Suffolk Dist Ct

HUC 406-04

C. Stephen Hackeling, J.

This is an action for first-party benefits (recovery of unpaid health services bill, statutory interest and statutory attorneys’ fees) brought pursuant to No-Fault Insurance Law by a health services provider who rendered medical services to a patient in exchange for an assignment of the patient’s right to collect No-Fault benefits. The Plaintiff moves for summary judgment on the first two causes of action contained in the original complaint. For the purposes of clarification, the Court notes that causes of action 3 through 6, contained in the original complaint, were severed from this action and discontinued without prejudice by a written stipulation of the parties which was so-ordered by the Court on May 16, 2006. Pursuant to said stipulation and order, the four severed causes of action were intended to have been deleted from the caption (which has been effectuated). Accordingly, this Amended Order pertains only to the assignor noted in the caption above, and amends the prior decision of this Court, dated September 7, 2006, which inadvertently included the name of an unrelated entity, (Citywide Acupuncture Services, PLLC) within the Memorandum portion of said decision. Defendant opposes the Plaintiff’s motion.

On a motion for summary judgment the test to be applied is whether or not triable issues of fact exist or whether on the proof submitted the Court may grant judgment to a party as a matter of law (Andre v. Pomeroy, 35 NY2d 361; CPLR 3212(b)). It has been held that “the remedy of summary judgment is a drastic one, which should not be granted where there is any doubt as to the existence of a triable issue…or where the issue is even [*2]arguable.” (Gibson v. American Export Isbrandtsen Lines, 125 AD2d 65,74 [citations omitted]; see Andre v. Pomeroy, supra). It is the opinion of this Court that there exists triable issues of fact that preclude the granting of summary judgment in the instant case.

Under the No-Fault Law, an insurance carrier is required to either pay or deny a claim for benefits within 30 days from its receipt of the claim (see, 11 NYCRR §65.15[g][3]). “Such benefits are overdue if not paid within thirty days after the claimant supplies proof of the fact and amount of the loss sustained” (Insurance Law §5106[a]). Therefore, for the Defendant to properly deny a claim, it must generate its denial and mail it to the Plaintiff within 30 days. A fraud defense, however, may be asserted beyond the requisite 30 day denial period where fraud, if proven, would establish there was no coverage at all for the claim. If the fraud defense does not go to the issue of coverage (eg., medically excessive treatment, fraudulent billing), it must be asserted in a timely denial to avoid preclusion.

Here, the Defendant’s denial of claim form clearly indicates that the Defendant received the Plaintiff’s claim on March 7, 2003 and did not deny the Plaintiff’s claim until April 22, 2003, by stating that “New York No-Fault PSYCHOLOGICAL benefits are denied based upon the physical examination by LAURENCE ABELOVE, PhD on 4/3/03 advising that your injury is not causally related to motor vehicle accident of 12/15/02.” Thus, the Defendant failed to deny the Plaintiff’ s claim within the requisite 30 day period from the receipt of claim. Further, the Defendant provides documentary evidence that on March 25, 2003, more than ten (10) business days after it received the Plaintiff’s bill, it advised the Plaintiff that there would be a “delay” in processing the payment of the bill pending an independent medical examination of Plaintiff’s assignor. The time in which an insurer has to pay or deny a claim is extended only upon a proper request for verification pursuant to 11 NYCRR §65.3.5(a). Since the Defendant did not serve its verification request within ten (10) business days after receipt of the Plaintiff’s completed application for No-Fault benefits, the 30 day payment or denial period was not tolled. Consequently, the Defendant is precluded from raising the defense of lack of medical necessity.

The Defendant, however, in its opposition papers also raises the defenses of fraudulent billing practices by the Plaintiff, and the Plaintiff being a fraudulently licensed medical facility. The Defendant has submitted the affidavit of an investigator with its Special Investigations Unit, Dawn Madalone, dated August 23, [*3]2005, who undertook an investigation of the billing practices, and the licensing/ownership of the Plaintiff herein. With regard to the defense of fraudulent or excessive billing practices, where the fraud does not go to the issue of coverage, it must be asserted in a timely denial to avoid preclusion (see, Central General Hospital v. Chubb Group of Ins. Cos., 90 NY2d 195; Careplus Medical Supply Inc. v. State Farm Mutual Auto Ins. Co., 5 Misc 3d 1014A, 2004 Misc LEXIS 454). A scheme to bill for unnecessary or excessive medical treatment must be asserted in a timely denial (see, Melbourne Medical PC v. Utica Mutual Ins. Co., 4 Misc 3d 92 [App. Term, 2nd & 11th Jud. Dists., 2004]). Since the Defendant failed to timely deny the Plaintiff’s claim on the basis of fraudulent billing, the defense is precluded.

Nevertheless, the Defendant does raise the defense and supply an affidavit of merits that the Plaintiff is allegedly a fraudulently licensed provider, and/or fraudulently incorporated. The defense that the Plaintiff, a provider of health care services, is not eligible for reimbursement of No-Fault benefits (see, State Farm Mutual Auto Ins. Co. V. Mallela, 4 NY3d 313) is not subject to preclusion (see, AB Medical Services, PLLC v. Prudential Prop. & Casualty Ins. Co., 11 Misc 3d 137[A], 2006 NY Slip Op. 50504[u][App. Term, 2nd & 11th Jud. Dists.]). The Court is satisfied that to the extent that the Defendant did not timely deny the Plaintiff’s claim, the Defendant herein is not precluded from raising the Plaintiff’s allegedly fraudulent corporate licensure and ownership structure as a defense. A provider of health care services is not eligible for reimbursement of No-Fault benefits unless it meets state and local licensing requirements. (See, State Farm Mutual Auto. Ins. Co. v. Mallela, supra; First Help Acupuncture PC v. State Farm Ins. Co., 2006 NY Slip Op. 51043[U], 2006 NY Misc LEXIS 1356 [App. Term, 2nd & 11th Jud. Dists., 2006]). Pursuant to 11 NYCRR §65-3.16(a)(12), “[a] provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such services in New York or meet any applicable licensing requirement necessary to perform such service in any other state in which such service is performed.” Further, the Education Law provides that only persons licensed are permitted to practice psychology pursuant to Education Law §7601, and Business Corporation Law §1504(a). Moreover, in Mallela, the Court of Appeals upheld 11 NYCRR §65-3.16(a)(12) and stated that “carriers may look beyond the face of licensing documents to identify willful and material failure to abide by state and local law”.

In the matter sub judice, the Court has reviewed the [*4]pleadings, the affidavits and the documentary evidence submitted. Based upon such a review, the Court is of the opinion that even though the Plaintiff has satisfied its burden of demonstrating a prima facie case by submission of the statutory forms setting forth “the fact and amount of loss sustained” (Damadian MRI in Elmhurst, PC v. Liberty Mutual Insurance Co., 2 Misc 3d 128[A], 2003 NY Slip Op. 51700[U][App. Term, 9th & 10th Jud. Dists.]), the Defendant has met its burden by showing the existence of a triable issue of fact by submitting documentary and testimonial evidence that the Plaintiff is “owned by lay persons and not by licensed professionals as is required under New York State Law.” The Defendant contends that:

New York State Department of Insurance regulations provide that to be compensated under no-fault, professional health services must be provided by a licensed provider within the scope of his or her license. 11 NYCRR §65.15(o)(1)(vi)& NYCRR §65-3.16(6).

In order to be eligible to receive no-fault benefits, an assignee provider such as Plaintiff must adhere to all applicable New York statutes which grant the authority to provide health services in New York State.

Because of the fraud it facilitated, Plaintiff stands in violation of Article 15 of New York’s Business Corporation Law and are [sic] thus is [sic] not eligible to submit payments for or receive assigned no-fault benefits.

Clearly, payments to unlicensed or fraudulently licensed providers are excluded from the meaning of “basic economic loss” (Ins. Law §5102[a][1]) as interpreted by the Superintendent of Insurance (see, State Farm Mutual Auto. Ins. Co. V. Mallela, supra). The defense that a provider, like the Plaintiff, is fraudulently licensed and ineligible for reimbursement of No-Fault benefits is non-waivable, and not subject to preclusion (see, First Help Acupuncture PC v. State Farm Ins. Co., supra). A denial based on improper licensing or improper incorporation of the provider is not precluded by untimeliness (see, Multiquest PLLC a/a/o Cleckley v. Allstate Ins. Co., 9 Misc 3d 1031; Multiquest PLLC a/a/o Manzo v. Allstate Ins. Co., 10 Misc 3d 1061[A], 2005 NY Slip Op. 52069[U], 2005 NY Misc LEXIS 2836).

Whether or not contained in a timely denial of claim, a denial of claim based on the fact that the Plaintiff is not eligible for reimbursement of No-Fault benefits due to the fact that the health services provided were not provided by licensed professionals, and that the Plaintiff may be fraudulently owned [*5]and operated does not preclude an insurer from raising such a defense in opposition to a Plaintiff’s motion for summary judgment. Because the Defendant has demonstrated the existence of a triable issue of fact, the Plaintiff’s motion for summary judgment is denied. Further, this summary judgment motion is premature in the Court’s opinion since discovery seeking corporate information to determine whether the owners and employees of this provider corporation are properly licensed and incorporated is clearly germane to the question of whether the Plaintiff is eligible for reimbursement (see, Lexington Acupuncture PC v. State Farm Ins. Co., 2006 NY Slip Op 26251, 2006 NY Misc LEXIS 1605 [App. Term, 2nd & 11th Jud. Dists., 2006]).

Accordingly, the Plaintiff’s motion is denied.

______________________________

J.D.C.

dated: September 26, 2006

at: Huntington,NY

Suffolk Dist Ct

HUC 2181-05

Appearances:

Fazio, Rynsky & Associate

Attorneys for Plaintiff

175 Eileen Way

Syossett, New Yor 11791

Stern & Montana, LLP

Attorneys for Defendant

Trinity Centre

115 Broadway

New York, New York 10006

C. Stephen Hackeling, J.

The plaintiff, Preferred Medical Imaging, P.C. (via Court documents No.1 & 4) moves this Court for a two pronged Order, directing the Court Clerk to seal its records and enjoining, for privacy reasons, the defendant and its counsel from disclosing any documents or information it may obtain via disclosure directives arising out of this action. The defendant, Liberty Mutual Insurance Co. (via Court documents 2 and 3) vigorously opposes the requested relief, asserting amongst other reasons, the First and Sixth Amendments of the United States Constitution, requiring public and press access to Court proceedings. For the following reasons the movant is granted a modified temporary sealing order and is denied any further relief.

Application for File Sealing and Gag Order

The Undisputed Relevant Facts

The plaintiff brought this action as a medical service provider, seeking to recover the assigned “No Fault” automobile insurance benefits assigned to it by Bevolin Lewis and Edwin Lewis. Plaintiff is an authorized medical service provider who allegedly [*2]rendered approximately $5,000.00 of MRI image services to Mr. Lewis,

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and his son between October 7 and October 11, 2004, pursuant to a physician’s referral. The plaintiff timely took assignments of claims and billed for the services. The defendant timely denied plaintiff’s claim, precipitating the instant action. On or about January 5, 2005 the Court signed an order compelling the plaintiff to disclose assorted documentary business management agreements and tax returns of the plaintiff and its alleged principal Dr. Robert Schepp for the years 2002-2003. Many of the documents sought had previously been disclosed in an affidavit or Dr. Schepp, filed in a pending unrelated Nassau County Supreme Court action.

Disputed Issues

The defendant has interposed a myriad of defenses in its answer. Its counsel has argued that its strongest position is that the plaintiff’s business practices constitute a systematic and persistent violation of the New York State No-Fault Laws as codified in Sec. §5101. It is alleged that the claims generated are the result of an illegal financial relationship in violation of Sec. 238 of the Public Health Law and Article 15 of the Business Corporation Law. It is the defendant’s position that plaintiff is in fact not an authorized medical service provider as it is not constituted by, or supervised by, a physician. It is asserted that the plaintiff is one of many providers who seek to abuse the “no fault” insurance system by simply purchasing a physician’s letterhead for the purpose of allowing non physician laymen to set up and run corporate medical service provider corporations. In this instance the crux of this discovery dispute involves the production of tax returns for Dr.Robert Schepp and for affiliated corporations which also employ Dr. Schepp. The defendant asserts that these returns will establish that Dr.Schepp receives “frontman only” compensation which bears no relationship to his alleged corporate ownership interest. The plaintiff denies this contention and asserts that without the requested relief Dr. Schepp’s privacy rights will be violated and that these documents will be circulated to other insurance carriers and their attorneys.

Discussion

The Court is not naive to the import of the underlying discovery struggle concerning this application. This Court administers approximately 10,000 no-fault actions annually which often contain multiple unrelated plaintiff providers and unrelated defendant insurers in the same complaint. At the call of each no-fault calendar, dozens of insurance companies and their counsel discuss joint legal strategies amongst themselves. During proceedings they have often argued to the Court the insurance industry’s assertion that the no-fault system is plagued with systematic fraud and abuse. On several [*3]occasions the Court has observed insurance company expert testimony which evidences the collective efforts of the insurance industry to mutually share fraudulent “No Fault” claim information in a common data base.

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Sealing the Record

The Court notes that much of the material plaintiff wishes to seal is already publicly available in that it evidently has been produced in a pending Nassau County Supreme Court action titled AIU Inc. Co.v. Deajess Medical Imaging, PC. At least one decision has been published to date concerning this action. (see, 2/10/2006 NYLJ p. 22, col. 1, et seq.).

The legal standard and/or predicate statute for the requested relief is not stated in the plaintiff’s papers. However the law is clear that “Except where otherwise provided by statute or rule, a Court shall not enter an order in any action or proceeding sealing the Court records, whether in whole or in part, except upon a finding

of good cause, which shall specify the grounds thereof”. 22 NYCRR §216.1 (a). As stated by the Appellate Court in Danco Laboratories, Ltd., v. Chemical Works of Gedeon Richter, Ltd. 274 AD2d 1 (1st Dept. 2000);

We start by taking note of the broad constitutional proposition, arising from the First and Sixth Amendments, as applied to the States by the Fourteenth Amendment, that the public, as well as the press, is generally entitled to have access to Court proceedings. Since the right is of constitutional dimension, any order denying access must be narrowly tailored to serve compelling objectives… However, the right of access is not absolute. Moreover, access may still be respected in keeping with constitutional requirements while sensitive information is restricted in keeping with “the State’s legitimate concern for the well-being” of an individual (Globe Newspaper corp. v. Superior Court, [457 US 596], at 609.)

Clearly, the function of this Court is to apply a balancing test and fashion an Order which serves to protect both Dr. Schepp’s privacy interests and to faciliate the public’s right to observe the Court’s proceedings. Absent compelling evidence of fully articulated immediate prejudice, an unconditional sealing order is unwarranted. No prejudice is indicated for the bulk of the information disclosed to date as many of the documents are already in the public domain, i.e. the Nassau Supreme Court. In the present matter, the Court finds that good cause to seal exists only as to the possibility of identity theft and perhaps patient information. It has been the practice of this Court to redact this type of information from its decisions which are to be published on-line. Therefore, to this limited extent, the plaintiff’s [*4]motion is granted. It is Ordered that the file will be sealed for a 14

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day period during which time the movant shall review the Court file and submit ( on 5 days notice ) a copy of a proposed redacted file which is consistent with this decision to redact only identification numbers and patient infromation. The Clerk shall be permitted to exhibit the movant’s redacted file for public viewing after the 14 days sealing period.

Enjoining Defendant from Information Disclosure

The real objective of the plaintiff’s application is to obtain an Order of this Court which prohibits the defendant and its attorneys from disclosing any documents or the information obtained in

this action to any other party. While not expressly labeled; this clearly is a request for a permanent injunction. The Suffolk County District Court, as constituted by the Uniform District Court Act, has limited equitable powers. Sec.§209 of the UDCA expressly provides “(b) Injunction or Restraining Order. No injunction or restraining order shall issue out of or by this Court unless…” The statute provides for only four allowable injunction instances which involve criminal zoning, waste, chattel recovery, and money judgment enforcement proceedings. No predicate basis has been plead or otherwise articulated which allows the Court to consider an Article 63 New York CPLR injunction application. Accordingly, the injunction component of this application is denied.

_____________________________

J.D.C.

Decision to be published____yes____no.

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Suffolk District Court

HUC 7806-05

C. Stephen Hackeling, J.

ORDERED that this petition by a health services provider to vacate the master arbitrator’s award in this no-fault matter pursuant to CPLR Article 75 and to enter judgment in favor of the Petitioner is granted.

The Petitioner brings this proceeding under CPLR Article 75 to vacate a no-fault master arbitrator’s award, dated September 15, 2005, which affirmed the initial arbitrator’s award dated June 14, 2005. It is uncontroverted that the Petitioner properly submitted its claim to the Respondent insurer, and that the claim was untimely denied based on a peer review. In fact, the initial arbitrator’s decision found that the “Respondent’s denial and supporting evidence were precluded due to the untimeliness of its denial.” Nevertheless, she concluded that the Petitioner had the burden to show that the medical services provided had been necessary. Because the Petitioner failed to do so, the initial arbitrator denied the Petitioner’s claim. The Petitioner then

appealed to the master arbitrator who affirmed the initial

arbitrator’s decision in its entirety. In upholding the initial arbitrator’s award denying no-fault benefits to the Petitioner, the master arbitrator stated in his award, inter alia, that:

This argument by [claimant’s] counsel raised the pivotal issue of what quantum of proof is required to establish a prima facie case. Most judges, although not all judges, would support the claimant’s argument and hold that a prima facie case of necessity is made out by merely filing the notice of claim, a proper assignment and the health provider’s bill which are served upon the insurer in a timely fashion. On the other hand, most arbitrators and Master Arbitrators, including this reviewer, do not accept this view of the applicable law but rather rely upon the opinion of the Insurance Department, dated 1/11/00, which instructs that the sufficiency of evidence to establish a prima facie case is purely a question of fact to be separately determined by the trier of fact in each case. The opinion letter concludes its advices by holding that merely submitting its bill without proof of necessity and causation might not be sufficient for the claimant to meet the requirements of Section 5102 of the Insurance Law which mandate that all such No Fault expenses be necessary before reimbursement is allowed. Cf. Pro Scan Imaging PC/Ponte v. Auto One Ins. Co. 17 R 991 32891 04.

The scope of judicial review of a master arbitrator’s award for no-fault benefits is whether the award is arbitrary and capricious, irrational, or without a plausible basis (see, General Accident Fire and Life Assur. Corp. Ltd. v. Avery,88 AD2d 739). Moreover, a Court should not set aside an arbitrator’s award “for errors of law or fact unless the award is so irrational as to require vacatur” (Hanover Insurance Company v. State Farm Mutual Automobile Insurance Co., 226 AD2d 533). With regard to matters of law, a recent New York City Civil Court decision has stated that:

the arbitrator’s decision will be upheld if there is ‘any reasonable hypothesis’ to support it, such as where the issue is [*2]‘unsettled and subject to conflicting

decisions’ [See, Motor Vehicle Accident Indemnification Corp. v. Aetna Casualty and Surety Co., 89 NY2d at 224…; see also, Shand v. Aetna Insurance Co., 74 AD2d at 454…] But the award cannot be ‘contrary to what could be fairly described as settled law’ [see, State Farm Mutual Automobile Insurance Co. v. Lumbermens Mutual Casualty Co., 18 AD3d 762… (2d Dept. 2005). It is ‘arbitrary and capricious not to follow clear precedent’. [see, State Ins. Fund v. Country-Wide Ins. Co., 276 AD2d 432].

RDK Medical PC v. General Assurance Company, 8 Misc 3d 1025(A), 806 NYS2d 448, 2005 WL 1936342 [Aug. 12, 2005].

A court, therefore, may vacate an award of a master arbitrator in a no-fault case if it did not have a rational basis (see, In the Matter of Pradip Das/NY Medical Rehab. PC v. Allstate Insurance Company, 297 AD2d 321 [App. Div., 2d Dept., 2002]). In Pradip Das(id.), the Appellate Division, Second Department affirmed an order of the Supreme Court, Richmond County (Maltese, J.) that had vacated a master arbitrator’s award virtually on the same facts as those in the matter sub judice. In Pradip Das, the Petitioner sought reimbursement for medical expenses under no-fault, and the Respondent failed to timely deny the Petitioner’s claim. Despite the untimeliness of the Respondent’s denial, the initial arbitrator denied reimbursement because the Petitioner had failed to prove medical necessity. On Pradip Das’ petition, the Supreme Court vacated the determination of the master arbitrator, holding that the master arbitrator had applied the incorrect legal standard in requiring that the health services provider prove medical necessity. The Appellate Division affirmed the lower court’s decision concluding that:

Contrary to the appellant’s contention, the Supreme Court properly vacated the determination of the master arbitrator which denied the petitioner payment for overdue no-fault benefits because it did not have a rational basis [see, Matter of Nyack Hosp. v.

Government Employees Ins. Co., [139 AD2d 515]; see also, Central General Hospital v. Chubb Group of Ins. Cos. 90 NY2d 195; New York and Presbyt. Hospital v. Empire Ins. Co., 286 AD2d 322; Bonetti v. Integon National Insurance Co., 269 AD2d 413; Vinings Spinal Diagnostic v. Liberty Mutual Ins. Co., 186 Misc 2d 287.

In the Matter of Pradip Das/New York Medical Rehab PC v. Allstate [*3]Insurance Company, supra .

It is the opinion of the Court herein that the master arbitrator’s decision lacks a rational basis since it is contrary to the settled law based on the Appellate Division, Second Department’s decision in Pradip Das, supra , as well as the clear precedent established in the line of cases holding that an insurer is precluded from raising any defense, other than lack of coverage, when it fails to comply with the rule requiring it to deny a claim within 30 days as required by Insurance Law §5106(a) and 11 NYCRR §65.15(g)(3) (see, Presbyterian Hosp. in City of New York v. Maryland Casualty Co., 90 NY2d 274; Central General Hosp. v. Chubb Group of Insurance Companies, 90 NY2d 195; New York Medical Center of Queens v. Country-Wide Ins. Co., 295 AD2d 583 [App. Div. 2d Dept. 2002]; New York & Presbyt. Hosp. v. American Tr. Insurance Company, 287 AD2d 699 [App. Div. 2d Dept., 2001]; Bonetti v. Integon National Insurance Co., supra ; RDK Medical PC v. General Assurance Co., supra ; T.S. Medical PC v. Country-Wide Insurance Company, 7 Misc 3d 1013 [A], 2005 NY Slip Op. 50581[U]; Kew Gardens Imaging v. Liberty Mutual Insurance Co., 4 Misc 3d 1027 [A]; 798 NYS2d 345, 2004 WL 2169402; Park Radiology PC v. Allstate Insurance Company, 2 Misc 3d 621, 2003 NY Slip Op. 23910; Liberty Queens Med. v. Tri-State Consumer Insurance, 188 Misc 2d 835; Yellin v. Liberty Mutual Ins. Co., 192 Misc 2d 285).

Clearly, the master arbitrator in the instant matter chose not to apply the law as cited in Pradip Das and in the other above noted cases, but rather chose to rely on an informal opinion letter issued by the Insurance Department dated January 11, 2000, which is contrary to the state of legal precedent. Since this Court is bound by the Appellate Division, Second Department’s decision in Pradip Das and the settled law in the other legal precedents referenced above, the Court finds that the master arbitrator’s denial of the Petitioner’s claim is irrational.

Accordingly, Petitioner’s application to vacate the master arbitrator’s award is granted, and judgment is entered in the Petitioner’s favor in the amount of $1,790.67, with statutory interest and attorney’s fees as established in Insurance Law §5106(a), plus costs and disbursements of this proceeding.

Dated: January 19, 2006_______________________

J.D.C.