FAIR PRICE

Straight out of the Appellate Division, Second Department comes....

Fair Price Med. Supply Corp. v Travelers Indem. Co.

The question presented on this appeal is whether an insurance carrier is precluded from interposing a defense in an action to recover assigned first-party no-fault benefits if it fails to pay or deny the claim within 30 days, where it has reason to believe that the claim fraudulently seeks reimbursement for medical supplies that were never delivered to the insured. Because the carrier's proposed defense in this case is not based on a lack of insurance coverage, this question must be answered in the affirmative.

I'm sure everyone is eager to know how the Appellate Division came to the conclusion so I'll try to flesh it out and save you all the trouble of reading the seven or eight or so page decision.

In a pair of cases decided together in 1997, the Court of Appeals applied the holding of Zappone in the context of no-fault insurance. In Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co. (90 NY2d 274, supra), the insurer, after failing to timely deny the claim filed by the assignee of an automobile accident victim, sought to assert as a defense a statutory exclusion based on the victim's intoxication at the time of the accident. In Central Gen. Hosp. v Chubb Group of Ins. Cos. (90 NY2d 195) (hereinafter Chubb), where the insurer similarly failed to timely deny a claim, the Court of Appeals addressed two defenses asserted by the insurer: (1) that the injured person's condition and hospitalization were not related to the subject accident, but instead were attributable to a work-related accident that had occurred a year earlier, and (2) that the medical treatment provided by the assignee hospital was excessive. In Presbyterian, the Court held that the insurer was precluded from interposing its defense, since its basis for denying coverage was not an absence of coverage, but an exclusion from coverage. In Chubb, the Court held that the insurer was precluded from interposing the defense based on excessive treatment, but was not precluded from defending on the ground that the injuries for which the patient was treated did not arise from the subject accident, since, if the latter allegation was true, the treatment provided was not covered under the insurer's policy with the injured person.

In Chubb, the Court reiterated the distinction articulated in Zappone between the denial of a claim based upon "a policy exclusion and a breach of a policy condition" and the denial of a claim based on an insurer's assertion that it has "no contractual relationship with respect to the subject vehicle and incident" (90 NY2d at 200). Applying that distinction to the facts of Chubb, the Court

The Zappone exception to the preclusion rule does not apply in this case. The defendant asserts that it is not required to reimburse the plaintiff for the subject medical supplies because the supplies were never delivered to Nivelo. The defendant, however, does not deny that the cost of the medical supplies in question was an expense for which Nivelo's insurance policy afforded coverage. Thus, its proposed defense is not based on a lack of coverage (but see Allstate Ins. Co. v Valley Physical Medicine & Rehabilitation, P.C., 475 F Supp 2d 213, 225-227). The defendant's allegation, i.e., that the plaintiff billed for supplies it never furnished, is more akin to a claim of overbilling (albeit an extreme form thereof). In any event, regardless of the particular label attached to the plaintiff's alleged conduct, the generally applicable rule is that an insurer's untimely payment or denial of a claim results in preclusion (see Presbyterian, 90 NY2d at 283, 285), and it is incumbent upon the insurer to establish that it is excused from compliance with the 30-day rule because "the insurance policy does not contemplate coverage in the first instance" (Matter of Worcester Ins. Co. v Bettenhauser, supra at 188). Here, the defendant made no such showing.

Accordingly, the contention of one of the amici curiae on this appeal that the ruling of the Appellate Term majority "creat[es] an artificial distinction between various kinds of fraud schemes" is beside the point. In determining whether compliance with the 30-day rule is required, the pertinent inquiry is whether the asserted defense is based on a lack of coverage. The kind of fraud scheme involved — and whether there is any fraud scheme at all — is irrelevant.

One thing that wasn't addressed in the decision, but deserves mention is the argument that since the assignee generally stands in the shoes of the assignor, the assignee may have violated a condition precedent, thereby making this a coverage issue rather than an "overpayment" issue as the Court sees it. Generally in every insurance policy is some clause or paragraph saying that the insured will not lie or deceive or defraud the insurance company. Now, if the assignee does in fact stand in the shoes of the assignor, that assignee is bound by the terms of that policy and can potentially even violate those terms.

If you read this case to mean that an assignee cannot violate a condition precedent, then in theory that would apply to instances where an insurance company requests an EUO of the assignee facility or doctor.

I could be reading too much into this. I have a real knack for that.

Does anyone else see the irony in the name of the provider?

more later.