The Civil Procedure & Federal Courts Blog is on top of it. The SCOTUS blog is all over it as well.
I posted about this case a little while ago here and over at theCPLRblog. And it was in the NYLJ Wrap-Up. I’m sure you’ve been wondering about it. I have.
You can read the transcript HERE. Or, if you don’t want to get it from me, you can go over to The Civil Procedure & Federal Courts Blog, and get it from them.
In the September 30th edition of the No-Fault Insurance Wrap-Up, in the New York Law Journal, David M. Barshay, a partner at Baker, Sanders, Barshay, Grossman, Fass, Muhlstock and Neuwirth and I (not a partner) discuss the recent developments in no-fault law. This edition covers a few topics, including a SCOTUS case. Yes, a friggin SCOTUS case.
The Excerpts:
The U.S. Supreme Court recently granted certiorari in Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co.1 from the U.S. Court of Appeals for the Second Circuit.2
Shady Grove Orthopedic Associates (a Maryland corporation) and Sonia E. Galvez3 brought a class action against Allstate (an Illinois corporation) in the Eastern District of New York4 for unpaid interest on no-fault claims pursuant to a New York insurance policy.5 Those claims were paid, but for the interest. Shady Grove argued that it could get into federal court through 28 U.S.C. §1332(d)(2)(A), which gives the federal courts original jurisdiction in a class action where the amount in controversy is more than $5 million and diversity exists, and FRCP 23 allows class certification for the relief requested.
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First, the court addressed the Erie9 issue. Under Erie, when a federal court sits in diversity jurisdiction, it must apply a state’s substantive law and the federal procedural law. It found that FRCP 23 does not conflict with CPLR §901(b); that there is no “direct collision” with §901. It reasoned that, because FRCP 23 does not determine which actions can or cannot be brought, “it leaves room for the operation of §901(b),” finding it to be a substantive rule.
But would the application of CPLR §901(b) “serve the twin aims10 of Erie?” The court answered in the affirmative. Not applying the rule would, according to the court, encourage plaintiffs to file in the federal courts, rather than in New York, and it would allow them to recover in federal court, when they could not in New York.
Second, the court then discussed (and ultimately dismissed) Shady Grove’s argument that under N.Y. Ins. Law §5106(a) the lawsuit can be maintained via class action because 11 NYCRR §65-3.9(c)11contemplates class actions in this context, and therefore satisfies the exception clause of CPLR §901(b). In rejecting this argument, the court found that N.Y. Ins. Law §5106(a) contains no authorization for class actions to recover a penalty and that 11 NYCRR §65-3.9(c) did not specificallyauthorize12 class actions to recover a penalty. The Second Circuit interpreted the language of CPLR §901(b) “provides that where a statute creates a penalty, the ‘statute‘ itself must ‘specifically authorize‘” the class action. “At most, [the] regulation contemplates the recovery of a penalty in a class action,” and contemplation is not enough. The Eastern District’s decision was affirmed.
Oral argument before the Supreme Court is scheduled for Nov. 2, 2009.
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Staged Accidents
In proving that an accident was intentional, defendant does not have to prove fraud. Such is the rule according to the Appellate Term, 2nd, 11th, and 13th Judicial Districts. In V.S. Med. Servs., P.C. v. Allstate Ins. Co.23 defendant must only show that “at least one driver intended to make contact,” because, “[a] deliberate collision caused in furtherance of an insurance fraud scheme is not a covered accident.”24 And defendant must show that the accident was intentional by a preponderance of the evidence, not by clear and convincing evidence.
The court did not cite or address State Farm Mut. Auto. Ins. Co. v. Langan,25 an Appellate Division case decided well after State Farm Mut. Auto. Ins. Co. v. Laguerre.26 Langan, readers might recall,27 held that in no-fault, even if an accident is intentional, if the injured person was not complicit in “misconduct, provocation, or assault” and if the accident “was unexpected, unusual, and unforeseen” by the injured person, no-fault coverage exists. V.S. Med does not tell us whether plaintiff’s assignor was somehow complicit in the manufactured accident.
I left out all of the footnotes to save space.
In today’s edition of the No-Fault Insurance Wrap-Up, in the New York Law Journal, David M. Barshay, a partner at Baker, Sanders, Barshay, Grossman, Fass, Muhlstock and Neuwirth in Mineola. Jill Lakin Schatz, a solo practitioner in Manhattan (With contributions by Melissa A. Pirillo, an associate at Baker Sanders and Mitchell S. Lustig) discuss the recent developments in no-fault law. Topics covered include:
Intentional Accidents Are Covered Under No-Fault,,’Dan Medical’ Softened? (Redux),’MVAIC’, ‘Unrebutted’ Proof of Lack of Medical Necessity, Verification Requests, and Default Judgments.
Here are some excerpts:
In State Farm Mut. Auto Ins. Co. v. Langan,1 in a ground-breaking decision, the Appellate Division, Second Department, held that intentional accidents, while not covered under uninsured motorist (UM), are covered under no-fault insurance.
…On appeal, the Second Department, in a sharply divided 3-2 decision, modified the Supreme Court’s Order, finding that the Supreme Court properly determined State Farm was not obligated to provide UM coverage. The Appellate Division reasoned that UM coverage is designed to afford an injured person the same protection as he would have had if he had been injured in an accident by an identifiable automobile covered by a standard automobile liability insurance policy in effect at the time of the accident and that “no standard automobile liability insurance policy would have provided coverage to [Mr.] Popadich for injuries he intentionally inflicted on [Mr.] Spicehandler.”
However, the Appellate Division held that in contexts other than UM, namely no-fault insurance, coverage is unaffected by whether the accident was intentionally caused. Rather the question is whether, from the viewpoint of the individual seeking benefits, the event was “unexpected, unusual and unforeseen” and not brought about by the individual’s own “misconduct, provocation, or assault.” If so, the injury claimed is properly classified as “accidental” within the meaning of the no-fault endorsement and coverage must be afforded. Accordingly, the Appellate Division determined that State Farm was obligated to pay no-fault benefits to Mr. Langan on behalf of Mr. Spicehandler.
There is a great probability that this case will reach the Court of Appeals. Until then, it appears that no-fault carriers will be unable to prevail on an intentional or “staged accident” defense unless they can show that the claimant was somehow complicit in the staging of the accident.
‘Dan Medical’ Softened? (Redux)
In NYC East-West Acupuncture P.C. v. Maryland Cas. Co.,6 the Appellate Term found that although plaintiff failed to lay a proper foundation for the admission of its claim forms as business records under Dan Medical, such insufficiency was cured by the defendant’s admission that it received plaintiff’s claim and that payment was due. Unlike Delta, it cannot be said that such admission is atypical. Rather, this is an admission made by insurers in most cases. Accordingly, it appears that under this new case, an admission by the insurer that it received a claim and such is overdue would suffice to establish a plaintiff’s prima facie case on summary judgment motions.‘Unrebutted’ Proof
• Of Lack of Medical Necessity. As previously noted in this space,11 defendant insurers continue to realize great success in dismissing providers’ claims at the summary judgment stage based upon unrebutted affirmed peer reviews.12 However, the Appellate Term recently found that even where plaintiff fails to rebut the conclusions in the affirmed peer review report, summary judgment in the defendant’s favor will nevertheless be denied where the report does not establish, in the first place, that the medical services were not medically necessary.
In Eagle Surgical Supply Inc. v. Progressive,13 defendant cross-moved for summary judgment alleging lack of medical necessity for two separate claims, and plaintiff did not oppose the cross-motion. In regard to one of the claims in which defendant attached an IME report, the court found that defendant established its prima facie showing of a lack of medical necessity. Since plaintiff failed to rebut said showing, defendant’s motion was granted for that portion. However, concerning the second claim, the court held: “Inasmuch as the affirmed peer review report annexed to defendant’s cross-motion did not establish that supplies for which plaintiff sought to recover on this claim . . . were medically unnecessary, defendant is not entitled to summary judgment dismissing said claim.”
Accordingly, it is clear that the burden is still on defendant to prove services are medically unnecessary before the burden shifts to plaintiff to rebut defendant’s prima facie showing.
Verification Requests
• And a Strict Reading of the Regulations. The Appellate Term recently addressed the much-debated issue of whether an insurer must wait 30 days after its initial verification request to send a follow-up request under 11 NYCRR §65-3.6(b). As previously reported in this space,14 the lower courts were at odds on the issue, with one holding a premature follow-up carried no penalty,15 while another held such prematurity results is a waiver of defenses.16
In Infinity Health Products, Ltd. v. Eveready Ins. Co.17 the Appellate Term found that the failure to strictly adhere to the 30-day waiting period required under 11 NYCRR §65-3.6(b) invalidates the follow-up request and results in the waiver of defenses. The court held: “Defendant admits that it mailed a follow-up verification demand 27 days after it mailed its initial demand, and we find the second request premature and without effect . . . . As a result, defendant is precluded from raising most defenses, including its proffered defense of excessive fees.”
Default JudgmentsNotwithstanding the strong public policy in New York state that actions be resolved on their merits,23 in two recent cases, the Appellate Term, Second Department, reversed decisions of the lower courts which granted insurers’ motions to vacate default judgments. In both instances, the court held that the insurer failed to establish a reasonable excuse for the default.
In Neurology and Acupuncture Service, P.C. v. State Farm Mut. Auto. Ins. Co.,24 the insurer’s answer was only three days late. However, the court held that the excuse for the delay proffered by defendant’s attorney was deficient since “it did not allege personal knowledge of his assertions.”
Likewise, in Avenue T MPC Corp. v. Chubb Indem. Ins. Co.,25 defense counsel asserted in her affirmation in support of the motion to vacate that the insurer delayed in forwarding the summons and complaint to her office and further noted that the summons and complaint had been “lost in the shuffle” by the insurance company. In denying the motion, the court reiterated that, to establish a reasonable excuse for a default, counsel “must submit supporting facts in evidentiary form sufficient to justify the default . . . and include a detailed explanation of [the] oversights.”
These decisions represent the continuation of a trend by the appellate courts in rebuffing insurers’ attempts to vacate default judgments.
Today’s New York Law Journal contains the most recent edition of the No-Fault Wrap up, authored by David M. Barshay, Esq. of Baker, Sanders, Barshay, Grossman, Fass, Muhlstock and Neuwirth and Mitchell S. Lustig of Nicolini, Paradise Ferretti & Sabella, with contributions by Joaquin Lopez, an associate at Baker Sanders and Jill Lakin Schatz, a solo practitioner.
The topics discussed in this edition include: The recent Court of Appeals decision: Fair Price Medical Supply Corp. v. Travelers Indem. Co., The Appellate Term, 2nd Department following LMK, Verification requests, Intoxication defenses, and much much more.
Here are some of the relevant parts:
Fair Price
The Court of Appeals noted whether a specific defense is precluded under Presbyterian2 or available under Chubb3 hinges on whether the defense is more like a “normal” exception from coverage (e.g., a policy exclusion), or a lack of coverage (i.e., a defense implicating a coverage matter), the former being precludable and the latter not. The Court found that where there is “an actual accident and actual injuries” coverage is invoked and Presbyterian’s preclusion rule applies. The Court found unavailing defendant’s argument that preclusion would require them to pay a no-fault claim it might not have been obligated to honor if timely disclaimed, finding that the same could be said of any policy defense subject to preclusion.In dissent, Judges Robert S. Smith and Eugene F. Pigott Jr. said that a defense that the services were never provided should be treated as a “lack of coverage” defense, obviating the need for a timely denial. They reasoned, “Neither the insurance policy at issue here nor any other covers wholly fabricated claims.”
App. Term Follows LMK
In April, the Appellate Term, Second Department, followed LMK and reversed a civil court order that granted attorney’s fees on a “per action” basis.7 The Appellate Term reasoned that it was bound by LMK under stare decisis and also that the Second Department’s Appellate Division previously determined attorney’s fees in a similar manner as the Third Department did in LMK.8 While the Appellate Term, First Department, has not yet ruled on the issue, it is anticipated that that court will hold it is also bound by LMK.9
Circular Letter re: Interest
On June 10, the department of Insurance issued a circular letter reminding insurers of their obligations with respect to settling no-fault claims.11In sum, the letter advises insurers that it is unlawful for the insurer, or counsel representing the insurer, “to suggest or require, as a condition of settlement of a contested claim, waiver of any interest that is due.” The letter also put the burden on the insurer “to take all necessary measures to ensure” that its employees and legal counsel fully comply with the proscription. Finally, the Insurance Department noted that it will enforce compliance with the mandate through, inter alia, “targeted investigations of insurers,” when warranted.
Verification
In Park Slope Medical and Surgical Supply Inc. v. Country-Wide Insurance Co.,14 the Civil Court of Richmond County addressed a much-debated issue: Must an insurer wait 30 days after the initial verification request to send a follow-up request under 11 N.Y.C.R.R. 65-3.6(b)?In Park Slope, the court determined the literal meaning of the statute was unclear and thus resorted to an analysis of the “spirit and purpose” of the law. The court determined that penalizing the insurer for being too prompt would hamper a major objective of the no-fault law: Prompt payment of claims. Finding the “early” follow-up sufficient, plaintiff’s action was dismissed as premature.
EUOs
Concerning the second inquiry, the court determined that the insurer, upon receipt of the claim on Feb. 14, 2005, was required to adhere to the statutory and regulatory scheme for the processing of the claim. To wit, pay or deny the claim within 30 days of receipt or timely request additional verification. The court held:Here, while defendant had already scheduled [the assignor's] EUO for April 21, 2005 before it had received the claim, if defendant insisted upon conducting the EUO before deciding whether to pay or deny the claim, it had no choice but to reschedule the EUO to a date within 30 calendar days from Feb. 14, 2005, the date it received the claim. As a matter of law by failing to reschedule the EUO, defendant could not assert [the assignor's] failure to appear for the EUO as its basis to deny the claim.