simple—a money judgment would be granted in the provider’s or eligible injured person’s favor against the insurer for the amount of the claim, plus statutory interest (see 11 NYCRR 65-3.9 [c]; East Acupuncture, P.C. v Allstate Ins. Co., 61 AD3d 202, 205 [2d Dept 2009]), and attorneys’ fees (11 NYCRR § 65-4.10 [j]). However, where the insurer is the plaintiff in an adjudication de novo and did not pay the submitted claim, there would be no money judgment to grant to plaintiff.[FN5] As defendant did not assert a formal counterclaim,[FN6] there is no counterclaim to be dismissed.

Plaintiff argues that this court should issue a declaration in plaintiff’s favor that it has no obligation to pay the claim at issue (see Matter of Gersten v American Tr. Ins. Co., 161 Misc 2d 57, 60 [Sup Ct, NY County 1994] [“There is some authority which suggests that the insurer commences a declaratory judgment action seeking a declaration that the insured is not entitled to no-fault benefits”]; see also Liberty Mut. Ins. Co. v Bayside Pain & Rehabilitation Medicine, P.C., 39 Misc 3d 148[A], 2013 NY Slip Op 50906[U][App Term, 2d Dept, 9th & 10th Jud Dists 2013] [action for de novo adjudication commenced by an insurer “seeks, in essence, a declaratory judgment and not monetary damages”]).

However, the Civil Court has jurisdiction to issue a declaratory judgment in only two instances:

“(a) any controversy involving the obligation of an insurer to indemnify or defend a defendant in an action in which the amount sought to be recovered does not exceed $50,000; and
(b) actions commenced by a party aggrieved by an arbitration award rendered pursuant to part 137 of the rules of the chief administrator in which the amount in dispute does not exceed $50,000″
(Civil Court Act § 212-a). Neither applies here. An adjudication de novo is not a controversy [*8]involving the obligation of an insurer to indemnify or defend someone in another action.

As defendant points out, another judge of the Civil Court denied defendant’s motion to dismiss the action for an adjudication de novo on the grounds that plaintiff was seeking, in essence, a declaratory judgment action, which the Appellate Term had affirmed. Thus, defendant argues that the Appellate Term implicitly affirmed that the Civil Court could issue a declaratory judgment in a de novo adjudication pursuant to Insurance Law § 5106 (c).

Contrary to defendant’s contention, the Appellate Term, First Department ruled only that that action was within the monetary jurisdiction of the Civil Court, and ruled that “defendant’s remaining argument has been rendered academic” (Ping, 62 Misc 3d 144[A], 2019 NY Slip Op 50160[U] [App Term 2019]).

The Civil Court has jurisdiction to confirm or vacate an arbitration award that is within the $50,000 monetary jurisdiction of the Civil Court, which appears to be the only non-monetary relief that the Civil Court can grant to plaintiff. Although the complaint did not seek vacatur of the master arbitration, the court here “may grant any type of relief within its jurisdiction appropriate to the proof whether or not demanded, imposing such terms as may be just,” so long as the judgment to be awarded is not a default judgment (CPLR 3017 [a]).

Thus, in an adjudication de novo commenced in Civil Court, where the insurer is the plaintiff and the prevailing party, and defendant has not asserted a counterclaim, the appropriate relief to be granted is vacatur of the underlying master arbitrator’s award for which de novo adjudication was sought.

VERDICT

The court finds in favor of plaintiff.


ORDER

Accordingly, it is hereby ORDERED that plaintiff’s and defendant’s motions for directed verdict are denied; and it is further

ORDERED and ADJUDGED that, after trial, the award of Master Arbitrator Robert Trestman dated August 25, 2016 [sic], which affirmed the no-fault arbitration award of Arbitrator Phillip Wolf dated May 18, 2017, is vacated.

This constitutes the decision, verdict, order, and judgment of the court.

Dated: January 22, 2024
New York, New York
ENTER:
RICHARD TSAI, J.
Judge of the Civil Court
Footnotes


Footnote 1: Defendant’s answer did not assert a counterclaim, but the prayer for relief asked for entry of a money judgment in defendant’s favor in the amount of $15,251.75, along with attorneys’ fees and costs and disbursements.

Footnote 2: This court indicated that if there was a particular document among those documents that contained hearsay, other than the fact that it was a business record, then plaintiff was permitted to object those documents being offered for that purpose (Tr. 8, lines 19-25).

Footnote 3: The date of the master arbitrator award is typed as “August 25, 2016,” whereas the date of mailing is date-stamped “Aug 29, 2017” (see Defendant’s Exhibit A).

Footnote 4: “For practical purposes, courts have applied the same rules to notices of loss, injury, damage or claim and to proofs of loss. However, the two are different in their requirements and purpose. A notice, whether of loss, injury, damage, claim, or disability, serves the purpose of first advising the insurer of the occurrence or event which triggers coverage under the policy. A proof of loss, on the other hand, operates to substantiate the claim that has been made” (Joseph Wilson & Anne M. Payne, New York Insurance Law § 30:1 [West’s NY Prac Series 2023-2024 ed.]).

Footnote 5: In its prayer for relief in the complaint, plaintiff did not seek attorney’s fees.

Footnote 6: A prayer for affirmative relief which is not specifically described as a counterclaim is without effect (People v Sound View Land & Imp. Co., 239 App Div 201, 202 [1st Dept 1933]). “The rule is well settled that where a defendant insists upon a counterclaim, it must be pleaded as such, and unless that is done it can be resorted to and used only as a defense” (New York Trust Co. v American Realty Co., 213 App Div 272, 275 [1st Dept 1925]). This is not a case where defendant pleaded facts entitling defendant to affirmative relief but merely omitted to designate the matter as a counterclaim, “in which event the courts will regard the pleading as what it obviously was intended to be” (New York Trust Co., 213 App Div at 275).

In a supplemental brief, defendant indicates that defendant only seeks confirmation of the underlying master arbitration award and attorneys’ fees if defendant prevails (see defendant’s supplemental brief at 3, 5-6).



Utica Mut. Ins. Co. v Crystal Curtain Wall Sys. Corp. (2023 NY Slip Op 23362)

Reported in New York Official Reports at Utica Mut. Ins. Co. v Crystal Curtain Wall Sys. Corp. (2023 NY Slip Op 23362)

[*1]
Utica Mut. Ins. Co. v Crystal Curtain Wall Sys. Corp.
2023 NY Slip Op 23362
Decided on November 27, 2023
Supreme Court, New York County
Lebovits, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the printed Official Reports.


Decided on November 27, 2023
Supreme Court, New York County


Utica Mutual Insurance Company and
Utica National Assurance Company, Plaintiffs,

against

Crystal Curtain Wall System Corp. et al., Defendants.




Index No. 652632/2022


Rivkin Radler LLP, Uniondale, NY (M. Paul Gorfinkel and Jay D. Kenigsberg of counsel), for plaintiffs.

Cohen Ziffer Frenchman & McKenna LLP, New York, NY (Keith McKenna and Chelsea Ireland of counsel), for defendants Crystal Curtain Wall System Corporation and Crystal Window and Door Systems, Limited.
Gerald Lebovits, J.

The following e-filed documents, listed by NYSCEF document number (Motion 001) 16, 17, 18, 19, 20, 27, 28, 29, 30, 31, 32, 33, 34, 35, 39, 40, 41, 42, 43, 44, 45, 54, 55, 56, 57, 58 were read on this motion to DISMISS.

This declaratory-judgment action arises from a construction-related property damage action pending in this court. (See Board of Managers of the A Building Condominium v 13th & 14th St. Realty, LLC, Index No. 100061/2011 [Sup Ct, NY County] [Leslie Stroth, J.].) Plaintiffs, Utica Mutual Insurance Company and Utica National Assurance Company (collectively, Utica), issued insurance policies to defendants Crystal Curtain Wall System Corp. and Crystal Window and Door Systems, Ltd. (collectively, the Crystal Entities). Utica does not dispute that it has a duty to defend the Crystal Entities in the underlying action. But it seeks a declaration that it has no duty to indemnify the Crystal Entities for any judgment or settlement reached in that action.[FN1]

The Crystal Entities move to dismiss under CPLR 3211 (a) (2) and (a) (7) or, alternatively, move under CPLR 2201 to stay this action pending the outcome of the underlying [*2]action. The Crystal Entities also seek their attorney fees incurred in defending this action. Utica cross-moves under CPLR 3212 for partial summary judgment. The Crystal Entities’ motion to dismiss is granted. Utica’s cross-motion for summary judgment is denied. The Crystal Entities’ fee request—which implicates an issue of law on which there is little New York appellate precedent—is granted.

BACKGROUND

A. The Underlying Action

The underlying action concerns the construction of two mixed use residential and commercial buildings, one of which, “Building A,” was located at 425 East 13th Street, New York, New York. (NYSCEF Doc No. 1 ¶ 83.) Crystal Window entered into a subcontract with the project’s general contractor (Hudson Meridian Construction Group, LLC) to design and install window and curtain systems as well as various other items, such as terrace doors and a glass parapet for Building A.[FN2] (Id. ¶ 85.) On March 22, 2007, Crystal Window assigned to Crystal Curtain some or all of its rights and obligations under the subcontract. (Id. ¶ 90.) In connection with this project, Utica issued various insurance policies to the Crystal Entities for the period from February 28, 2008, through February 28, 2012. (Id. at 13-15.)

Gordon H. Smith Corp (GHSC) was retained by 13th & 14th Street Realty LLC (13th & 14th), the owner of Building A, as a consultant in connection with the construction of Building A. (Id. ¶ 93.) Allegedly on August 29, 2006, GHSC wrote that it had serious concerns with the curtain wall system’s performance, and in 2007, GHSC reported leaking conditions. (Id. ¶¶ 93, 97.) In 2008, GHSC allegedly made extensive remediation recommendations to fix the curtain wall, with which Crystal Window and Crystal Curtain claim to have complied. (Id. ¶ 98.) In January 2008, unit owners began taking possession of individual units. However, after a significant rainstorm on May 28, 2008, water infiltration during the storm caused property damage in the building including moldy conditions. (Id. ¶¶ 99-100.)

In January 2011, the underlying action was commenced in connection with the alleged construction defects that led to the water damage. The complaint asserted claims against the Crystal Entities for the cost of repair or replacement of the allegedly defective curtain wall, damage to unit owners’ personal property, diminution in value of the unit owners’ units, and delay damages consisting of increasing interest and carrying costs that allegedly resulted from delays in completion of the construction work. (Id. ¶ 106.)

The parties to the underlying action—which includes numerous third-party actions—remain engaged in motion practice.

B. This Action

Utica brought this action in 2022. It seeks various forms of declaratory relief defining the parameters of its duty to indemnify the Crystal Entities in the underlying action. (See id. at ¶ 216 [a]-[m].) The Crystal Entities now move to dismiss under CPLR 3211 (a) (2) on the ground that the scope and parameters of Utica’s indemnification obligations are not yet ripe for determination. And the Crystal Entities request an award of attorney fees, should they prevail in this action. Utica cross-moves for partial summary judgment under CPLR 3212 on its request for a declaration that it has no duty to indemnify the Crystal Entities in connection with the costs of [*3]repair or replacement of the curtain wall. (NYSCEF Doc No. 28.)


DISCUSSION


I. Whether Utica’s Declaratory-Judgment Claim is Subject to Dismissal

CPLR 3001 provides that the court “may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed.” A declaratory-judgment action “thus requires an actual controversy between genuine disputants with a stake in the outcome, and may not be used as a vehicle for an advisory opinion” (Long Is. Light. Co. v Allianz Underwriters Ins. Co., 35 AD3d 253, 253 [1st Dept 2006] [internal quotation marks omitted]). Absent a ripe, justiciable controversy, this court lacks subject-matter jurisdiction to render a declaratory judgment. The Crystal Entities argue that no justiciable controversy exists here, and therefore that the action should be dismissed under CPLR 3211 (a) (2). This court agrees.

A. Whether Utica’s Declaratory-Judgment Claim Implicates a Justiciable Controversy

An insurance-coverage declaratory-judgment action is “premature”—and therefore subject to dismissal—”where the complaint in the underlying action alleges several grounds of liability, some of which invoke the coverage of the policy, and where the issues of indemnification and coverage hinge on facts which will necessarily be decided in that underlying action.” (Hout v Coffman, 126 AD2d 973, 973 [4th Dept 1987]; accord Allstate Ins. Co. v Santiago, 98 AD2d 608, 608 [1st Dept 1983] [reversing denial of motion to dismiss declaratory-judgment action] [“[T]he policy in this State has been to deny the declaratory judgment where the matter in dispute can be determined in the basic negligence action. . . .”].) If, on the other hand, the coverage question can be resolved as a matter of law in advance of fact-finding in the underlying action, a declaratory-judgment action about the scope of the duty to indemnify may be maintained. (See Brookhaven Mem. Hosp. Med. Ctr. v County of Suffolk, 155 AD2d 404, 406 [2d Dept 1989] [holding that when the policy language at issue is clear, such that “the matter in dispute does not depend upon any fact that may be determined in the underlying action, there is no reason to suspend resolution of this matter until after its adjudication”].)

The question, then, is whether the current record permits this court to determine now either that Utica’s policies do not extend coverage to the Crystal Entities’ claimed losses for which coverage disputes exist, or that exclusions within the policies oust otherwise-applicable coverage for those losses.

The Crystal Entities argue that Utica’s entitlement (or not) to the various sub-declarations requested in the complaint (see NYSCEF No. 1 at ¶ 216) turns on unresolved factual questions with respect to each of those declarations.[FN3] (See NYSCEF No. 17 at 16-19.) Utica effectively concedes that all but one of the requested declarations “depend on facts developed in the Underlying Action,” such that their declaratory-judgment claim is, to that extent, not ripe for resolution. (NYSCEF No. 44 at 3-4; see also id. at 7 [“Utica recognizes that its obligations with respect to other claims cannot be determined now, because they depend on facts to be [*4]determined in the underlying case.”].) The sole declaratory-judgment claim that Utica insists is ripe now for decision is its request for a declaration that “no coverage is available under the Utica policies for the cost of repair or replacement of the curtain wall.” (Id. at 7.) This request is not justiciable.[FN4]

Utica advances three reasons why this court can conclude now that no coverage is available for curtain-wall replacement or repair costs: (i) those costs do not qualify as a covered “occurrence” under the policies; (ii) coverage for the costs is barred by the “your work” policy exclusion; and (iii) coverage for the costs is barred by the “your product” policy exclusion. None of these reasons are persuasive.

With respect to whether the curtain-wall costs are a covered occurrence, Utica relies on a line of Appellate Division cases holding that policies like the ones at issue here “do not insure against faulty workmanship in the work product itself, but rather faulty workmanship in the work product which creates a legal liability by causing bodily injury or property damage to something other than the work product.” (George A. Fuller Co. v United States Fid. & Guar. Co., 200 AD2d 255, 259 [1st Dept. 1994].) Because the glass curtain wall at issue is the Crystal Entities’ own work product, Utica argues, the Crystal Entities do not have coverage for the costs to repair or replace the wall. But this argument begs the crucial question: Whether the damage to the curtain wall necessitating its repair or replacement stemmed from defective design or installation of the wall itself (by the Crystal Entities or their subcontractors), or instead from defective work on other components of the building carried out by other parties. As the Crystal Entities point out (see NYSCEF No. 54 at 24), Utica has not identified evidence that answers that question in advance of fact-finding in the underlying action.

The “your product” exclusion ousts coverage for “‘[p]roperty damage’ to ‘your product’ arising out of it or any part of it.” (NYSCEF No. 3 at 45.) This exclusion does not necessarily oust coverage for the costs of repairing or replacing the curtain wall, for the same reasons just discussed. The record does not (yet) establish whether the damage to the curtain wall requiring its repair/replacement “ar[ose] out of it”—i.e., from defects in the wall itself—or arose instead from defects in other components of the building.

The “your work” exclusion bars coverage for “[p]roperty damage’ to ‘your work’ arising out of it or any part of it”—but not “if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” (Id.) Again, it is not yet clear how the damage to the curtain wall arose; or what part of the work on the curtain wall was performed by the Crystal Entities themselves, and what part by one or more subcontractors. Absent that information, this court cannot now determine the applicability of the “your work” exclusion.

In short, like the other coverage issues raised by Utica’s declaratory-judgment complaint, whether coverage exists for curtain-wall-related costs depends on further fact-finding. That issue is not ripe for decision now.

Utica asserts that a justiciable controversy nonetheless exists because it needs to assess properly their obligations to accept or reject any possible settlement offer that may be within the limits of plaintiff’s policies. (See NYSCEF No. 44 at 3.) But the relevance of coverage for the costs to repair/replace the curtain wall is contingent: it will arise only if (i) a settlement demand [*5]is made against the Crystal Entities in the underlying action that includes curtain-wall-related costs and is within the limit of the applicable Utica policies; and (ii) the Crystal Entities then demand that Utica pay to settle the claims against them. Utica provides no information on the likelihood of this contingent possibility being realized, nor when that might occur. In these circumstances, a declaratory judgment would be premature. (See Murad v Russo, 74 AD3d 1823, 1824 [4th Dept 2010] [holding that plaintiff’s request for a declaratory judgment about the extent of her entitlement to insurance proceeds is not ripe for adjudication because “although the record establishes that defendant’s insurer was amenable to settling the actions for the limits of the policy in question, it cannot be said with certainty that such settlements would occur”].)

Utica’s declaratory-judgment claims, therefore, are unripe and not justiciable at this time. Utica’s cross-motion for partial summary judgment on its curtain-wall claim is denied.[FN5]

B. Whether Utica’s Declaratory-Judgment Claim Should be Dismissed or Stayed

Utica contends that this court should stay, rather than dismiss, any declaratory-judgment claims that the court concludes are unripe, because the “factual predicate that will be necessary to resolve these other issues may be developed in the underlying case before that case is concluded, and those issues would therefore become ripe for determination in this case.” (NYSCEF No. 44 at 18.) Although a court lacks jurisdiction to issue a declaratory judgment absent a justiciable controversy, a court does have discretion, in appropriate circumstances, to stay an unripe declaratory-judgment action, instead of dismissing it altogether. (See Allstate Ins. Co. v Kemp, 144 AD2d 853, 854 [3d Dept 1988] [affirming order that stayed a premature declaratory-judgment action].) This court concludes, however, that staying Utica’s action would not be appropriate here. The underlying action is complex and slow-moving. It is unclear to this court—and Utica does not attempt to provide clarity—when the factual questions bearing on Utica’s potential duty to indemnify the Crystal Entities will be resolved in that action. This court declines to leave the current action in a holding pattern for an open-ended (and presumably lengthy) period. This action is therefore dismissed without prejudice to its renewal once it is no longer premature.


II. Whether the Crystal Entities are Entitled to Reimbursement from Utica for their Defense Costs Incurred in this Action

The Crystal Entities seek reimbursement of their reasonable attorney fees incurred in defending this declaratory-judgment action. (See NYSCEF No. 16 [notice of motion]; NYSCEF No. 17 at 21-22 [mem. of law].) This attorney-fee request implicates a legal question about the parameters of a prevailing insured’s entitlement to attorney fees from its insurer that New York appellate courts appear not to have considered. For the reasons set forth below, the request is granted.

A. Reasons Why the Crystal Entities Should be Entitled to Reimbursement of Defense Costs

When an insured “is cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations,” and the insured then prevails, it may recover attorney fees “incurred in defending against the insurer’s action.” (U.S. Underwriters Ins. Co. v [*6]City Club Hotel, LLC, 3 NY3d 592, 597-598 [2004].) This principle is not a policy-based “exception to the American rule,” under which each party bears its own litigation costs unless a statute or contract shifts the obligation to pay fees. (Chase Manhattan Bank v Each Individual Underwriter Bound to Lloyd’s Policy No. 790/004A89005, 258 AD2d 1, 5 [1st Dept 1999] [emphasis added].) Rather, it derives from the insurer’s duty as a matter of contract to defend its insured—akin, analytically, to a fee-shifting contractual indemnity provision.[FN6] (See id.)

In this case, Utica’s declaratory-judgment action cast the Crystal Entities in a defensive posture by asserting that Utica need not indemnify them for various increments of their potential obligations under a judgment or settlement in the underlying action. And, for the reasons given above, this court concludes that the Crystal Entities should prevail, because the action is subject to dismissal as premature.

It would appear to follow straightforwardly, therefore, that the Crystal Entities are entitled to attorney fees. Utica claims, however, that the answer is not so simple. As noted at the outset of this decision, Utica did not, and does not, dispute its duty to defend the Crystal Entities in the underlying action. Utica argues that in this unusual scenario, the Crystal Entities’ fee request falls outside the scope of the holding of the Court of Appeals’s decision in City Club Hotel and its forerunner precedents. That is, Utica contends, “[w]hen it is only the duty to indemnify that an insurer has placed at issue,” not also the duty to defend, a prevailing “policyholder is not entitled to attorney fees.” (NYSCEF No. 44 at 17 [emphasis added].)

The parties do not cite, and this court has not found, any decision of the Court of Appeals or the Appellate Division discussing whether a prevailing policyholder is entitled to attorney fees when the insurer has acknowledged a duty to defend but contested the duty to indemnify.[FN7] At [*7]most, in Public Service Mutual Insurance Co. v Jefferson Towers, Inc. (186 AD2d 10, 11 [1st Dept 1992]), the First Department held that the insured was entitled to attorney fees, after the insurer had paid defense costs in the underlying action but challenged, unsuccessfully, its obligation to pay the judgment rendered against the insured in that action. (See Jefferson Towers, Inc. v Public Serv. Mut. Ins. Co., 195 AD2d 311, 312 [1st Dept 1993] [discussing the background of the Court’s decision on the prior appeal].) But the Jefferson Towers Court did not consider whether the insurer’s duty-to-defend/duty-to-indemnify split in that case should affect the insurer’s obligation to pay the insured’s attorney fees. Nor can one tell from the decision whether the insurer even raised an argument on that point.[FN8] (See Jefferson Towers, 186 AD2d at 11.)

Absent binding appellate precedent considering the question, this court concludes for itself that a policyholder is entitled to attorney fees when it prevails in the defense of an action brought by an insurer to challenge only the insurer’s duty to indemnify. New York doctrine in this area rests on the insurer’s duty to defend its insured in “any action arising out of the occurrence, including a defense against an insurer’s declaratory-judgment action.” (City Club Hotel, 3 NY3d at 598 [emphasis added].) This is true when an insurer contests both the duty to defend and to indemnify. (See id.) No logical reason exists why it should be different—why an insurer’s duty to defend its insured should suddenly cease—when the insurer disputes only the duty to indemnify. And the Court of Appeals’s holdings in this area have always been phrased in broad terms that would encompass an insurer’s indemnification-only challenge: They permit recovery by the insured that prevails against “the legal steps an insurer takes in an effort to free itself from its policy obligations,” period—not merely the insurer’s policy obligation to defend. (Id. at 597 [emphasis added].)

B. Utica’s Counter-Arguments

In arguing otherwise, Utica relies on decisions of the U.S. Court of Appeals for the Second Circuit. Those decisions hold, Utica says, that “if the insurer has not placed the duty to defend at issue, the insurer need not reimburse the policyholder’s attorney’s fees, even if the policyholder is successful.” (NYSCEF No. 44 at 17, citing New York Marine & Gen Ins. Co. v Lafarge N. Am., 599 F3d 102 [2d Cir 2010]; Liberty Surplus Ins. Co. v Segal Corp., 420 F3d 65 [2d Cir 2005]; see Employers Mut. Cas. Co. v Key Pharmaceuticals, 75 F3d 815, 824 [2d Cir 1996]).) This court concludes, though, that these Second Circuit decisions misapprehend the governing precedents in this area of the Court of Appeals and the Appellate Division.

In Key Pharmaceuticals, the Second Circuit’s holding rested on its reading of the First [*8]Department’s decision in Aetna Casualty & Surety Co. v Dawson (84 AD2d 708, 709 [1st Dept 1981]), in which the First Department declined to require the insurer to pay attorney fees. The Key Pharmaceuticals court understood Dawson to hold that the a “fundamental” reason for its decision “was that the insurer’s duty to defend was not at issue” in the case. (75 F3d at 824.) Thus, the Second Circuit concluded, the New York doctrine “does no more than carve out a narrow exception to the general rule that litigation costs are not recoverable by a winning litigant” that arises only “when a policyholder has been cast in a defensive posture by its insurer in a dispute over the insurer’s duty to defend,” in particular. (Id., citing Mighty Midgets Inc. v Centennial Ins. Co., 47 NY2d 12, 21-22 [1979].) But Dawson did not rest its holding on the absence of a dispute between insurer and insured over the duty to defend. It held, instead, that in the particular context of the parties’ dispute (which rested on the uninsured-motorist endorsement to an automotive insurance policy), the parties seeking attorney fees were not owed a duty to defend by the insurer. (84 AD2d 708, 709.) Instead, “[w]hat is essentially in dispute here is a contract claim,” not an insurance claim invoking an insurer’s duty to defend. (Id. [emphasis added].) No duty to defend, no defense-based obligation to pay attorney fees incurred in the coverage action.

In Segal, the Second Circuit declined to revisit its decision in Key Pharmaceuticals. The Segal court stated that although the New York Court of Appeals had described its doctrine in “broad language” that permitted an insured to recover fees whenever it is defending an insurer’s “‘effort to free itself from its policy obligations,'” Key Pharmaceuticals had instead glossed the doctrine as applying only when the insured “has been cast in a defensive posture by its insurer in a dispute over the insurer’s duty to defend.” (Segal, 420 F3d at 67, quoting Mighty Midgets, 47 NY2d at 21 [internal quotation marks and emphasis omitted].) The insured in Segal argued that the Court of Appeals’s decision in City Club Hotel had undermined the holding of Key Pharmaceuticals, because the insurer’s declaratory-judgment claims in City Club Hotel contested the duty to indemnify. (Segal, 420 F3d at 68.) The Second Circuit rejected this argument. Because City Club Hotel clearly involved a dispute over both the duty to defend and the duty to indemnify, the award of fees to the insured in that case did not call into question the ruling in Key Pharmaceuticals. (See id.)

Curiously, the Segal Court recognized that the rationale of Mighty Midgets and City Club Hotel “is that an insurer with a duty to defend must provide a defense (or reimburse the insured’s litigation expenses) for any action arising out of the claim or occurrence that triggers the duty to defend, including an action brought by the insurer itself.” (Id. at 69 [emphasis added].) But Segal refused to accept that “any action” means “any action”—that the duty to defend, where one exists, is triggered even when the insurer’s action against the insured challenges only the duty to indemnify. This refusal may have stemmed from the concern expressed by the Second Circuit in Segal that ruling that “attorneys’ fees are due whenever an insurer brings suit to disclaim the duty to indemnify, or whenever an excess insurance policy incorporates a primary policy with a duty to defend,” would “dramatically expand” the “Mighty Midgets exception to the point that it swallows the rule.” (Id. at 70.) But the solution to that problem would be for courts to consider carefully, before awarding fees, whether an insurer bringing the unsuccessful coverage action [*9]has a duty to defend its insured in the particular circumstances of the case.[FN9] It is not to hold instead, as the Second Circuit has done, that where a duty to defend does exist, an insurer need not pay fees if it has unsuccessfully challenged only the duty to indemnify.

Finally, in Lafarge North America, the Second Circuit simply applied its holdings in Key Pharmaceuticals and Segal, without considering those holdings fresh. (See 599 F3d at 128.) The objections raised to those two prior decisions thus apply equally to Lafarge North America.

In short, this court is not persuaded by the Second Circuit decisions applying New York law on which Utica relies, and declines to follow them here.

Accordingly, it is

ORDERED that the branch of the Crystal Entities’ motion seeking dismissal of the complaint is granted, and the action is dismissed, with costs and disbursements as taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further

ORDERED that Utica’s cross-motion for partial summary judgment is denied; and it is further

ORDERED that the branch of the Crystal Entities’ motion seeking an award of its reasonable attorney fees incurred in defending this action is granted; and it is further

ORDERED that the Crystal Entities may enter a supplemental judgment for the amount of their reasonable attorney fees, with the amount of those fees to be determined by motion made on notice; and it is further

ORDERED that the Crystal Entities serve a copy of this order with notice of its entry on all parties and on the office of the County Clerk, which shall enter judgment accordingly.

Dated: November 27, 2023
Hon. Gerald Lebovits
J.S.C.
Footnotes


Footnote 1:Plaintiffs have also named as defendants the (many) other parties to the underlying action. But Utica’s only live claims in the action, and on this motion, concern the Crystal Entities.

Footnote 2:Utica originally named Hudson Meridian as a defendant in this action, but later discontinued the claims against it. (See NYSCEF No. 47.)

Footnote 3:The Crystal Entities also contend that several of the requested declarations would serve no purpose, because those declarations concern issues about which the parties do not disagree, such that no justiciable controversy exists that could properly be the subject of a declaratory judgment. (See NYSCEF No. 17 at 14-15.)

Footnote 4:Given this conclusion, the court does not reach the Crystal Entities’ alternative argument that Utica’s declaratory-judgment claims are time-barred.

Footnote 5:Because the court denies Utica’s cross-motion on this ground, the court does not reach the Crystal Entities’ argument that the cross-motion is premature because issue has not yet been joined. (See NYSCEF No. 54 at 20-21.)

Footnote 6:See Mighty Midgets, Inc. v Centennial Ins. Co. (47 NY2d 12, 21-22 [1979] [holding that in light of the American rule, an insured that successfully brings a coverage action against its insurer may not recover attorney fees, although the same insured would be able to recover fees if it successfully defended the insurer’s coverage action]). Thus, in Hertz Vehicles, LLC v Cepeda, the Appellate Division, First Department, rejected a policy-based argument that a medical provider assigned no-fault-insurance benefits by non-policyholder assignors should be able to recover declaratory-judgment attorney fees in the same way as an insured. (156 AD3d 440, 441 [1st Dept 2017].) The Court explained that these attorney fees may be recoverable by an insured because “an insurer’s duty to defend an insured extends to the defense of any action arising out of the occurrence, including a defense against an insurer’s declaratory judgment action.” (Id., quoting City Club Hotel, 3 NY3d at 597-598.) In Cepeda, on the other hand, the assignors had the right to no-fault benefits because they had been passengers in an insured vehicle, not the policyholders for the vehicle themselves; and as a result, the insurer had not owed them, or their assignees, a duty to defend. (See id.; accord Fiduciary Ins. Co. of Am. v Medical Diagnostic Servs., P.C., 150 AD3d 498, 498-499 [1st Dept 2017] [same].)

Footnote 7:The Court of Appeals and Appellate Division decisions cited by the Crystal Entities each involve circumstances in which the duty to defend was contested by the insurer. (See NYSCEF No. 17 at 21-22 [collecting cases]; NYSCEF No. 54 at 29-30 [same].)

Utica cites the Appellate Division decisions in Insurance Co. of Greater NY v Clermont Armory, LLC (84 AD3d 1168, 1170-1171 [2d Dept 2011]) and Medical Diagnostic Services (150 AD3d at 498-499). (See NYSCEF No. 44 at 17.) But in those cases, the Appellate Division denied fees because the insurers in those cases did not owe a duty to defend in the first place (thereby obviating any defense-based obligation to pay fees)—not because the insurers had conceded the duty to defend and disputed only the duty to indemnify, as Utica has done here. (See Clermont Armory, 84 AD3d at 1171; Medical Diagnostic Servs., 150 AD3d at 499.)

Footnote 8:In Reliance Ins. Co. v National Union Fire Ins. Co. of Pittsburgh, Pa. (262 AD2d 64 [1st Dept 1999]), the First Department held that an insurer that had unsuccessfully challenged its obligation to pay the costs of a settlement in the underlying action, but not sought reimbursement of defense costs, was required to pay its insured’s attorney fees in the coverage action. But it is not clear from that decision whether or not that insurer had conceded its duty to defend. Nor, in any event, did the Court discuss the particular question presented here.

Footnote 9:Indeed, the Second Circuit undertook that precise inquiry in Segal, as an alternative basis for its holding. (See 420 F3d at 68-70.) But the Segal court did not then draw the relevant connections between that inquiry and the court’s concerns about how to limit meaningfully the scope of the “Mighty Midgets exception” to the American rule on attorney fees. (See id. at 70.)



State Farm Mut. Auto. Ins. Co. v Garden Med. Care, P.C. (2023 NY Slip Op 50762(U))

Reported in New York Official Reports at State Farm Mut. Auto. Ins. Co. v Garden Med. Care, P.C. (2023 NY Slip Op 50762(U))



State Farm Mutual Automobile Insurance Company and STATE FARM FIRE AND CASUALTY COMPANY, Plaintiffs,

against

Garden Medical Care, P.C., Defendant.

Index No. 651387/2022

Bennett, Bricklin & Saltzburg, LLC, New York, NY (Alex R. Garriga of counsel), for plaintiffs.

No appearance for defendant.

Gerald Lebovits, J.

This is a no-fault insurance coverage action. Plaintiffs, State Farm Mutual Automobile Insurance Company and State Farm Fire & Casualty Company, seek a declaratory judgment that defendant, Garden Medical Care, P.C., has no right to receive payment for hundreds of no-fault claims for medical treatment, totaling approximately $312,000. (See NYSCEF No. 10 at 6 [spreadsheet of claims at issue].) Plaintiffs are contending that defendant’s claims for treatment are foreclosed by defendant’s (asserted) failure or refusal to provide information and documents in response to discovery requests served by plaintiffs following defendant’s examination under oath (EUO).

Plaintiffs now move without opposition for default judgment under CPLR 3215. The motion is denied.

BACKGROUND

Defendant is a medical provider, submitting treatment bills to no-fault insurers like plaintiffs, as the assignee of injured persons eligible for no-fault coverage. Between July and September 2021, defendant submitted hundreds of no-fault bills for treatment provided in [*2]connection with numerous no-fault claims. (See generally NYSCEF No. 10 [claims spreadsheet].) In response to each bill, plaintiffs asked defendant to appear for an EUO. (See id.) Plaintiffs allege that before doing so, they had investigated defendant’s billing and treatment practices and its eligibility to receive no-fault benefits. (See NYSCEF No. 1 at 28 [verified complaint]; see also NYSCEF No. 12 at ¶¶ 4-10 [affidavit of Michael Bodnar, State Farm Special Investigative Unit investigator].)

Defendant’s principal appeared for an EUO in September 2021. (See NYSCEF No. 1 at ¶ 34.) Although the affidavit of plaintiffs’ investigator describes defendant’s EUO testimony (see NYSCEF No. 12 at ¶¶ 12-16), plaintiffs have not provided a copy of the full EUO transcript. Plaintiffs represent that following the EUO, they served demands seeking further information and documents. (See NYSCEF No. 1 at ¶ 35; NYSCEF No. 12 at ¶¶ 17-18.) The demands themselves have not been provided. Plaintiffs further represent that defendant provided some of the requested discovery, objected to some of plaintiffs’ demands, and asserted that some of the requested documents were not in its possession. (NYSCEF No. 1 at ¶ 38; NYSCEF No. 12 at ¶ 19.) Plaintiffs do not provide copies of defendant’s responses and objections.

Plaintiffs contend that they still need more information to evaluate the eligibility of the claims for reimbursement that defendant has refused to provide: financial records from April 1, 2021, to the present, including complete bank records, general ledgers, profit and loss statements, and balance statements; documents reflecting the purchase, sale, or transfer of any ownership or investment interest in defendant, a professional corporation; documents concerning examinations performed and billed by defendant; documents concerning agreements with anyone providing billing and/or management services on behalf of defendant; documents concerning the referral, solicitation, and procurement of patients for the defendant; documents concerning the Extracorporeal Shock Wave Therapy (ESWT) machine device owned by defendant; scheduling documents for individuals who provided services for defendant; and articles or publications that support, among other things, defendant’s use of ESWT to treat patients’ conditions.[FN1] (NYSCEF No. 12 at 20.)

Plaintiffs allege that given defendant’s (asserted) failure to comply sufficiently with plaintiffs’ post-EUO verification requests, plaintiffs timely denied payment on all of the no-fault treatment bills at issue. Plaintiffs then brought this action for a no-coverage declaration with respect to those bills. Plaintiffs now move for default judgment.


DISCUSSION

A plaintiff moving for default judgment must demonstrate proper service, the defendant’s default, and the facts constituting plaintiff’s claim. (See CPLR 3215 [f].) Plaintiffs have shown that it properly served defendant (see NYSCEF No. 4 [affidavit of service]; and defendant has not appeared. But plaintiffs have not provided proof of the facts constituting its claim.

Plaintiffs’ claim rests on defendant’s (putative) failure to respond to post-EUO document demands warranted by defendant’s EUO testimony. But plaintiffs’ motion papers do not attach copies of (i) the EUO transcript; (ii) plaintiffs’ post-EUO demands; (iii) defendant’s responses and objections to those demands; or (iv) defendant’s document production. Absent those materials, this court cannot assess the key question presented by plaintiffs’ motion—whether defendant failed to respond adequately to post-EUO verification requests that plaintiffs were entitled to make. The brief, conclusory statements to that effect in plaintiffs’ complaint and SIU affidavit are not alone sufficient.

Accordingly, it is

ORDERED that plaintiffs’ default-judgment motion is denied; and it is further

ORDERED that if plaintiffs do not bring a renewed default-judgment motion within 30 days of entry of this order, the action will be dismissed; and it is further

ORDERED that plaintiffs serve a copy of this order with notice of its entry on defendant by certified mail, return receipt requested, directed to defendant’s last-known address.

DATE 7/25/2023

Footnotes

Footnote 1: Plaintiffs’ additional verification requests for bank records, documents about billing/management services, and documents relating to the purchase, sale, or transfer of ownership or investment interests appear to be seeking information into so-called Mallela issues—i.e., whether defendant here fails to meet applicable state or local licensing requirements, such that plaintiffs are entitled to withhold no-fault payments. (See State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313, 319 [2005] [construing 11 NYCRR 65-3.16 [12]].) This court need not, and does not, address on this motion whether plaintiffs have established sufficient cause for seeking that information from defendant during the claim-verification process. (See HKP Physical Therapy, P.C. v Government Empls. Ins. Co., 67 Misc 3d 282, 296-301 [Civ Ct, NY County 2019] [discussing threshold showing for seeking Mallela discovery].)

Liberty Mut. Ins. Co. v Anderson (2023 NY Slip Op 50746(U))

Reported in New York Official Reports at Liberty Mut. Ins. Co. v Anderson (2023 NY Slip Op 50746(U))



Liberty Mutual Insurance Company and
LM GENERAL INSURANCE COMPANY, Plaintiffs,

against

Nordigay Anderson, A TO Z SUPPLY SERVICES INC, ADV DIAGNOSTIC INC., ANIGER SUPPLY INC., AZTEC MEDICAL PA, CARESOFT LEASING CORP., CITIMED SURGERY CENTER, LLC, COMMUNITY MEDICAL CARE OF NY, PC, DSH PHYSICAL THERAPY SERVICES PC, GOOD SAMARITAN HOSPITAL MEDICAL CENTER, INNER POINT ACUPUNCTURE PC, LAXMIDHAR DIWAN MD, SCOTT LLOYD PHD, STAR MEDICAL IMAGING PC, and TRI-BOROUGH NY MEDICAL PRACTICE PC, Defendants.

Index No. 650571/2022

Correia, Conway & Stiefeld, White Plains, NY (Melissa D. Broder of counsel), for plaintiffs.

No appearances for defendants.

Gerald Lebovits, J.

This is a no-fault-insurance coverage action. Plaintiffs, Liberty Mutual Insurance Company and LM General Insurance Company (Liberty Mutual), denied the no-fault-benefits claims of the alleged injured person, defendant Nordigay Anderson, and the other defendants, medical-provider-assignees of Anderson’s, on the ground that Anderson had materially misrepresented the insured vehicle’s garaging address and the identity of the vehicle’s operators. Liberty Mutual has brought this action for a judgment declaring, in essence, that it has no duty to pay those claims.

Liberty Mutual now moves without opposition for default judgment under CPLR 3215 against non-answering defendants Anderson, ADV Diagnostic Inc., Aztec Medical PA, Citimed [*2]Surgery Center, LLC, Good Samaritan Hospital Medical Center, and Laxmidhar Diwan MD. The motion is denied.

No-fault benefits claims must be paid or denied “[w]ithin 30 calendar days after proof of claim is received.” (11 NYCRR 65-3.8 [c].) Proof of claim “shall include verification of all of the relevant information requested pursuant to section 65-3.5 of this Subpart,” such as requests that an injured person or medical-provider-assignee appear for an examination under oath (EUO). (Id. § 65-3.8 [a] [1].) an insurer’s failure to deny a claim within that 30-day period will generally preclude the insurer from asserting a defense against payment of the claim. (Fair Price Med. Supply Corp. v Travelers Indem. Co., 10 NY3d 556, 563 [2008].)

An exception to this preclusion rule exists where the ground for denying the claim (or defending against a claim to payment) is a lack of coverage in the first instance. (Id.) But the denial of a no-fault claim on the ground that the policyholder made material misrepresentations in obtaining the policy does not come within this preclusion exception. (See Liberty Mutual Ins. Co. v Brutus, 2022 NY Slip Op 50799[U], at *4 [Sup Ct, NY County Aug. 16, 2022], citing Westchester Med. Ctr. v GMAC Ins. Co. Online, Inc., 80 AD3d 603, 604-605 [2d Dept 2011].)

In short, Liberty Mutual may not raise material misrepresentations as a defense to the no-fault claims at issue in this action unless it denied those claims within 30 days after receiving proof of claim.

Liberty Mutual first sought verification from Anderson, in the form of an EUO, by letter dated June 29, 2021. (See NYSCEF No. 25.) Liberty Mutual conducted that EUO on July 12, 2021. (See NYSCEF No. 26 [EUO transcript].) Liberty Mutual later interviewed Anderson’s father (the vehicle operator named on the policy) on August 3, 2021 (see NYSCEF No. 27 [interview transcript]); and issued claim denials two days later, on August 5 (see NYSCEF No. 28.)

Thus, it appears on this record that Liberty Mutual denied the claims at issue within two days after obtaining the additional verification that it sought from Anderson and her father. That chronology, though, does not resolve the crucial question whether the 30-day period to pay or deny ran before Liberty Mutual first sought that verification on June 29. That is, if Liberty Mutual received benefits claims more than 28 calendar days before issuing the EUO request letter on June 29, 2021, the August 5, 2021, denial would be untimely with respect to those claims.[FN1]

Liberty Mutual has not established on this motion that its denials were timely with respect to each of the defendants against whom it seeks default judgment. At most, Liberty Mutual has submitted a delay letter that it sent on June 4, 2021, to defendant Good Samaritan Hospital Medical Center (see NYSCEF No. 24 at 3-4); and Liberty Mutual’s counsel represents in an affirmation that delay letters were also sent “to the medical provider defendants who had submitted NF-3s or bills” as of early June 2021 (NYSCEF No. 13 at ¶ 29). But a delay letter that does not itself request verification from the recipient will not toll the 30-day pay-or-deny period. [*3](Westchester Med. Ctr. v Lincoln Gen. Ins. Co., 60 AD3d 1045, 1046 [2d Dept 2009]; Nyack Hosp. v Encompass Ins. Co., 23 AD3d 535, 536 [2d Dept 2005].)

On this record, therefore, Liberty Mutual has not established the facts constituting its claims against the non-appearing defendants.

Accordingly, it is

ORDERED that Liberty Mutual’s motion for default judgment is denied; and it is further

ORDERED that if Liberty Mutual does not file a renewed default-judgment motion against the defaulting defendants within 30 days of entry of this order, the action will be dismissed as against those defendants; and it is further

ORDERED that Liberty Mutual serve a copy of this order with notice of its entry on all appearing parties by e-filing on NYSCEF; and on all non-appearing parties by certified mail, return receipt requested, directed to their respective last-known addresses.

DATE 7/13/2023

Footnotes

Footnote 1:This calculation adds together the days elapsed before Liberty Mutual sought additional verification of the claim with the two days elapsed after Liberty Mutual obtained that verification upon interviewing Anderson’s father. (See 11 NYCRR 65-3.8 [a] [1] [“In the case of an examination under oath . . . the verification is deemed to have been received by the insurer on the day the examination was performed.”].)

Country-Wide Ins. Co. v Hackensack Surgery Ctr., LLC (2023 NY Slip Op 50207(U))

Reported in New York Official Reports at Country-Wide Ins. Co. v Hackensack Surgery Ctr., LLC (2023 NY Slip Op 50207(U))



Country-Wide Insurance Company, Plaintiff,

against

Hackensack Surgery Center, LLC a/a/o JESSICA BAE, Defendant.

Index No. CV-710117-21/NY

Roman Kravchenko, Melville, for defendant.

Jaffe & Velazquez, LLP, New York City, (David J. Slaney, of counsel), for plaintiff.


Richard Tsai, J.

In this action, plaintiff Country-Wide Insurance Company seeks de novo adjudication of a dispute involving first-party no-fault benefits, following a master arbitrator’s award in excess of $5,000 in favor of defendant Hackensack Surgery Center, LLC a/a/o Jessica Bae. Defendant now moves for an order compelling plaintiff to comply with defendant’s discovery requests for, among other things, production of the entire claim file and SIU file (Motion Seq. No. 001). Plaintiff opposes the motion.

BACKGROUND

Prior to commencement of this action, defendant Hackensack Surgery Center LLC demanded a no-fault arbitration for services provided to defendant’s assignor, Jessica Bae, for facility fees related to a shoulder surgery performed on February 8, 2019, which plaintiff Country-Wide Insurance Company had denied based upon a peer review report (see NY St Cts Elec Filing [NYSCEF] Doc No. 1, complaint ¶ 7 and Exhibit A to complaint [No Fault Arbitration Award], at 1).

The no-fault arbitrator ruled in defendant’s favor and awarded no-fault benefits in the amount of $21,330.00 (id.). The no-fault arbitrator found that plaintiff had not overcome the presumption of medical necessity, and reasoned that another no-fault arbitrator had rejected the same peer review report (id., at 2).

By a decision dated October 27, 2021, a master arbitrator affirmed the award of the no-fault arbitrator (NYSCEF Doc. No. 2, Master Arbitration Award).

Pursuant to Insurance Law § 5106 (c), plaintiff commenced this action seeking de novo adjudication of the dispute. Issue was joined on or about March 21, 2022 (see NYSCEF Doc. No. 2, answer).

On or about May 5, 2022, defendant served discovery demands upon plaintiff (see NYSCEF Doc. No. 3). On July 6, 2022, plaintiff brought the instant motion to compel defendant to comply with its discovery demands (see NYSCEF Doc. No. 4).

On or about October 5, 2022, plaintiff opposed the motion and served its discovery response (see NYSCEF Doc. No. 8, affidavit of service). In reply, defendant argued that the responses were deficient (see NYSCEF Doc. No. 11, reply affirmation of plaintiff’s counsel ¶ 12).

On November 28, 2022, plaintiff served supplemental discovery responses (NYSCEF Doc Nos. 14-19).

Without any prior court approval, on January 18, 2023, plaintiff served a supplemental affirmation in opposition, with additional exhibits (NYSCEF Doc. Nos. 20-22). Similarly also without prior court approval, on January 18, 2023, defendant served supplemental reply papers (NYSCEF Doc. Nos. 23-24).

On January 20, 2023, defendant’s motion to compel was marked fully submitted and assigned to this court.

On February 8, 2023, this court held oral argument. At oral argument, defendant’s counsel clarified that defendant’s motion to compel was narrowed to items No.2 and #14 of defendant’s demand for discovery and inspection dated May 5, 2022.


DISCUSSION

CPLR 3101 (a) directs that there shall be “full disclosure of all evidence material and necessary in the prosecution or defense of an action” (id.). “The test is one of usefulness and reason” (Allen v. Crowell-Collier Publ. Co., 21 NY2d 403, 407 [1968]). CPLR 3101 “embodies the policy determination that liberal discovery encourages fair and effective resolution of disputes on the merits, minimizing the possibility for ambush and unfair surprise” (Spectrum Sys. Intern. Corp. v Chem. Bank, 78 NY2d 371, 376 [1991]).

“Liberal discovery is favored and pretrial disclosure extends not only to proof that is admissible but also to matters that may lead to the disclosure of admissible proof” (Twenty Four Hour Fuel Oil Corp. v Hunter Ambulance, 226 AD2d 175-176 [1st Dept 1996]). “[T]he acid test [*2]for disclosure of information is not whether the party can make out a prima facie case without the evidence, but whether he or she can make out a more persuasive case with it.” (6 Weinstein-Korn-Miller, NY Civ Prac CPLR ¶ 3101.08). However, “[u]nder our discovery statutes and case law, competing interests must always be balanced; the need for discovery must be weighed against any special burden to be borne by the opposing party” (Kavanagh v Ogden Allied Maintenance Corp., 92 NY2d 952, 954 [1998][quotation marks and citation omitted]).

“A motion court is afforded broad discretion in supervising disclosure and its determinations will not be disturbed unless that discretion has been clearly abused” (Youwanes v Steinbrech, 193 AD3d 492 [1st Dept 2021] [internal quotation marks and citation omitted]).

As a threshold matter, this court accepts the parties’ supplemental submissions (NYSCEF Doc. Nos. 14-25), given the absence of prejudice to either side.

Item 14 of defendant’s demand for discovery and inspection dated May 5, 2022 requests “A full copy of ‘s [sic] claim file(s) and SIU file(s) and reports relating to this matter” (see NYSCEF Doc. No. 3).

In response, Jessica Mena-Sibrian, a No-Fault Litigation/Arbitration Supervisor employed by plaintiff, averred, “there is no SIU file for this matter” (NYSCEF Co. No. 18, aff of Jessica Mena-Sibrian ¶ 4). Mena-Sibrian explained,

“In the ordinary course of business, a SIU file would be created on a claim if an examiner makes a request for it or for a signed statement. The claims file for this matter does not contain any such request and, therefore, no SIU file was created. There is no existing SIU file or reports regarding any type of insurance investigation to provide to Defendant”

(id. ¶ 5). Because defendant’s representative stated under oath that no SIU file exists, so much of plaintiff’s motion which seeks to compel production of the SIU file is denied.

As to the full copy of plaintiff’s claim file, plaintiff stated in its supplemental responses to defendant’s demands for discovery and inspection,

“ANSWER: As to 1-17, the Plaintiff objects to this interrogatory to the extent that it seeks information that is irrelevant, overly broad, privileged and unrelated to the issue in this case. Copies of any document relevant to this claim is hereto annexed, if any”
(NYSCEF Doc. No. 22).

First, as defendant points out, plaintiff’s initial response to defendant’s discovery demands were untimely served on or about October 5, 2022, well after 20 days of service of those demands on May 5, 2022 (see CPLR 3122). “Accordingly, plaintiff waived objection[s] based on any ground other than privilege or palpable impropriety” (Khatskevich v Victor, 184 AD3d 504, 505 [1st Dept 2020]; see also Accent Collections, Inc. v Cappelli Enter., 84 AD3d 1283, 1284 [2d Dept 2011]; Duhe v Midence, 1 AD3d 279, 280 [1st Dept 2003]).

Here, in opposition to defendant’s motion, plaintiff does not assert any specific privilege against production of the claim file. As defendant points out,

“The payment or rejection of claims is a part of the regular business of an insurance [*3]company. Consequently, reports which aid it in the process of deciding whether to pay or reject a claim are made in the regular course of its business. Reports prepared by insurance investigators, adjusters, or attorneys before the decision is made to pay or reject a claim are not privileged and are discoverable, even when those reports are mixed/multi-purpose reports, motivated in part by the potential for litigation with the insured”

(Advanced Chimney, Inc. v Graziano, 153 AD3d 478, 480 [2d Dept 2017] [internal citations, quotation marks, and emendation omitted]; see also Venture v Preferred Mut. Ins. Co., 153 AD3d 1155, 1159 [1st Dept 2017]). Therefore, plaintiff demonstrated entitlement to production of the entire claim file, which must be provided to defendant within 60 days.

Contrary to plaintiff’s contention, plaintiff’s supplemental response to item 14 did not render defendant’s motion academic.

Plaintiff’s response to item 14 was insufficient. “Whenever a person is required pursuant to such notice or order to produce documents for inspection, that person shall produce them as they are kept in the regular course of business or shall organize and label them to correspond to the categories in the request” (CPLR 3122). Here, plaintiff did not label which items attached to its discovery response were part of the claim file. Thus, it is not possible for the court to determine that plaintiff had, in fact, turn over the entire claim file.

Turning to item 2, defendant demanded,

“If any other action or arbitration has been filed by or on behalf of Defendant or EIP with respect to the accident underlying the within dispute, a copy of the pleadings in such court action(s) or, if arbitration was commenced, a copy of the arbitration request form(s) (AR-1) and of any letter scheduling conciliation filings and deadlines. Also provide copy of any Decision, Order, Stipulation, Arbitration Award, Consent Agreement, and/or any other determination, however named and whether final or non-final, issued in the court action or arbitration proceedings”
(NYSCEF Doc. No. 3).

At oral argument, defendant’s counsel explained that the information was sought for the purpose of discovering a determination on the issue of medical necessity from any actions or arbitrations that could be used as collateral estoppel against plaintiff in this action.

In the court’s view, the demand is overly broad on its face (see Country-Wide Ins. Co. v Long Is. Spine Specialists PC, 2021 NY Slip Op 30115[U], *3 [Sup Ct, NY County 2021]). The scope of the demand covers documents about any actions or arbitrations “with respect to the underlying accident,” which could therefore include the universe of services provided to the assignor that might not implicate the issue of the medical necessity of the shoulder surgery—such as services provided to the assignor which either predated the shoulder surgery, or services that were not ancillary to the shoulder surgery, such as physical therapy or pharmaceuticals provided for pain management. While the demand could be narrowed, “it is not the court’s obligation to prune those pre-litigation devices” (Kimmel v Paul, Weiss, Rifkind, Wharton & Garrison, 214 AD2d 453, 453-454 [1st Dept 1995]).

Additionally, the expense and burden upon plaintiff to produce these documents is [*4]disproportionate to likelihood that the information sought could lead to a determination that could be used as collateral estoppel in this action. Defendant is already aware of another adverse determination of medical necessity from another arbitration, which was referenced in the award of the no-fault arbitrator.

Having weighed the need for discovery against the burden to plaintiff (Kavanagh, 92 NY2d at 954), an order compelling plaintiff to comply with item 2 of defendant’s demand for discovery and inspection dated May 5, 2022 is denied.


CONCLUSION

Upon the foregoing cited papers, it is hereby ORDERED that defendant’s motion to compel (Motion Seq. No. 001) is GRANTED TO THE EXTENT that plaintiff is directed to produce the entire claim file to defendant within 60 days, and plaintiff’s motion is otherwise denied.

This constitutes the decision and order of the court.

Dated: March 8, 2023
New York, New York
ENTER:

________________________________
RICHARD TSAI, J.
Judge of the Civil Court

Country-Wide Ins. Co. v Henderson (2022 NY Slip Op 51304(U))

Reported in New York Official Reports at Country-Wide Ins. Co. v Henderson (2022 NY Slip Op 51304(U))



Country-Wide Insurance Company, Plaintiff,

against

Steven Henderson, LIFELINE MEDICAL IMAGING, P.C, MAJESTIC MEDICAL IMAGING, P.C., AUTUMN PT, P.C., EAST NEW YORK MEDICAL HEALTHCARE, P.C., 334 GRAND CONCOURSE MEDICAL, P.C., DYE MEDICAL SUPPLY CORP, and AWAD PHYSICAL THERAPY, P.C., Defendants.

Index No. 656455/2022

Law Office of Jaffe & Velazquez, LLP, New York, NY (Carl J. Gedeon of counsel), for plaintiff.

Rybak Law Firm, PLLC, Brooklyn, NY (Oleg Rybak of counsel), for defendants Lifeline Medical Imaging, P.C. and 334 Grand Concourse Medical, P.C.

No appearance for defendant Autumn PT, P.C.

Gerald Lebovits, J.

In this no-fault-insurance-coverage action, plaintiff, Country-Wide Insurance Company, moves for summary judgment under CPLR 3212 against defendants Lifeline Medical Imaging, P.C., Autumn PT, P.C., and 334 Grand Concourse Medical, P.C., all medical-provider assignees of the eligible injured person (defendant Steven Henderson) that have appeared in this action. Lifeline Medical and 334 Grand Concourse (represented by the same counsel) have filed opposition papers. Autumn PT has not. The summary-judgment motion is denied without prejudice.

Country-Wide seeks a declaration of no coverage on the ground that Henderson failed twice to appear for duly scheduled examinations under oath (EUOs), vitiating coverage both for himself and for his assignees. In opposition, Lifeline Medical/334 Grand Concourse (opposing defendants) raise three main categories of arguments: (i) Country-Wide has not shown the EUOs were timely and properly scheduled; (ii) Country-Wide has not provided sufficient justification for having requested the EUOs; and (iii) Country-Wide moved for summary judgment prematurely before defendants could obtain discovery.

This court disagrees with the arguments made by opposing defendants with respect to the timeliness of Country-Wide’s EUO requests. As this court recently observed, many of those arguments are foreclosed by existing Appellate Division precedent (see Country-Wide Ins. Co. v Duff, 2022 NY Slip Op 51289[U], at *1 [Sup Ct, NY County Dec. 20, 2022]); and the remaining arguments are unpersuasive.

The court reaches a different conclusion about the issue of Country-Wide’s justification for asking Henderson to appear for EUOs. The governing regulations provide that a no-fault insurer must have a “specific objective justification supporting the use of such examination.” (11 NYCRR 65-3.5 [e].) If a medical-provider assignee defending a no-fault-coverage action questions whether the insurer had a proper basis for seeking the EUO, the insurer must identify its justification for the EUO request;[FN1] in the “absence of any justification for the EUO,” the insurer cannot “establish, as a matter of law, that it complied with the governing regulations.” (Country-Wide Ins. Co. v Delacruz, 205 AD3d 473, 474 [1st Dept 2022]; accord Kemper Independence Ins. Co. v AB Med. Supply, Inc., 187 AD3d 671, 671 [1st Dept 2020].)

The affidavit of Country-Wide’s no-fault supervisor (Jessica Mena-Sibrian), submitted as part of Country-Wide’s opening motion papers, offers two justifications for seeking Henderson’s EUO: (i) “material facts surrounding the accident required clarification”; and (ii) “there is also a lapse of time between the date of the accident and the time the claimant first seeks treatment.” (NYSCEF No. 27 at ¶ 10.) The conclusory assertion that Country-Wide needed clarification about the facts of the accident, with no indication of what facts needed to be clarified, or why, is not sufficient. (See Country-Wide Ins. Co. v Delacruz, 71 Misc 3d 247, 251-252 [Sup Ct, NY County 2021], affd 205 AD3d 473.)

With respect to the lapse of time asserted by the Mena-Sibrian affidavit, that affidavit does not identify the basis of her knowledge for that assertion. Nor do the documents submitted by Country-Wide remedy this gap. At most, Country-Wide has provided the NF-3 treatment bills on which it relies to establish the timeliness of its EUO request, which reflect that approximately nine weeks elapsed between the date of the accident and the dates of treatment for which payment was being sought. (See NYSCEF NO. 30 at 1-2.) But Country-Wide has not shown that those bills were the first NF-3 forms it received from one of Henderson’s treating providers, or that the dates of service on the NF-3 bills submitted by Country-Wide were the earliest dates of treatment. Additionally, Country-Wide’s attorney affirmation submitted on reply, professing to rely on the Mena-Sibrian affidavit, offers an entirely different set of justifications, namely that “medical or lost earnings claim is extensive, but collision is a minor impact with minimal property damage to vehicles,” and that the “police report indicated no one involved sustained any injury and/or medical treatment at scene was refused.”[FN2] (NYSCEF No. 71 at ¶ 39.) Given Country-Wide’s failure on this motion to identify and document a consistent justification for its EUO request, Country-Wide is not entitled on this record to summary judgment.

For similar reasons, this court agrees with opposing defendants that Country-Wide’s summary-judgment motion must be denied under CPLR 3212 (f) as premature. The record reflects that Country-Wide moved for summary judgment only two months after opposing defendants filed their answer and served discovery requests, without Country-Wide’s having provided the discovery being sought. (See NYSCEF Nos. 13 [discovery request], 34 [notice of motion].) The “reason for the EUO request is a fact essential to justify opposition to plaintiff’s summary judgment motion” that is “exclusively within the knowledge and control of the movant.” (American Tr. Ins. co. v Jaga Med. Servs., P.C., 128 AD3d 441, 441 [1st Dept 2015].) As a result, a summary-judgment motion brought before the insurer has responded to a discovery request seeking that reason—as true here—is premature. (AB Med. Supply, 187 AD3d at 671; accord Delacruz, 205 AD3d at 473.)

As noted above, defendant Autumn PT has not opposed Country-Wide’s summary-judgment motion. At the same time, this court’s conclusion that the summary-judgment motion is premature and that defendants must be afforded a sufficient opportunity to obtain discovery from Country-Wide applies equally to Autumn PT as to the opposing defendants. Country-Wide’s request for summary judgment is therefore denied as against Autumn PT, in addition to opposing [*2]defendants (Lifeline Medical and 334 Grand Concourse).

Accordingly, it is

ORDERED that Country-Wide’s motion for summary judgment is denied without prejudice; and it is further

ORDERED that Country-Wide serve a copy of this order with notice of its entry on Lifeline Medical, 334 Grand Concourse, and Autumn PT.

12/21/2022

Footnotes

Footnote 1:The assignee may raise the issue of the insurer’s EUO justification whether or not the eligible-injured-person assignor asked the insurer to provide that justification when the insurer first noticed the assignor’s EUO. (See Country-Wide Ins. Co. v Delacruz, 205 AD3d 473, 474 [1st Dept 2022].) Country-Wide’s assertion that any objection to the basis for the EUO has been waived is thus foreclosed by Appellate Division precedent. (See NYSCEF No. 71 at ¶ 58.) And that a no-fault insurer “need not provide a copy of its internal guidelines for requesting an EUO” (id. at ¶ 57) does not excuse the insurer from making “a more limited disclosure of the specific facts that, applied to those internal standards in a given case, prompted the insurer to request an EUO.” (Kemper Independence Ins. Co. v Accurate Monitoring, LLC, 73 Misc 3d 585-590 [Sup Ct, NY County 2021] [internal quotation marks omitted].)

Footnote 2:Country-Wide has not submitted the police report on this motion.

Country-Wide Ins. Co. v Duff (2022 NY Slip Op 51289(U))

Reported in New York Official Reports at Country-Wide Ins. Co. v Duff (2022 NY Slip Op 51289(U))



Country-Wide Insurance Company, Plaintiff,

against

Chohayea Duff, THE JAMAICA HOSPITAL MEDICAL CENTER DIAGNOSTIC AND TREATMENT CENTER CORPORATION, QUALITY CUSTOM MEDICAL SUPPLY, INC., MARIA SHIELA MASIGLA-BUSLON D.P.T., JULES FRANCOIS PARISIEN M.D., ATLAS RADIOLOGY P.C., ENERGY CHIROPRACTIC, P.C., KINGS REHAB ACUPUNCTURE P.C., AB MEDICAL SUPPLY INC, STRATEGIC MEDICAL INITIATIVES P.C., ZHONG QING ZHOU L.A.C., M BUSLON PHYSICAL THERAPY, P.C., and GUY BREWER PHARMACY, INC., Defendants.

Index No. 655628/2021

Law Office of Jaffe & Velazquez, LLP, New York, NY (Carl J. Gedeon of counsel), for plaintiff.

Rybak Law Firm, PLLC, Brooklyn, NY (Oleg Rybak of counsel), for defendants Chohayea Duff, Maria Shiela Masigla-Buslon, D.PT., Energy Chiropractic, P.C., Kings Rehab Acupuncture, P.C., AB Medical Supply Inc., Strategic Medical Initiatives, P.C., and M. Bulson Physical Therapy, P.C.

Gerald Lebovits, J.

This is a no-fault-insurance-coverage action. On motion sequence 001, plaintiff, Country-Wide Insurance Company, moves without opposition for default judgment under CPLR 3215 against nonappearing defendants Quality Custom Medical Supply, Inc., Atlas Radiology P.C., Zhong Qing Zhou L.A.C., and Guy Brewer Pharmacy, Inc., all medical-provider assignees of the eligible injured person, defendant Chohayea Duff.

On motion sequence 002, Country-Wide moves for summary judgment under CPLR 3212 against appearing defendants Duff and the remaining medical-provider assignees. The motion is opposed by all appearing defendants except Jamaica Hospital Medical Center Diagnostic and Treatment Center Corp.

Country-Wide’s default-judgment and summary-judgment motions are granted.

DISCUSSION

1. Default Judgment (Mot Seq 001) A party moving for default judgment must establish proper service, default, and the facts constituting the moving party’s claims. Country-Wide has established proper service on the four defendants who are the subject of its default-judgment motion, none of which have appeared. And Country-Wide has provided affidavits from its employees, supported by attached documentation, establishing that Country-Wide timely and properly requested that Duff appear for an independent medical examination (IME), and that Duff twice failed without justification to appear for scheduled IMEs. That suffices to establish Country-Wide’s claim for default judgment purposes.

2. Summary Judgment (Mot Seq 002) Country-Wide’s summary-judgment motion papers, based on the same affidavits and exhibits as its default-judgment motion, establishes prima facie that Country-Wide is entitled to judgment as a matter of law. And this court concludes that the opposing defendants fail to raise a dispute of material fact warranting trial.

Defendants, relying on an outdated and boilerplate affirmation of counsel, raise three principal legal arguments, and one factual one.[FN1] (See NYSCEF No. 60.) None of defendants’ legal arguments has merit—indeed, they are foreclosed by controlling appellate precedent that counsel for defendants does not even acknowledge, much less address.[FN2]

First, defendants contend that Country-Wide has not shown that Country-Wide’s initial IME request was timely relative to when Country-Wide received Duff’s NF-2 application for no-fault benefits. But the triggering date that begins the IME-request period is not receipt of the NF-2 benefits application, but instead receipt of NF-3 claims for payment submitted by treating providers. (See 11 NYCRR 65-3.5 [a]-[b]; Unitrin Direct Ins. Co. v Beckles, 188 AD3d 620, 621 [1st Dept 2020] [explaining that a timely request for an IME must be made within 15 days of receipt of an NF-3 medical-provider claim].)

Second, defendants assert that Country-Wide has failed to meet its (putative) obligation to show that its initial IME request was timely relative to the first bill it received from each treating medical provider. But Country-Wide is not required to make that showing. Rather, as the Appellate Division, First Department has held, the nonappearance coverage defense applies to any claim received by a no-fault insurer, rather than being “determined on a bill by bill basis.” (PV Holding Corp. v AB Quality Health Supply Corp., 189 AD3d 645, 646 [1st Dept 2020].) The insurer is required only to show that a request for an IME or examination under oath (EUO) is made within 15 days of receipt “of a medical provider claim (NF-3).” (Beckles, 188 AD3d at 61 [emphasis added]; see also Unitrin Advantage Ins. Co. v Dowd, 194 AD3d 507, 507 [1st Dept 2021] [holding that as long as an EUO was timely and properly requested of an assignee relative to a claim, the failure to appear for the EUO will “void[] the policy ab initio as to all claims” by the assignee].[FN3] )

Third, defendants claim that Country-Wide’s motion fails because it has not shown when it made its initial IME request relative to receiving NF-3 claims from defendants, in particular. Again, that showing is not required. As the First Department held in 2020, if a no-fault insurer establishes that the eligible injured person failed twice to appear an IME scheduled within 15 days of receipt of an NF-3 bill, “summary judgment is properly awarded to the insurer with respect to further coverage obligations and reimbursement of outstanding medical bills with respect to all treating providers.” (Beckles, 188 AD3d at 621 [emphasis added].) This rule follows from the basic principle that medical-provider assignees stand in the shoes of their eligible-injured-person assignor. If an assignor’s claim is properly denied due to IME nonappearances, then the claims of all assignees are subject to denial, whether or not the IME was requested based on a given assignee’s requests for payment.

In addition to the legal arguments discussed above, defendants also raise the factual argument that Country-Wide has not properly authenticated the NF-3 forms on which Country-Wide relies to show the timeliness of its IME request. This court disagrees. Country-Wide has [*2]provided an affidavit from its no-fault supervisor that identifies several claims it has received from different providers, specifying the provider, the date received, the dates of service, and the amount of the bill. (NYSCEF No. 54 at ¶ 9.) Country-Wide has provided copies of those bills. (See NYSCEF No. 58.) And Country-Wide’s affirmation of counsel represents that the documents contained at NYSCEF No. 58 are copies of the bills that Country-Wide received. (NYSCEF No. 43 at ¶¶ 21-22.) These sworn representations, taken together, are sufficient.

Finally, defendants contend that Country-Wide’s summary-judgment motion is premature under CPLR 3212 (f) because discovery remains outstanding. This court is not persuaded. To be sure, in some circumstances it may be the case that an insurer’s early summary-judgment motion in a no-fault-coverage action is premature because it forecloses the provider defendants from obtaining discovery necessary to oppose the motion. (See Country-Wide Ins. Co. v Evans, 2022 NY Slip Op 33966[U], at *2 [Sup Ct, NY County Nov. 21, 2022] [denying insurer’s summary-judgment motion as premature].) But here, the record reflects that defendants served discovery requests on Country-Wide in November 2021 (simultaneous to their filing of the answer); and that within a week of service, defendants had not only received responses to those requests, but written back to Country-Wide objecting to them as incomplete. (See NYSCEF Nos. 19-20.) A year then elapsed before Country-Wide moved for summary judgment. (See NYSCEF No. 41 [notice of motion].) This court is not aware of any effort by defendants during that year to obtain additional discovery from Country-Wide—for example, through moving to compel, or simply requesting a discovery conference with the court. Given defendants’ ample opportunity to obtain discovery in these circumstances, Country-Wide’s summary-judgment motion is not premature.

Country-Wide’s default-judgment motion against the defaulting defendants (mot seq 001) is granted without opposition. The branch of Country-Wide’s motion seeking summary judgment against defendant Jamaica Hospital Medical Center Diagnostic and Treatment Center Corp. (mot seq 002) is granted without opposition. The branch of Country-Wide’s motion seeking summary judgment against the remaining defendants (mot seq 002) is granted.

Settle Order.

DATE 12/20/2022

Footnotes

Footnote 1:All defendants opposing summary judgment are represented by the same counsel (the Rybak Firm, PLLC) and have filed one set of opposition papers.

Footnote 2:Country-Wide has not requested sanctions under 22 NYCRR 130-1.1. But this court is troubled by the extent to which defendants’ counsel repeatedly make the same rejected arguments in no-fault-coverage litigation, seemingly without regard to whether those arguments have any merit in existing law or are reasonable arguments for a change in that law. This is the second time in two years that this court has felt obliged to take the time to walk through why counsel’s arguments are (still) foreclosed by binding precedent. (See Country-Wide Ins. Co. v Ware, 2021 NY Slip Op 50506[U], at *2-3 [Sup Ct, NY County May 28, 2021].) The court hopes that a third such decision will not be required in the future.

Footnote 3:The First Department’s decision in Dowd reversed a decision of the undersigned on which defendants rely. (See NYSCEF No. 60 at ¶ 25, citing 2020 NY Slip Op 50594[U] [Sup Ct, NY County May 21, 2020].) Defendants do not mention that reversal.

American Tr. Ins. Co. v Graves (2022 NY Slip Op 51273(U))

Reported in New York Official Reports at American Tr. Ins. Co. v Graves (2022 NY Slip Op 51273(U))



American Transit Insurance Company, Plaintiff,

against

Shawarbi Graves, ADVANCED ORTHOPAEDICS, P.L.L.C., DR. RONALD P. MAZZA, HECTOR MELGAR, PT P.C., NASSAU HEALTH CARE CORP, NASSAU OPEN MRI P.C., NASSAU UNIVERSITY MEDICAL CENTER, ORTHOPRO SERVICES, INC., PROMPT MEDICAL SPINE CARE, PLLC, and STAND-UP MRI OF CARLE PLACE, P.C., Defendants.

Index No. 159039/2021

Law Office of Daniel J. Tucker, Brooklyn, NY (Megan Harris of counsel), for plaintiff.

Law Offices of Dominick W. Lavelle, Locust Valley, NY (Emily K. Lavelle of counsel), for defendant Shawarbi Graves.

No appearances for remaining defendants.

Gerald Lebovits, J.

In this no-fault-insurance-coverage action, plaintiff, American Transit Insurance Company, moves for default judgment against the eligible injured person, defendant Shawarbi Graves, and a number of medical-provider assignees of defendant Graves. Plaintiff’s motion is denied as to defendants Graves, Dr. Ronald P. Mazza, Nassau Health Care Corp., and Nassau University Medical Center; and granted as to [*2]defendants Hector Melgar, PT P.C., Orthopro, Services, Inc., Prompt Medical Spine Care, PLLC, and Stand-Up MRI of Carle Place, P.C.[FN1]

To obtain default judgment under CPLR 3215, a plaintiff must establish proper service on the defendant, the defendant’s default, and the facts constituting plaintiff’s claims. American Transit cannot show proper service on Graves, Mazza, Nassau Health Care, or Nassau University Medical Center.

American Transit commenced this action on October 1, 2021. (NYSCEF No. 1.) American Transit therefore was required to serve defendants within 120 days from that day. (See CPLR 306-b.) The 120th day of the period, January 29, 2022, was a Saturday, making American Transit’s deadline January 31. (See General Construction Law § 25-a.) But American Transit’s affidavits of service reflect that it did not serve Mazza, Nassau Health Care, and Nassau University Medical Center until February 4, 2022. (See NYSCEF No. 4 at 3, 5, 7 [affidavits of service].) And American Transit did not serve Graves until February 22, 2022.[FN2] (NYSCEF No. 4 at 1.)

The length of these delays in service is not significant. But American Transit did not, then or later, seek additional time to serve these four defendants. Nor do American Transit’s papers on the current motion address this issue. (See NYSCEF No. 11 [affirmation of counsel].) This court may not sua sponte dismiss American Transit’s claim against these four defendants for untimely service (Daniels v King Chicken & Stuff, Inc., 35 AD3d 345, 345 [2d Dept 2006]); but absent proper service, no basis exists to grant default judgment against them, either.[FN3]

The other defendants (Melgar, Orthopro, Prompt Medical, and Stand-Up MRI), were each timely served in December 2021. (See NYSCEF No. 3.) None of these defendants have answered or sought additional time to answer. And American Transit has provided the facts constituting its claims against these defendants. American Transit’s motion papers establish for default-judgment purposes that it timely requested and scheduled an independent medical examination, as required by 11 NYCRR 65-3.5; and that Graves twice failed without good cause to appear for the duly scheduled examinations. (See Unitrin Advantage Ins. Co. v. Bayshore Physical Therapy, PLLC, 82 AD3d 559, 560 [1st Dept 2011].)

Accordingly, it is

ORDERED that the branch of American Transit’s motion seeking default judgment under CPLR 3215 against Melgar, Orthopro, Prompt Medical, and Stand-Up MRI is granted without opposition, and American Transit is directed to settle order with respect to judgment against those defendants; and it is [*3]further

ORDERED that the branch of American Transit’s motion seeking default judgment under CPLR 3215 against Graves, Mazza, Nassau Health Care, and Nassau University Medical Center is denied; and it is further

ORDERED that if American Transit does not bring a renewed motion for default judgment against defendants Mazza, Nassau Health Care, and Nassau University Medical Center within 30 days of entry of this order, the action will be dismissed as against those defendants.

12/14/2022

Footnotes

Footnote 1:Plaintiff settled its claims against the remaining defendant, Advanced Orthopaedics, P.L.LC. (NYSCEF No. 29), and does not seek relief against it on this motion.

Footnote 2:American Transit served Graves by leave-and-mail under CPLR 308 (2), on February 19, 2022, and February 22, 2022, respectively. (See NYSCEF No. 4 at 1.)

Footnote 3:In any event, American Transit has not properly established that Graves defaulted. Given leave-and-mail service, Graves’s time to appear and respond expired 40 days from the filing of the affidavit of service, which occurred here on June 15, 2022. (See NYSCEF No. 4; CPLR 308 [2]; CPLR 320 [a].) Graves’s deadline to appear and respond, therefore, was July 25, 2022. Graves filed an answer on July 26, 2022. (NYSCEF No. 8.) Although that answer was one day late, American Transit did not serve a notice of rejection; nor separately argue in its default-judgment motion—filed on August 7, 2022—that Graves’s answer was late. As a result, American Transit waived Graves’s one-day default. (See U.S. Bank N.A. v Lopez, 192 AD3d 849, 850 [2d Dept 2021].) For that matter, even absent waiver, this court would be inclined to grant Graves a retroactive one-day enlargement of time under CPLR 2004, were that enlargement requested.

State Farm Mut. Auto. Ins. Co. v Emote Med. Servs., P.C. (2022 NY Slip Op 50818(U))

Reported in New York Official Reports at State Farm Mut. Auto. Ins. Co. v Emote Med. Servs., P.C. (2022 NY Slip Op 50818(U))



State Farm Mutual Automobile Insurance Company and
STATE FARM FIRE AND CASUALTY COMPANY, Plaintiffs,

against

Emote Medical Services, P.C., Defendant.

Index No. 151954/2022

Rivkin Radler LLP, Uniondale, NY (Vincent J. Pontrello of counsel), for plaintiffs.

No appearance for defendant.


Gerald Lebovits, J.

In this action, plaintiffs seek a declaratory judgment relating to no-fault insurance coverage. Unlike the typical no-fault declaratory-judgment action, plaintiffs do not seek relief against a range of medical providers who have each claimed benefits for treatment provided following a particular covered automobile collision. Instead, plaintiffs have brought this action against one provider, addressing benefits claims for treatment provided following dozens of collisions. (See NYSCEF No. 1 at カ 1 [verified complaint]; NYSCEF No. 2 [listing claims].)

Plaintiffs allege that they denied each of these claims because defendant failed in each instance to appear for a properly requested examination under oath (EUO). (NYSCEF No. 1 at カカ 26-32.) They allege that these EUOs were aimed at ascertaining whether defendant is ineligible to collect no-fault benefits under 11 NYCRR 65-3.16 (a) (12) due to, among other things, being controlled by nonphysicians in willful violation of New York law. (Id. at カカ 23-24; see Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 33 NY3d 389, 403-405 [2019] [*2][discussing this ground for denying no-fault claims].)

Plaintiffs now move without opposition for default judgment under CPLR 3215. The motion is denied.

DISCUSSION

Plaintiffs’ motion papers establish that defendant was properly served; and defendant has not appeared. The question is thus whether plaintiffs’ verified complaint, standing alone, provides proof of the facts constituting plaintiff’s claim. (See CPLR 3215 [f].) It does not.

A plaintiff denying a provider’s claim for no-fault benefits based on asserted failures to appear for an EUO must demonstrate that the EUO was timely and properly requested. (See Liberty Mut. Ins. Co. v Carranza, 2021 NY Slip Op 50284[U], at *1-2 [Sup Ct, NY County Apr. 7, 2021], citing American Transit Ins. Co. v Longevity Med. Supply, Inc., 131 AD3d 841, 841 [1st Dept 2015].) Plaintiffs have not satisfied these requirements.

Plaintiffs’ verified complaint alleges only that “[e]ach request was timely made,” that plaintiffs then “issued a timely denial on the prescribed denial on the prescribed NF-10 form,” and that these denials “were timely, proper, and consistent with the No-Fault Laws.” (NYSCEF No. 1 at カカ 27, 31, 32.) Given the dozens of bills, EUO requests and follow-up requests, and denials involved (see NYSCEF No. 2 [list of claims]), these conclusory statements are insufficient. That is particularly true since plaintiffs have not submitted any evidence that the many EUO requests, follow-up requests, and denials in question were not simply generated by plaintiffs, but also correctly addressed and mailed to defendant. Plaintiffs do provide a lengthy, detailed chart of bills and EUO requests, organized by the underlying benefits claim. (See id.) That chart, however, omits the most important date for purposes of assessing timeliness—the date on which plaintiffs received the bills. (See id.; 11 NYCRR 65-3.5 [b] [requiring insurers to request EUO-based verification within 15 business days of receiving a provider bill].)

Additionally, the complaint alleges that defendant has “systematically failed and/or refused to appear for an EUO” on many occasions over the past year. (NYSCEF No. 1 at カ 29.) This allegation treats a failure to appear and a refusal to appear as interchangeable. But that is not necessarily so. For example, a provider may properly condition its appearance at an EUO on receiving the insurer’s specific objective justification for requesting the EUO under 11 NYCRR 65-3.5 (e). (See Kemper Independence Ins. Co. v Accurate Monitoring, LLC, 73 Misc 3d 585, 586-587, 589 [Sup Ct, NY County 2021].) Plaintiffs’ motion papers do not address whether defendant ever made that kind of request—or, if it did, what the response was.[FN1] Similarly, [*3]although plaintiffs allege that each EUO request to defendant “endeavored to select places and times for the EUO that would be convenient to [defendant] and advised that a change of time, date, manner and location would be considered if requested” (NYSCEF No. 1 at カ 28), plaintiffs do not say whether defendant ever did request a change of that type for logistical/convenience reasons, and, if so, how plaintiffs responded.

Moreover, plaintiffs have not indicated whether any of defendant’s claims for treatment—or other benefits claims arising out of the numerous collisions underlying defendant’s treatment bills—have given rise to other no-fault proceedings by or against plaintiffs. It would be somewhat curious, given the sheer number of insurance claims appearing in plaintiffs’ EUO-request chart, if this action were the very first time that litigation involving one of those claims has arisen—possible, but curious. And if this action were not the first time that one of the no-fault claims identified in the chart has led to litigation, plaintiffs’ declaratory-judgment claims here would be subject to an obvious claim-preclusion objection.

Claim preclusion, to be sure, is an affirmative defense. (See CPLR 3211 [a] [5].) Plaintiffs thus were not required to rule it out in their complaint. For the same reason, the absence of any allegation addressing claim-preclusion-related issues is not itself grounds to deny plaintiffs’ default-judgment motion. But that absence does underscore the comparative thinness of plaintiffs’ motion papers compared to the typical showing in a no-fault coverage action—particularly given the number of claims and bills involved and the amount of money at stake.

The difficulty in this action is that plaintiffs’ true grievance appears to be their conclusion that defendant is not providing legitimate medical services and is ineligible under 11 NYCRR 65-3.16 (a) (12) to receive no-fault benefits. But this action does not pursue and support that grievance through seeking a declaration that speaks directly to defendant’s putative lack of eligibility. Instead, plaintiffs are seeking, in effect, to achieve that same result by relying on many asserted EUO-nonappearances to obtain a declaratory judgment supporting en masse plaintiffs’ denials of defendant’s treatment bills.

Proceeding in this manner might be simpler and more efficient from plaintiffs’ perspective than bringing many individual declaratory judgment actions, each premised on a particular failure of defendant to appear for an EUO. As reflected in the discussion above, though, the flip side of plaintiffs’ efficiency gains is that this court loses the information and documentation it needs to properly evaluate plaintiffs’ claims about defendant’s repeated EUO-nonappearances. (Cf. Travelers Indemnity Co. v Parisien, 2020 NY Slip Op 51561[U], at *3-4 [Sup Ct, Suffolk County Dec. 29, 2020] [expressing concern in a no-fault declaratory-judgment action about 13 different sets of treatment bills that “[u]ltimately, in the guise of convenience, plaintiffs are, in effect, seeking to circumvent the statutorily prescribed procedures that govern disputes between no-fault insurers and no-fault health services providers over the validity of reimbursement claims and the health services provider’s eligibility”].) In these circumstances, on this record, this court is loath to grant plaintiffs the default judgment that they seek.

At the same time, the court does not rule out the possibility that plaintiffs could still provide the details (and supporting documents) about their EUO requests needed to show that defendant repeatedly failed without justification to appear for timely and properly scheduled EUOs. The court thus sees no basis at this time to dismiss plaintiffs’ action altogether.

Accordingly, it is

ORDERED that plaintiffs’ motion for default judgment under CPLR 3215 is denied [*4]without prejudice; and it is further

ORDERED that if plaintiffs do not bring a renewed default-judgment motion within 60 days of entry of this order, the action will be administratively dismissed; and it is further

ORDERED that plaintiffs serve a copy of this order with notice of its entry on defendant by certified mail, return receipt requested, directed to defendant’s last-known address.

DATE 8/24/2022

Footnotes

Footnote 1: Although the issue is not squarely presented by the current motion, plaintiff’s complaint does not provide that justification either. It alleges only that “various facts and circumstances . . . called into question” defendant’s eligibility to collect no-fault benefits and the legitimacy of defendant’s treatment and billing, without identifying any of those facts and circumstances. (NYSCEF No. 1 at 24.) That would not be sufficient under 11 NYCRR 65-3.5 (e), were the issue to be contested. (See Kemper Independence, 73 Misc 3d at 589 n 4; Country-Wide Ins. Co. v Delacruz, 71 Misc 3d 247, 251 [Sup Ct, NY County 2021], affd 205 AD3d 473, 473-474 [1st Dept 2022].)

Liberty Mut. Ins. Co. v Brutus (2022 NY Slip Op 50799(U))

Reported in New York Official Reports at Liberty Mut. Ins. Co. v Brutus (2022 NY Slip Op 50799(U))



Liberty Mutual Insurance Company and American States Insurance Company, Plaintiffs,

against

Edwine Brutus, ADVANCED COMPREHENSIVE LABORATORY LLC, ALL CITY FAMILY HEALTHCARE CENTER INC., FINE MOTOR PHYSICAL THERAPY PC, HERSCHEL KOTES MD PC, I AM SUPPLIES INC., JOURNEY ACUPUNCTURE PC, METRO PAIN SPECIALISTS PROFESSIONAL CORPORATION, MZY ACUPUNCTURE, NEXRAY MEDICAL IMAGING PC, NYC AXIS CHIROPRACTIC PC, SEDATION VACATION PERIOPERATIVE MEDICINE PLLC, TOP CHOICE PHARMACY CORP. AKA TOP CHOICE RX, and WAY TO REHAB PT PC, Defendants.

Index No. 654090/2020

Correia, Conway & Stiefeld, White Plains, NY (Richard Ahrens of counsel), for plaintiff.

Law Office of Gregory A. Goodman, P.C., Jericho, NY (Gregory Goodman of counsel), for defendant NYC Axis Chiropractic PC.

Gerald Lebovits, J.

In this no-fault insurance coverage action, plaintiffs Liberty Mutual Insurance Company and American States Insurance Company (together, Liberty Mutual) move for default judgment against the eligible injured person, defendant Edwine Brutus; and against non-appearing defendants I Am Supplies Inc., MZY Acupuncture PC, Nexray Medical Imaging PC, Sedation Vacation Perioperative Medicine PLLC and Way to Rehab PT PC, all medical-provider assignees of Brutus.

Appearing defendant NYC Axis Chiropractic PC cross-moves for summary judgment against Liberty Mutual. NYC Axis also cross-moves for sanctions, on the ground that Liberty Mutual erroneously named it in the initial default judgment motion and then failed to withdraw the motion quickly enough as against NYC Axis.

Liberty Mutual’s unopposed motion for default judgment is granted. The branch of NYC Axis’s cross-motion seeking sanctions is denied. The branch of NYC Axis’s cross-motion for summary judgment is granted in part and denied in part.


DISCUSSION

I. Liberty Mutual’s Default-Judgment Motion

To obtain default judgment under CPLR 3215, a movant must establish proper service on the subjects of the motion, defaults by those parties, and the facts constituting movant’s claim. Here, Liberty Mutual has established proper service and defaults. Additionally, Liberty Mutual has established, through affidavits and supporting documentation, the facts constituting its claim.

In particular, Liberty Mutual has shown that it timely asked Brutus to appear for an examination under oath (EUO) about whether he had been truthful and accurate on his application for insurance (see NYSCEF No. 24 [EUO scheduling letters]). Liberty Mutual has also demonstrated that Brutus appeared for his EUO but failed to respond fully to timely served post-EUO document requests. (See NYSCEF No. 27 [EUO transcript]; NYSCEF No. 28 [post-[*2]EUO document requests].) Liberty Mutual has provided an affidavit from one of its investigators representing that her investigation, coupled with Brutus’s EUO testimony, indicated he lived at a different address from the one he had used on his application. (NYSCEF No. 23.) And Liberty Mutual has provided an affidavit from one of its underwriters representing that had Brutus provided his true home address on the insurance application, the premium would have been almost double what he was charged. (NYSCEF No. 29.)

These facts, taken together, suffice to establish a prima facie case that Brutus committed a material misrepresentation in applying for insurance from Liberty Mutual. (See Starr Indem. & Liab. Co. v Monte Carlo, LLC, 190 AD3d 441, 441-442 [1st Dept 2021] [“A misrepresentation in an insurance application is material . . . if, had the true facts been known, either the insurer would not have issued the policy or would have charged a higher premium.”]; cf. Dyno v Rose, 260 AD2d 694, 698 [3d Dept 1999] [noting that the “affidavit of facts” supporting a default-judgment motion for default judgment must “establish a prima facie case” for relief].) This material misrepresentation, in turn, is a proper basis to deny claims for benefits brought by Brutus or his assignees. (See Matter of Insurance Co. of N. Am. v Kaplun, 274 AD2d 293, 298-299 [2d Dept 2000].)

Liberty Mutual’s motion for default judgment is granted.


II. NYC Axis’s Cross-Motion

A. The Branch of the Cross-Motion Seeking Sanctions

Liberty Mutual’s default-judgment motion initially sought judgment against NYC Axis, in addition to the other defendants named in the motion. (See NYSCEF No. 14 at 2 [notice of motion].) The attorney affirmation submitted in support of the motion stated that NYC Axis was in default because it did not timely answer. (See NYSCEF No. 15 at 4 ¶ 18.) But although NYC Axis’s answer was untimely, Liberty Mutual did not reject that answer when it was filed, thereby waiving Liberty Mutual’s right to act on the default. (See U.S. Bank N.A. v Lopez, 192 AD3d 849, 850 [2d Dept 2021].)

Liberty Mutual filed its motion on Friday, December 3, 2021. (NYSCEF No. 14.) The motion was returnable on January 4, 2022; it required under CPLR 2214 (b) that opposition papers be filed by December 28, 2021. (Id. at 1-2.) On Saturday, December 4, NYC Axis filed a letter to demand that Liberty Mutual withdraw its motion as against NYC Axis within five days or face a sanctions motion. (NYSCEF No. 37.) On Thursday, December 9, NYC Axis filed this cross-motion for summary judgment under CPLR 3212 and for sanctions under 22 NYCRR 130-1.1. (NYSCEF No. 39 [notice of cross-motion].) On December 16—less than two weeks after the motion was filed—Liberty Mutual withdrew the motion as against NYC Axis, conceding that seeking judgment against NYC Axis was an error. (NYSCEF No. 48.)

NYC Axis argues at length on reply that it should be awarded sanctions against Liberty [*3]Mutual anyway. (See NYSCEF No. 53 at 3-8.) This argument is groundless. Liberty Mutual did not, as NYC Axis asserts, act with “obstinacy” in “refus[ing] to withdraw its motion” (id. at ¶¶ 19, 25)—it merely did not withdraw the motion as rapidly as NYC Axis would have preferred. Additionally, given the timing, NYC Axis was not, as it suggests, “compelled . . . to seek judicial intervention to protect [its] client’s rights” against Liberty Mutual’s motion (id. at ¶ 14). Instead, NYC Axis chose to resort to motion practice only four business days after Liberty Mutual filed its default-judgment motion, and nearly three weeks before NYC Axis’s opposition papers would have been due. No basis for § 130-1.1 sanctions against Liberty Mutual exists on these facts.


B. The Branch of the Cross-Motion for Summary Judgment

NYC Axis also cross-moves for summary judgment on the merits, contending that it is entitled to payment on 10 bills for treatment (plus attorney fees) because Liberty Mutual did not timely deny them, and because the assertedly untimely denials were improper in any event.

The cross-motion is granted in part and denied in part. This court concludes that Liberty Mutual was required to pay or deny these 10 bills within 30 days of receiving the necessary verification. (See subsection II.B.1, infra.) Eight of the 10 bills were undisputedly denied. With respect to those eight bills, NYC Axis has not shown as a matter of law that the bills were untimely denied, or that the denials were substantively improper (See paragraph II.B.2.a, infra). With respect to the remaining two bills, NYC Axis has shown that Liberty Mutual failed to timely deny one of them, for $26.41. (See paragraph II.B.2.b, infra.) NYC Axis is thus entitled to summary judgment only on that one bill. It is not entitled to attorney fees as the prevailing party.


1. Whether Liberty Mutual’s denial of NYC Axis’s treatment bills was subject to the timeliness requirements of 11 NYCRR 65-3.8

NYC Axis argues that it is entitled as a matter of law to payment on the treatment bills it submitted to Liberty Mutual because those bills were not denied (or paid) within 30 days after Liberty Mutual received proof of NYC Axis’s claim, as required by 11 NYCRR 65-3.8 (a) and (c). The first issue this court must address, therefore, is whether the timeliness requirements of § 65-3.8 governed Liberty Mutual’s denial of these bills to begin with.

A no-fault insurer “that fails to deny a claim within the 30—day period is generally precluded from asserting a defense against payment of the claim.” (Fair Price Med. Supply Corp. v Travelers Indem. Co., 10 NY3d 556, 563 [2008] [internal quotation marks omitted].) A narrow but important exception to this preclusion rule exists where the ground for denying the claim (or the defense to a later claim for payment) is a lack of coverage: If “the insurance policy does not contemplate coverage in the first instance . . . requiring payment of a claim upon failure [*4]to timely disclaim” would improperly “create coverage where it never existed.”[FN1] (Id. [internal quotation marks omitted].)

The ground for Liberty Mutual’s denial of NYC Axis’s claims is that Brutus, NYC Axis’s assignor, made material misrepresentations in his application for no-fault insurance. Such material misrepresentations ordinarily will “void[] the policy ab initio,” thereby retroactively eliminating coverage altogether. (Starr Indem., 190 AD3d at 442.) A different rule applies, however, in the specific context of automotive insurance, including no-fault.

In that context, Vehicle and Traffic Law (VTL) § 313 is understood to “supplant an insurance carrier’s common-law right to cancel a contract of insurance retroactively on the grounds of fraud or misrepresentation,” mandating instead “that the cancellation of a contract pursuant to its provisions may only be effected prospectively.” (Liberty Mut. Ins. Co. v McClellan, 127 AD2d 767, 769 [2d Dept 1987].) This rule derives from the principle that “compulsory automobile liability insurance is not the concern solely of the insured and . . . insurer,” but “exists also for the protection of the public.” (Id. at 769-770.) Preventing an auto insurer from retroactively canceling a policy “protects innocent third parties who may be injured due to the insured’s negligence” and might otherwise struggle to obtain compensation for their injuries—contrary to the core purpose of compulsory auto insurance. (Kaplun, 274 AD2d at 298.)

Courts applying this rule against rescission have stressed that the rule does not leave an auto insurer “without means of redress” should it conclude that a policy was fraudulently obtained. (Id.) An insurer may argue that “the insured’s misrepresentations and/or fraud in obtaining the policy precludes any recovery by the insured.” (Id. at 298-299.) For that matter, the insurer may raise the same argument with respect to a claim under the policy by an insured’s medical provider assignees, which stand in the insured’s shoes and “deal[] with the assignor-insured at [their] peril in accepting an assignment of the insured’s no-fault benefits.” (AB Med. Servs. PLLC v. Commercial Mut. Ins. Co., 12 Misc 3d 8, 11 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists]; accord Central Radiology Services v. Commerce Ins Co., 2011 NY Slip Op 50948[U], at *2 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists May 23, 2011] [holding that when the insurer established that the insured-assignor was ineligible for coverage for having misrepresented his state of residence in obtaining insurance, the provider-assignee, standing in the insured’s shoes, could not recover from the insurer either].)

That an insurer may raise the insured’s material misrepresentations as a ground for denying claims by the insured or the insured’s assignees presents the question whether the insurer may do so outside 30-day regulatory window for paying or denying the claims set by 11 NYCRR 65-3.8. This is permissible only if denying a claim on material-misrepresentation grounds—but without rescinding the policy outright—is, in substance, raising a lack-of-coverage defense to the claim, rendering untimely-denial preclusion inapplicable.

There are strong arguments that a material-misrepresentations denial should be treated as being based on a lack-of-coverage defense. In raising the insured’s material misrepresentations as a ground for denial, the insurer is contending that the insured (or its assignee) is claiming the benefit of coverage that the insured should not have at the price it paid. This is the same basic contention that underlies an insurer’s argument that it should be permitted to vitiate coverage by rescinding a policy as fraudulently obtained. True, particular policy considerations in the automotive-insurance context foreclose outright rescission. Those considerations, though, are particular to the interests of third parties (and the public at large); they do not affect the relationship between insurer and insured, nor the arguments against denying the insured the benefit of a fraudulently obtained policy.

Put differently, a material-misrepresentation defense is not based on a breach of a policy condition, does not challenge the validity of the claimed charges, and does not call into doubt the right of an assignee to bring the claim. Thus, without speaking in coverage-related terms, it is difficult to explain why the material-misrepresentation defense should defeat a claim for a non-excluded loss within the scope of the policy. (See Fair Price Med. Supply, 10 NY3d at 565 [explaining that the preclusion analysis “entails a judgment” whether “the defense [is] more like a ‘normal’ exception from coverage (e.g., a policy exclusion), or a lack of coverage in the first instance (i.e., a defense ‘implicating a coverage matter'”] [alteration omitted].[FN2] )

Nonetheless, the Appellate Division, Second Department, has held, without elaborating, that an insurer is precluded from denying a claim on the basis of a material misrepresentation if the denial does not comply with the time limits set by 11 NYCRR 65-3.8. (See Westchester Med. Ctr. v GMAC Ins. Co. Online, Inc., 80 AD3d 603, 604-605 [2d Dept 2011].) Liberty Mutual has provided no contrary precedents of the Appellate Division, First Department, and this court’s research has not uncovered any. This court is therefore bound by the Second Department’s decision in GMAC Insurance Company Online. (See D’Alessandro v Carro, 123 AD3d 1, 6 [1st Dept 2014].) The timeliness requirements of § 65-3.8 apply to Liberty Mutual’s denial here of [*5]NYC Axis’s bills.


2. Whether Liberty Mutual timely and properly denied payment for NYC Axis’s treatment bills

Because the pay-or-deny deadlines of 11 NYCRR 65-3.8 apply here, this court must go on to determine whether Liberty Mutual met that deadline with respect to the 10 treatment bills at issue on NYC Axis’s cross-motion for summary judgment.

It is undisputed that eight of the 10 bills were denied by Liberty Mutual. NYC Axis argues that those eight denials were untimely. Liberty Mutual contends that the denials were timely, taking into account the tolling effect of Liberty Mutual’s verification requests to Brutus. This court agrees with Liberty Mutual about these bills. NYC Axis also argues that Liberty Mutual has not provided sufficient support for its proffered material-misrepresentation ground for denying the first eight bills. This court finds NYC Axis’s argument unpersuasive.

As for the two remaining bills, NYC Axis contends that those bills were never denied at all. Liberty Mutual argues both that they were denied, and that the denials were timely. This court agrees with Liberty Mutual about one of the bills, and with NYC Axis about the other.


a. The eight treatment bills that Liberty Mutual undisputedly denied

Title 11 NYCRR 65-3.8 (a) (1) provides that “[n]o-fault benefits are overdue if not paid within 30 calendar days after the insurer receives proof of claim, which shall include verification of all of the relevant information requested pursuant to [11 NYCRR] 65-3.5.” Section 65-3.8 (c) provides that “[w]ithin 30 calendar days after proof of claim is received, the insurer shall either pay or deny the claim in whole or in part.” Timely verification requests may therefore toll the insurer’s deadline to pay or deny a treatment bill submitted by a medical-provider-assignee. (See Hospital for Joint Diseases v New York Cent. Mut. Fire Ins. Co., 44 AD3d 903, 903-904 [2d Dept 2007].) For purposes of that deadline, a denial is deemed to have been made when mailed by the insurer, not when received by the provider. (See Westchester Med. Ctr. v A Cent. Ins. Co., 114 AD3d 937, 937 [2d Dept 2014].)

Liberty Mutual first asked Brutus for garaging-related verification information in the beginning of August 2019, and its verification efforts continued through October 2019—thereby encompassing the period in which NYC Axis submitted the bills at issue. (See NYSCEF No. 24 at 1 [EUO scheduling letters]; NYSCEF No. 57 at 1 [verification correspondence from Brutus to Liberty Mutual]; NYSCEF No. 40 at 11 [NYC Axis affirmation in support of cross-motion, charting all the relevant dates for each bill at issue.)

As a result, the question is whether Liberty Mutual’s verification requests to Party A (injured-assignor Brutus) between August and October 2019 tolled the time for it to pay or deny the bills submitted by Party B (provider-assignee NYC Axis) during that period. NYC Axis [*6]argues that verification requests to A may not toll the time to pay or deny B’s claims (see NYSCEF No. 40 at ¶¶ 38, 47); Liberty Mutual argues that they may do so (see NYSCEF No. 49 at ¶¶ 35-37). This court has not been provided with, and has not itself found, Appellate Division precedent discussing this particular question. Considering the matter for itself, this court agrees with Liberty Mutual.

Liberty Mutual’s verification requests to Brutus were aimed at uncovering whether he had materially misrepresented facts in his insurance application—a ground for denying Brutus’s claims that would apply equally to claims submitted by NYC Axis as Brutus’s assignee.[FN3] (See Long Is. Radiology v Allstate Ins. Co., 36 AD3d 763, 765 [2d Dept 2007] [explaining that because an “assignee stands in the shoes of an assignor . . . and thus acquires no greater rights than its assignor,” a lack-of-medical-necessity defense to a claim that may be raised by the insurer against the assignor is also available against provider assignees] [internal quotation marks omitted]; accord American States Ins. Co. v Huff 119 AD3d 478, 479 [1st Dept 2014] [same, in context of EUO-nonappearance defense].) Because Liberty Mutual’s verification requests to Brutus also related to whether Liberty Mutual could (or could not) deny NYC Axis’s claims, the requests tolled Liberty Mutual’s deadline to respond to NYC Axis’s claims under § 65-3.8. The alternative rule, under which Liberty Mutual would have to pay NYC Axis’s claims even as Liberty Mutual was formally seeking information that might support denial of those claims, makes little sense.

NYC Axis also argues that Liberty Mutuals’ pay-or-deny deadline for NYC Axis’s bills was not tolled by letters Liberty Mutual sent to NYC Axis advising that its decisions on those bills would be delayed due to the need to verify the claims. (See NYSCEF No. 40 at ¶¶ 36-39.) True, but irrelevant. The letters advising of Liberty Mutual’s verification efforts may not have tolled the time to pay or deny—but the verification efforts themselves did under § 65-3.8.

Liberty Mutual sent four verification requests to Brutus. The initial EUO request, sent on August 2, 2019, was made before Liberty Mutual received any bills for treatment, making it proper under Mapfre Ins. Co. of NY v Manoo (140 AD3d 468, 469 [1st Dept 2016]). (See NYSCEF No. 24 [EUO requests]; NYSCEF Nos. 25-26 [provider bills].) The EUO was adjourned, and a later EUO scheduled, by letter sent on August 13. (NYSCEF No. 24 at 12.) The EUO was held on September 5 (see NYSCEF No. 27 at 4 [EUO transcript]); and Liberty Mutual sent Brutus a post-EUO document request four days later on September 9. (See NYSCEF No. 28 at 1.) After Brutus failed to respond, Liberty Mutual sent a follow-up request within 40 calendar days of the initial document request, as required by 11 NYCRR 65-3.6 (b).

Liberty Mutual’s counsel has represented, in correspondence with the court (copied to all [*7]parties), that Liberty Mutual received Brutus’s response to the follow-up document request (dated October 23, 2019) on November 1, 2019. (NYSCEF No. 57 [document response]; NYSCEF No. 58 [representation about timing of receipt].) Liberty Mutual’s motion papers indicate (albeit without saying expressly) that it did not then request further supplementation from Brutus of that document response. (See NYSCEF No. 15 at ¶ 29 [affirmation in support of default judgment].) As a result, under 11 NYCRR 65-3.8 (a) (1) and (c), Liberty Mutual had 30 calendar days from November 1 to pay or deny NYC Axis’s claims. The 30th day of that period fell on a Sunday, so Liberty Mutual’s deadline to mail the denials was December 2, 2019. (See General Construction Law § 25-a.)

Liberty Mutual has not provided denial-by-denial proof of when it mailed each denial to NYC Axis. But as NYC Axis itself acknowledges, the denial letters are dated either November 21, 2019, or November 22, 2019—at least 10 days prior to the denial deadline. (See NYSCEF No. 40 at 11.) Liberty Mutual has also submitted a detailed affidavit of one of its claims managers, representing that Liberty Mutual’s mailing procedures ensure that claim-denial letters are mailed out no later than the next business day after the date on the letter. (See NYSCEF No. 33 at ¶¶ 7, 11-13.) If the denial letters here were mailed consistent with this procedure—and NYC Axis has not provided reason to believe otherwise—the denials were timely. At a minimum, on this record NYC Axis has not shown as a matter of law that the denials were untimely.

In the alternative, NYC Axis asserts that Liberty Mutual has not adequately supported the material-misrepresentation justification on which these denials relied. (See NYSCEF No. 40 at 13-14.) This assertion misconstrues the governing legal standard. NYC Axis is correct that Liberty Mutual’s showing (affidavits from an underwriter and an investigator) would be insufficient to establish materiality as a matter of law on a motion by Liberty Mutual for summary judgment. But Liberty Mutual has not moved for summary judgment—NYC Axis has. Liberty Mutual’s evidence is sufficient at least to raise a dispute of fact about materiality. (See Carpinone v Mutual of Omaha Ins. Co., 265 AD2d 752, 754 [3d Dept 1999] [explaining that the “materiality of an applicant’s misrepresentation is ordinarily a factual question unless the insurer proffers clear and substantially uncontradicted evidence concerning materiality”].)


b. The two treatment bills with disputed denials

The remaining two bills pertain to treatment rendered on July 8, 2019, and August 13, 2019. (See id.) NYC Axis asserts that Liberty Mutual never denied two bills. (See id.) Liberty Mutual contends that it sent denials of the bills (see NYSCEF No. 49 at ¶ 31), providing a supplemental affidavit from its claims manager to that effect. (See NYSCEF No. 52 at ¶¶ 8-10.)

A denial of the bill for the July 8 treatment does appear in the record, explaining that the bill was denied because a peer review concluded that the services billed for were not medically necessary. (See NYSCEF No. 30 at 266-275.) But this court has not found a denial of the bill for treatment on August 13 (or, for that matter, a delay letter pertaining to that bill) in Liberty Mutual’s voluminous motion papers. Therefore, NYC Axis is entitled to summary judgment [*8]solely with respect to the August 13 bill—a $26.41 invoice for a follow-up outpatient visit (NYSCEF No. 26 at 15-17).

NYC Axis contends that it should also be entitled to attorney fees incurred in defending this action. This court disagrees. To be sure, an insured that prevails in a declaratory-judgment coverage action brought against it by the insurer may recover attorney fees. (See U.S. Underwriters Ins. co. v City Club Hotel, LLC, 3 NY3d 592, 597-598 [2004].) And it is immaterial that NYC Axis is an assignee of the insured: As assignee NYC Axis stands in the shoes of the assignor.[FN4] The court is not persuaded, though, that NYC Axis is, in fact, the prevailing party.

To be a prevailing party for attorney-fee purposes, one must “prevail on the central claims advanced, and receive substantial relief in consequence thereof.” (Sykes v RFD Third Ave. I Assoc., LLC, 39 AD3d 279, 279 [1st Dept 2007].) The dispute between Liberty Mutual and NYC Axis on this motion involves 10 bills. This court has concluded that NYC Axis is entitled to payment on only one of those 10—and for an amount, $26.41, that is a miniscule fraction of the total sum sought by NYC Axis. That is not substantial relief.

Accordingly, for the foregoing reasons it is

ORDERED that Liberty Mutual’s motion for default judgment against the nonappearing defendants named in the motion is granted, and Liberty Mutual is directed to settle order with respect to judgment against those defendants; and it is further

ORDERED that the branch of NYC Axis’s cross-motion seeking sanctions against Liberty Mutual is denied; and it is further

ORDERED that the branch of NYC Axis’s cross-motion seeking summary judgment on the question whether NYC Axis is entitled to payment on ten bills for treatment rendered to the alleged injured person, defendant Brutus, is granted only to the extent that this court declares that NYC Axis is entitled to payment from Liberty Mutual in the amount of $26.41 for treatment rendered to Brutus on August 13, 2019, and otherwise denied; and it is further

ORDERED that the branch of NYC Axis’s cross-motion seeking summary judgment on its claim for attorney fees arising from its defense of this action is denied.


8/16/2022

Footnotes

Footnote 1:In the Appellate Division, First Department, this exception is most frequently invoked with respect to claim-denials based on the alleged injured person’s having failed twice to appear for examinations under oath (EUOs) or independent medical examinations (IMEs). (See e.g. Unitrin Advantage Ins. Co. v Bayshore Physical Therapy, PLLC, 82 AD3d 559, 560 [1st Dept 2011] [holding that an injured person’s “failure to appear for IMEs” properly requested “by the insurer . . . is a breach of a condition precedent to coverage under the no-fault policy, and therefore fits squarely within the [lack-of-coverage] exception to the preclusion doctrine”]; Allstate Ins. Co. v Pierre, 123 AD3d 618, 618 [1st Dept 2014] [same, with respect to EUOs].)

Footnote 2:Compare e.g. Bayshore Physical Therapy, 82 AD3d at 560 (holding that denial of a claim based on the injured person’s failure to appear for a properly requested IME is not subject to untimeliness preclusion because that failure breached a condition precedent to the injured person’s coverage under the policy), with Nationwide Affinity Ins. Co. of Am. v Jamaica Wellness Med., P.C., 167 AD3d 192, 196-197 (4th Dept 2018) (holding instead that denial of a claim for failure to appear at an IME is subject to untimeliness preclusion because that failure breached only a condition precedent to payment under the policy for a covered loss, not a condition precedent to the existence of coverage itself).

Footnote 3:This scenario thus differs from one in which the verification sought by an insurer from Provider-Assignee C (information going, for example, to the validity of C’s billing for treatments it provided to Injured-Assignor A) would not affect whether Provider-Assignee D was entitled to payment for different treatments that D provided to A. In that circumstance, the insurer’s verification requests to C would not toll the insurer’s time to pay or deny D’s bills.

Footnote 4:Because Brutus, the injured assignor in this case, is the insured under the underlying no-fault policy, this case is not controlled by Fiduciary Ins. Co. of Am. v Medical Diagnostic Servs., P.C. (150 AD3d 498, 498-499 [1st Dept 2017]) and Hertz Vehs., LLC v Cepeda (156 AD3d 440, 441 [1st Dept 2017]). In those cases, the injured assignors were merely passengers in an insured vehicle, rather than being the insureds themselves. As a result, the insurers there did not owe the injured assignors (or their medical-provider assignees) a duty to defend—or a corollary duty under City Club Hotel to pay attorney fees arising from an unsuccessful declaratory-judgment coverage action brought by the insurers. Not so here.