American Tr. Ins. Co. v Nexray Med. Imaging PC (2023 NY Slip Op50538(U))

Index No. 530898/2022

Larkin Farrell LLC, New York City (David Fair of counsel), for petitioner.

Roman A. Kravchenko, Garden City, for respondent.

The following numbered papers were read on this petition and cross-petition:

Issue Presented

Where a No-Fault insurer initially denies payment of bills on the grounds that the injured person was acting in the course of employment while driving and, therefore, the bills should be submitted to the Workers’ Compensation insurer instead, and thereafter the Workers’ Compensation Board finds that the injured person was not working while employed, should a defense of lack of medical necessity asserted in a second, subsequent denial of claim be considered?

Background

Petitioner American Transit Insurance Company (“ATIC”) commenced this CPLR Article 75 proceeding by notice of petition, seeking an order and judgment vacating a No-Fault insurance master arbitration award of Joseph J. O’Brien, Esq. (dated July 23, 2022), which affirmed the arbitration award of Matthew K. Viverito, Esq. (dated March 26, 2022) granting Respondent Nexray Medical Imaging PC’s (“Nexray”) claim for No-Fault insurance compensation for health service expenses.^[FN2] , ^[FN3] Arbitrator Viverito awarded $2,450.73 to Nexray as compensation for performing left shoulder, cervical, and lumbar MRIs on Ronald Simpson, its assignor ^[FN4] (“Assignor”), who claimed to have been injured in a motor vehicle accident on August [*3]6, 2019. (NYSCEF Doc Nos. 2, Notice of Petition; 1, Petition.)

Respondent Nexray has opposed ATIC’s petition to vacate the master arbitration award and it cross-petitioned for a judgment confirming the master arbitration award and awarding $2,450.73 as principal, statutory interest, the $40.00 arbitration filing fee, attorney’s fees, and costs and disbursements (NYSCEF Doc Nos. 12, Notice of Cross-Petition; 13, Cross-Petition).

The petition and cross-petition came before the undersigned for oral argument on May 12, 2023. At that time, both parties appeared by counsel.

The underlying arbitration which is the subject of this proceeding was organized by the American Arbitration Association (“AAA”), which assigned Case No. 17-21-1191-9817 ^[FN5] to it. The AAA has been designated by the New York State Department of Financial Services to coordinate the mandatory arbitration provisions of Insurance Law § 5106 [b], which provides:

Every insurer shall provide a claimant with the option of submitting any dispute involving the insurer’s liability to pay first party [“No-Fault insurance”] benefits, or additional first party benefits, the amount thereof or any other matter which may arise pursuant to subsection (a) of this section to arbitration pursuant to simplified procedures to be promulgated or approved by the superintendent.

Insurance Law Article 51 provides for the payment of basic economic loss incurred by persons injured in motor vehicle accidents. Included within basic economic loss are first-party benefits for medical and other professional health services.^[FN6] First-party benefits are more commonly known as “No-Fault benefits.”^[FN7] Notably, and relevant in the instant case, is that first-party benefits are reduced by, among other things, Workers’ Compensation benefits where an injured person in a motor vehicle accident was acting in the course of employment (see Insurance Law § 5102 [b] [2]).

In furtherance of the statutory scheme, a comprehensive set of No-Fault Regulations were promulgated by the Superintendent of Insurance (presently Superintendent of Financial Services). They are contained at 11 NYCRR Part 65. Said part is subdivided into five subparts which encompass the following topics: prescribed insurance policy endorsements, rights and liabilities of self-insurers, claims for benefits, arbitration, and unauthorized providers of health services. Part 65 is also known as Insurance Regulation 68.

Generally, the claims process for health service bills ^[FN8] 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).^[FN9] Besides providing information regarding the injured person, diagnoses, 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. As noted in footnote 4, they possess standing to do so by virtue of having received signed assignments of benefits from the injured persons.^[FN10] ,^[FN11]

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 ^[FN12] explaining why the bill was not paid. (See Insurance Law § 5106 [a]; Viviane Etienne Med. Care, P.C. v Country-Wide Ins. Co., 25 NY3d 498, 505 [2015].)

The record evidence submitted in this Article 75 proceeding revealed that the underlying arbitration involved three Form NF-3 claim forms (bills) submitted by Nexray to ATIC for payment. This was in accordance with the procedure for the submission of claims for No-Fault compensation, as summarized above. ATIC received two bills for date of service September 6, 2019 (right shoulder and cervical MRIs) on September 26, 2019, and one bill for date of service October 11, 2019 (lumbar MRI). After requesting additional verification, and receiving it on January 30, 2020, ATIC issued Form NF-10 denials of claim on February 24, 2020. These claim denials were timely inasmuch as they were issued within 30 days after the receipt of the requested additional verification (see Liberty Queens Med., P.C. v Tri-State Consumer Ins., 188 Misc 2d 835, 839 [Dist Ct, Nassau Co. 2001] [once verification has been received, an insurer has 30 days within which to make a determination on the claim].

The February 24, 2020 Form NF-10 denials of claim all asserted: “Claimant is eligible for Workers’ Compensation as he/she was in the course of employment at the time of accident, [and] as a result, all medicals should be submitted to the Workers’ Compensation carrier. ATIC is requesting that we be placed on notice regarding any Workers’ Compensation hearing” [*4](NYSCEF Doc No. 6, Petitioner’s Arbitration Submission and Master Arbitration Brief, at 6, 14, 22).^[FN13] A fee defense was also asserted in them but it was never pursued in arbitration.

Thereafter, an application was made to the Workers’ Compensation Board for coverage of medical expenses under Workers’ Compensation. On September 4, 2020, the Workers’ Compensation Board issued a Notice of Decision, which determined the issue as follows: “Per claimant’s testimony, he was not working at time of accident. He was not logged in to any ride-sharing application. I find he did not have a compensable accident. Claimant can pursue no fault claim. No further action is planned by the Board at this time.” (Id. at 38.)

ATIC then submitted Assignor’s medical records to Dr. Edward Weiland, who issued a peer review on October 5, 2020, in which he opined that the subject MRIs were not medically necessary (id. at 50-54).

Thereafter, a second, subsequent denial of claim was issued by ATIC appurtenant to each of the three bills. They were all dated October 9, 2020, and asserted, “This service was denied based on a peer review by a reviewer/physician. . . . Peer review by Dr. Edward M. Weiland, M.D. attached.”^[FN14] (Id. at 10-13, 18-21, 26-29.)

Arbitrator Matthew K. Viverito’s Award

The record evidence reveals further that on March 26, 2002, Arbitrator Viverito conducted a hearing at which Andrew Ciccaroni, Esq., from Russell Friedman & Associates LLP, appeared for Nexray, and Dianne Galluzzo, Esq., appeared for ATIC (NYSCEF Doc No. 3, Arbitration Award, at numbered p 1).

In his award, Arbitrator Viverito stated that the hearing documents were contained in Modria ^[FN15] . ATIC related that it was withdrawing its defense that Workers’ Compensation benefits were primary. (NYSCEF Doc No. 3, Arbitration Award, at numbered p 2.) It offered two arguments to the arbitrator as to why its October 9, 2020 denials of claim should be sustained (id.).

First, ATIC argued that the owner of Nexray was indicted by the federal government for allegedly participating in a criminal scheme to exploit insurance companies. Arbitrator Viverito rejected this argument since no documentation was presented that there was a guilty plea or a conviction.

Second, and more particularly relevant, ATIC argued that the MRIs were not medically necessary; it relied upon Dr. Weiland’s peer review. The pertinent findings by Arbitrator Viverito were as follows:

Having reviewed the evidence, I find that respondent’s subsequent denials of claim based on lack of medical necessity are fatally untimely as they were issued more than 30 days [*5]after receipt of claim, in violation of the No-fault Regulations. I further find that respondent may not rescind its original denial based on workers’ compensation and re-start the processing of the within claim.

Respondent argued that its subsequent denials of claim based on lack of medical necessity should be permitted and the within matter should move forward on the merits of such defense.

However, there is nothing in the No-fault Regulations which permits respondent to re-start the processing of claim and therefore I find that respondent is bound to the four corners of its original denials. Respondent has not presented persuasive support for its position that it may withdraw or retract denials based on workers’ compensation and re-start the time to pay or deny a claim.

Accordingly, I find that respondent’s subsequent denials of claim based on lack of medical necessity are unsustainable.

Arbitrator Viverito awarded the $2,450.73 principal billed. He also awarded statutory interest of 2% per month and an attorneys’ fee (see Insurance Law § 5106 [a]) and return of the $40 filing fee (see 11 NYCRR 65-4.5 [s]).

Master Arbitrator Joseph J. O’Briens’s Award

ATIC filed for master arbitration to appeal Arbitrator Viverito’s award. It challenged the arbitrator’s determination concerning the issue raised as to the true ownership of Nexray. It suffices to say—because this issue is not raised in the Article 75 petition—that Master Arbitrator O’Brien sustained the arbitrator’s determination because “an indictment . . . is not a conviction, and [ATIC] has not submitted evidence that that a conviction was obtained following the indictment [ATIC] relies on” (NYSCEF Doc No. 4, Master Arbitration Award, at numbered p 3).

In its master arbitration brief, ATIC argued that Arbitrator Viverito’s treatment of the issue of medical necessity was irrational. There was citation to various court decisions on the issue of medical necessity. (NYSCEF Doc No. 6, Petitioner’s Arbitration Submission and Master Arbitration Brief, at 107-109). Master Arbitrator O’Brien concurred in the position of Nexray “that there is nothing in the No-fault Regulations which permits respondent to re-start the processing of claim and therefore I find that respondent is bound to the four corners of its original denials. Respondent has not presented persuasive support for its position that it may withdraw or retract denials based on workers’ compensation and re-start the time to pay or deny a claim.” (NYSCEF Doc No. 4, Master Arbitration Award, at numbered pp 2-3.)

In his conclusion, Master Arbitrator O’Brien wrote, “For the foregoing reasons, we find that the award appealed from was detailed, well-reasoned and, therefore, was neither arbitrary nor capricious and was not in error as a matter of law.” He affirmed the arbitration award and also awarded $227.50 as a master arbitration attorney’s fee for Nexray.

ATIC’s Petition to Vacate

ATIC’s petition to vacate asserted that “The arbitration decision was arbitrary and capricious, irrational and without a plausible basis” (NYSCEF Doc No. 1, petition, ¶ 35), in that “Arbitrator Matthew K. Viverito failed to follow well settled law” (id. ¶ 37). The petition proceeded to argue that the claims at issue were properly and timely denied for lack of medical necessity (id. ¶ 38). ATIC had offered the opinion of a medical expert to establish that the services were not medically necessary (id. ¶ 39). ATIC’s burden of proof was satisfied and Nexray had to prove medical necessity through the submission of a rebuttal which meaningfully [*6]referred to or rebutted the peer reviewer’s conclusions (id. ¶¶ 40-42). Nexray failed to do so, contended ATIC, and this was contrary to well settled law (id. ¶¶ 44-45, 48-55).

The petition concluded by asserting that Arbitrator Viverito’s decision was “arbitrary and capricious, without rational basis and incorrect as a matter of law because the arbitrator ignored [ATIC]’s evidence and/or well settled legal precedent in order to justify a determination in favor of [Nexray]” (id. ¶ 59). “As a result, [ATIC]’s rights were prejudiced by the partiality of the arbitrator and the arbitrator exceeded his/her power and failed to make a final and definite award and the decision must be vacated” (id. ¶ 60). ATIC was “entitled to a declaration that the arbitration decisions of Matthew K. Viverito, Esq. and Joseph J. O’Brien, Esq. in the matter designated AAA number 99-21-1191-9817 have no force or effect” (id. ¶ 61).

Nexray’s Cross-Petition to Confirm

Nexray argued in its cross-petition most significantly that the arbitration awards had to be confirmed if they were supported by evidence or other basis in reason (citing Matter of Petrofsky v Allstate Ins. Co., 54 NY2d 207 [1981]); rational (citing Matter of Unigard Mut. Ins. Co. v Hartford Ins. Group, 108 AD2d 917 [2d Dept 1985]); and not inapposite to settled law (citing Matter of Global Liberty Ins. Co. v Therapeutic Physical Therapy, P.C., 148 AD3d 502 [1st Dept 2017]). ATIC did not meet its burden of establishing that the master arbitration award did not meet this criteria.

Nexray did not submit any calculation of an attorney’s fee for its opposition to the petition and maintenance of the cross-petition.

No-Fault Insurance Arbitration

When the No-Fault Law was first enacted by the Legislature in Chapter 13 of the Laws of 1973 to take effect February 1, 1974, § 675 of the Insurance Law was added. In subdivision 2 thereof, insurers were required to provide claimants with an arbitration option for disputes involving liability for first-party benefits. This provision was amended in Chapter 892 of the Laws of 1977, when several changes were made to the 1973 version.^[FN16] The provision regarding arbitration in § 675 was amended to add the following language:

An award by an arbitrator may be vacated or modified by a master arbitrator in accordance with simplified procedures to be promulgated or approved by the superintendent [of insurance]. The grounds for vacating or modifying an arbitrator’s decision by a master arbitrator shall not be limited to those grounds for review set forth in article seventy-five of the civil practice law and rules. The decision of a master arbitrator shall be binding except for the grounds for review set forth in article seventy-five of the civil practice law and rules, and provided further that where the amount of such master arbitrator’s award is five thousand dollars or greater, exclusive of interest and attorney’s fees, the insurer or the claimant may institute an action in a court of competent jurisdiction to adjudicate the dispute de novo.^[FN17]

The provisions regarding No-Fault insurance arbitration remained in the recodification of the Insurance Law enacted in Chapters 367 and 805 of the Laws of 1984. The arbitration provisions were set forth in § 5106, and subdivisions (b) and (c) now read as follows:

(b) Every insurer shall provide a claimant with the option of submitting any dispute involving the insurer’s liability to pay first party benefits, or additional first party benefits, the amount thereof or any other matter which may arise pursuant to subsection (a) of this section to arbitration pursuant to simplified procedures to be promulgated or approved by the superintendent. Such simplified procedures shall include an expedited eligibility hearing option, when required, to designate the insurer for first party benefits pursuant to subsection (d) of this section. The expedited eligibility hearing option shall be a forum for eligibility disputes only, and shall not include the submission of any particular bill, payment or claim for any specific benefit for adjudication, nor shall it consider any other defense to payment.

(c) An award by an arbitrator shall be binding except where vacated or modified by a master arbitrator in accordance with simplified procedures to be promulgated or approved by the superintendent. The grounds for vacating or modifying an arbitrator’s award by a master arbitrator shall not be limited to those grounds for review set forth in article seventy-five of the civil practice law and rules. The award of a master arbitrator shall be binding except for the grounds for review set forth in article seventy-five of the civil practice law and rules, and provided further that where the amount of such master arbitrator’s award is five thousand dollars or greater, exclusive of interest and attorney’s fees, the insurer or the claimant may institute a court action to adjudicate the dispute de novo.

Insofar as is here relevant, the No-Fault Insurance Regulations promulgated by the Superintendent of Insurance provided that a master arbitrator may vacate or modify a hearing arbitrator’s award where it “was incorrect as a matter of law (procedural or factual errors committed in the arbitration below are not encompassed within this ground)” (11 NYCRR 65.18 [a] [4]). This regulatory language was carried over into the revised Regulations promulgated in 2002, in 11 NYCRR 65-4.10 (a) (4).^[FN18] A master arbitrator may also vacate or modify a hearing [*7]arbitrator’s award under certain other grounds also (see 11 NYCRR 65-4.10 [a]).^[FN19]

Discussion

The provision that a master arbitrator may vacate or modify a hearing arbitrator’s award due to an error of law is one of several grounds but is the main gravamen of ATIC’s objection to the arbitration outcome here, considering the numerous paragraphs in its Article 75 petition discussing case law concerning the applicability of settled law.

The provision in 11 NYCRR 65-4.10 [a] [4] that a No-Fault insurance arbitration award may be vacated where it was incorrect as a matter of law refers to substantive issues not issues of fact (see American Transit Ins. Co. v Right Choice Supply, Inc., — Misc 3d —, 2023 NY Slip Op 23039, *11 [Sup Ct, Kings County 2023]).

Master Arbitrator O’Brien sustained Arbitrator Viverito, describing the latter’s award as detailed, well-reasoned, neither arbitrary nor capricious, and not being in error as a matter of law (NYSCEF Doc No. 4, Master Arbitration Award, at numbered p 3).

This Court must next determine whether to sustain Master Arbitrator O’Brien’s review of Arbitrator’s Viverito award for an error of law.

“A presumption of medical necessity attaches to a defendant’s admission of the plaintiff’s timely submission of proper claim forms, and the burden then switches to the defendant to demonstrate the lack of medical necessity. Acupuncture Prime Care, P.C. v. State Farm Mutual Auto Ins., 2007 NY Slip Op. 52273U, 2007 NY Misc. LEXIS 7860 (Dist. Ct., Nassau Co. 12/3/2007); A.B. Medical Services, PLLC v. NY Central Mutual Fire Ins. Co., 7 Misc 3d 1018(A), 801 N.Y.S.2d 229 (Civil Ct. Kings. Co. 2005); Citywide Social Work & Psychological Services v. Travelers Indemnity, 3 Misc 3d 608, 609 (Civil Ct., Kings Co. 2004).” (Millennium Radiology, P.C. v New York Cent. Mut. Fire Ins. Co., 23 Misc 3d 1121[A], 2009 NY Slip Op 50877[U], *2 [Civ Ct, Richmond County 2009]; accord Stephen Fogel Psychological, P.C. v Progressive Cas. Ins. Co., 7 Misc 3d 18 [App Term, 2d Dept, 2d & 11th Dists 2004], mod on other grounds 35 AD3d 720 [2d Dept 2006]; Harvey Family Chiro PT & Acup, PLLC v Ameriprise Ins. Co., 68 Misc 3d 556 [Civ Ct, Bronx County 2020]).

“Pursuant to the statutory and regulatory framework governing the payment of no-fault automobile benefits, insurance companies are required to either pay or deny a claim for benefits within 30 days of receipt of the claim (see Insurance Law § 5106 [a]; 11 NYCRR 65-3.8 [c]). However, the 30-day period may be extended where the insurer makes a request for additional information within 15 business days of its receipt of the claim (see 11 NYCRR 65-3.5 [b]; Nyack Hosp. v General Motors Acceptance Corp., 27 AD3d 96, 100 [2005]; Hospital for Joint Diseases v ELRAC, Inc., 11 AD3d 432, 434 [2004]; New York & Presbyt. Hosp. v Progressive Cas. Ins. Co., 5 AD3d 568, 569-570), and an insurer is not obligated to pay or deny a claim until all demanded verification is provided (see Nyack Hosp. v General Motors Acceptance Corp., supra at 100-101; Central Suffolk Hosp. v New York Cent. Mut. Fire Ins. Co., 24 AD3d 492, 493 [2005], lv denied 7 NY3d 704 [2006]).” (New York and Presbyt. Hosp. v Allstate Ins. Co., 31 AD3d 512, 513 [2d Dept 2006].)

“When an insurance company fails to comply with its duty to act expeditiously in processing no-fault claims, it will be precluded from raising most defenses (see, e.g., Presbyterian Hosp. v Maryland Cas. Co., 226 AD2d 613; LaHendro v Travelers Ins. Co., 220 AD2d 971; Presbyterian Hosp. v Atlanta Cas. Co., 210 AD2d 210; Loudermilk v Allstate Ins. Co., 178 AD2d 897; Bennett v State Farm Ins. Co., 147 AD2d 779). This is because the very purpose of the no-fault law was to ensure the ‘swift reimbursement of accident victims . . . who had serious injuries’ (Pavone v Aetna Cas. & Sur. Co., 91 Misc 2d 658, 663), with ‘as little litigation as possible’ (Matter of Furstenburg [Aetna Cas. & Sur. Co.], 67 AD2d 580, 583, rev’d on other grounds 49 NY2d 757).” (Presbyterian Hosp. in City of NY v Aetna Cas. & Sur. Co., 233 AD2d 431, 432 [2d Dept 1996].)

If an insurer asserts a lack of coverage defense defense, it will be permitted to assert said defense despite the lack of a timely-issue denial (see Central Gen. Hosp. v Chubb Group of Ins. Cos., 90 NY2d 195 [1997]). The lack-of-coverage defense is an exception to the 30-day “pay-or-deny” rule enunciated in Presbyterian Hosp. v Maryland Cas. Co. (90 NY2d 274 [1997], which is considered the leading decision in No-Fault insurance law regarding the preclusion of defenses asserted in denials of claim where the denials are not timely issued (the deadline being 30 days after receipt of the claim form (bill) or 30 days after receipt of requested additional verification) or the denials are timely but the defense is not asserted therein. Lack of medical necessity is obviously not a lack of coverage defense.

“This Court has recognized that preclusion may require an insurer to pay a no-fault claim it might not have had to honor if it had timely denied the claim (see Presbyterian Hosp., 90 [*8]NY2d at 285). Nonetheless, we emphasized that the great convenience of ‘prompt uncontested, first-party insurance benefits’ is ‘part of the price paid to eliminate common-law contested lawsuits’ (id.; see Fair Price, 10 NY3d at 565-566).” (Viviane Etienne Med. Care, P.C. v Country-Wide Ins. Co., 25 NY3d at 506.)

Therefore, it is well settled No-Fault insurance law that an untimely denial of claim issued by an insurer results in preclusion of the defense of lack of medical necessity in litigation. The case law is abundant. (See, e.g., A & S Med. P.C. v Allstate Ins. Co., 15 AD3d 170 [1st Dept 2005]; Country-Wide Ins. Co. v Zablozki, 257 AD2d 506 [1st Dept 1999]; Mount Sinai Hosp. v Triboro Coach, 263 AD2d 11 [2d Dept 1999]; Gotham Acupuncture, P.C. v Country Wide Ins. Co., 20 Misc 3d 141[A], 2008 NY Slip Op 51615[U] [App Term, 1st Dept 2008]; Response Med. Equip. v General Assur. Co., 13 Misc 3d 129[A], 2006 NY Slip Op 51765[U] [App Term, 1st Dept 2006]; Diagnostic Rehab. Medicine Serv., P.C. v Farm Family Cas. Ins. Co., 7 Misc 3d 137[A], 2005 NY Slip Op 50826[U] [App Term, 1st Dept 2005].)

In the instant case, ATIC received Nexray’s additional verification regarding all three bills on January 30, 2020. When it issued Form NF-10 denials of claim on February 24, 2020, it asserted a fee defense and that Assignor was injured in the course of employment and should submit bills to the Workers’ Compensation carrier. It did not assert a defense of lack of medical necessity. ATIC’s 30-day deadline to assert lack of medical necessity as a defense expired on March 2, 2020 (February 29, 2020, the 30th day thereafter, being a Saturday).

The denials of claim issued on October 9, 2020, which asserted the peer review (lack of medical necessity) defense, contained a date of receipt of final verification of September 11, 2020. However, September 11, 2020 was not the date of receipt of final verification. Perhaps ATIC received the September 4, 2020 Workers’ Compensation Board Notice of Decision that day. However, said Notice of Decision did not constitute additional verification, as such term is referred to in the No-Fault Regulations (see 11 NYCRR 65-3.5 [b]). A decision of the Workers’ Compensation Board was not sought by ATIC.

“No-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 section 65-3.5 of this Subpart” (11 NYCRR 65-3.8 [a] [1]). Proof of claim was complete on January 30, 2020, for purposes of the bills at issue herein. The three Form NF-10 denials of claim issued on October 9, 2020 were more than eight months late. As such, the peer review (lack of medical necessity) defense asserted therein was a nullity.

Arbitrator Viverito correctly applied settled law when precluding the lack of medical necessity defense. He was correct in stating that “there is nothing in the No-[F]ault Regulations which permits [ATIC] to re-start the processing of claim and therefore I find that [ATIC] is bound to the four corners of its original denials” (NYSCEF Doc No. 3, Arbitration Award, at numbered pp 2-3). The No-Fault Regulations do not provide anywhere that the claim processing function begins anew if the Workers’ Compensation Board issues a determination that an injured person is entitled to No-Fault benefits. This is consistent with the fact that Workers’ Compensation benefits are to be harmonized with basic economic loss (expenses for health service treatment, lost earnings, and other reasonable and necessary expenses as a result of being injured in a motor vehicle accident) (see Insurance Law § 5102 [a], [b] [2]; Normile v Allstate Ins. Co., 60 NY2d 1003 [1983], affg 87 AD2d 721 [3d Dept 1982]); Ryder Truck Lines v Maiorano, 44 NY2d 364 [1978]; Carriers Ins. Co. v Burakowski, 93 Misc 3d 100 [Sup Ct, Erie County 1978]).

Had ATIC wished to assert a defense of lack of medical necessity it should have done so in the original denials of claim issued on February 24, 2020. Having failed to assert such defense within the 30-day period following receipt of complete proof of claim, including requested additional verification, said defense could not be considered. The presumption of medical necessity arising from the submission of the bills to ATIC survived.

An insurer must stand or fall upon the defense upon which it based its refusal to pay and cannot create new grounds (see Todaro v GEICO General Ins. Co., 46 AD3d 1086 [3d Dept. 2007]; Matter of State Farm Ins. Co. v Domotor, 266 AD2d 219, 220-221 [2d Dept 1999]). ATIC was relegated to the defenses asserted in the February 24, 2020 denials of claim.

The standard for Article 75 court scrutiny of a No-Fault insurance arbitration is whether the master arbitration award was so irrational as to require vacatur (see Matter of Smith v Firemen’s Ins. Co., 55 NY2d 224, 232 [1982]; Matter of Acuhealth Acupuncture, PC v Country-Wide Ins. Co., 170 AD3d 1168 [2d Dept 2019]; Matter of Acuhealth Acupuncture, P.C. v New York City Transit Authority, 167 AD3d 314 [2d Dept 2018]; Matter of Acuhealth Acupuncture, P.C. v Country-Wide Ins. Co., 149 AD3d 828 [2d Dept 2017]). A master arbitrator’s review of a hearing arbitrator’s award where an error of a rule of substantive law is alleged must be upheld unless it is irrational (see Golden Earth Chiropractic & Acupuncture, PLLC v Global Liberty Ins. Co. of New York, 54 Misc 3d 31 [App Term, 2d Dept, 2d, 11th & 13th Dists 2016]).

Not only was Master Arbitrator O’Brien correct when he found that Arbitrator Viverito’s award was detailed, well-reasoned, neither arbitrary nor capricious, and not being in error as a matter of law, it bears saying that the latter accurately stated the law concerning the untimely assertion of a defense of lack of medical necessity. Therefore, Master Arbitrator O’Brien’s affirmance was absolutely not irrational; it was legally correct.

The only issue before the arbitrators was one of law—whether the defense of lack of medical necessity being precluded was proper. There were no issues of fact. In sustaining the arbitrators, this Court holds as follows: Where a No-Fault insurer initially denies payment of bills on the grounds that the injured person was acting in the course of employment while driving and, therefore, the bills should be submitted to the Workers’ Compensation insurer instead, and later on the Workers’ Compensation Board finds that the injured person was not working while employed, a defense of lack of medical necessity asserted in a second, subsequent denial of claim—issued after the 30-day deadline past receipt of proof of claim—is precluded.

Judicial review of a master arbitrator’s authority to vacate a hearing arbitrator’s award derives from § 675 (presently § 5106 [c]) of the Insurance Law and involves the question of whether the master arbitrator exceeded his power (Matter of Smith v Firemen’s Ins. Co., 55 NY2d 224 at 231). Master Arbitrator O’Brien did not exceed his power because he affirmed the award of Arbitrator Viverito, whose determination was consistent with well settled law (see 11 NYCRR 65-4.10 [a] [4]; cf. Matter of Petrofsky v Allstate Ins. Co., 54 NY2d 207 [1981]).

Accordingly, this Court rejects ATIC’s contentions in its petition that Arbitrator Viverito’s award was arbitrary and capricious, without rational basis, and incorrect as a matter of law (cf. NYSCEF Doc No. 1, Petition, ¶ 59). ATIC’s rights were not prejudiced, the arbitrator was not partial, he did not exceed his powers, and he did not fail to make a final and definite award” (cf. id. ¶ 60).

Cross-Petition;
Interest, Attorney’s Fees, Return of Arbitration Filing Fee, Costs, and Disbursements

As mentioned above, Nexray sought in its cross-petition to confirm the arbitration [*9]determinations. Having found that no grounds exist to vacate them, the master arbitration award must be confirmed. Nexray is entitled to No-Fault compensation for health services in the principal amount of $2,450.73.

Nexray also sought additional payments in the nature of interest, attorney’s fees, return of the arbitration filing fee, costs, and disbursements.

Where a claim is timely denied, interest at two per cent per month shall begin to accrue as of the date arbitration was requested by the claimant, i.e., the date the AAA received the applicant’s arbitration request, unless arbitration was commenced within 30 days after receipt of the denial, in which event interest shall begin to accrues as of the 30th day after proof of claim was received by the insurer (see Insurance Law § 5106 [a]; 11 NYCRR 65-4.5 [(s] [3], 65-3.9 [c]; Canarsie Med. Health, P.C. v National Grange Mut. Ins. Co., 21 Misc 3d 791, 797 [Sup Ct, NY County 2008] [“The regulation provides that where the insurer timely denies, then the applicant is to seek redress within 30 days, after which interest will accrue.”]). The plaintiff health care provider in Canarsie Med. Health, P.C. argued that where a timely issued denial is later found to have been improper, the interest should not be stayed merely because the provider did not seek arbitration within 30 days after having received the denial. The court rejected this argument, finding that the regulation concerning interest was properly promulgated; this includes the provision staying interest until arbitration is commenced, where the claimant does not promptly take such action. Nexray presumptively received ATIC’s timely-issued denials a few days after February 24, 2020, when they were issued. Applicant’s arbitration request was received by the AAA on January 25, 2021 (NYSCEF Doc No. 5, Respondent’s Arbitration Request Form and Arbitration Submission, at 1), which was clearly more than 30 days later. Thus, interest on all of the claims herein accrued from that date, not from the 30th day after proof of claim was received by ATIC. The end date for the calculation of the period of interest shall be the date of payment of the claims. In calculating interest, the date of accrual is excluded from the calculation (see General Construction Law § 20 [“The day from which any specified period of time is reckoned shall be excluded in making the reckoning.”]). Where a motor vehicle accident occurred after April 5, 2002, interest is calculated at the rate of two percent per month, simple, on a pro rata basis using a 30-day month (see 11 NYCRR 65-3.9 [a]; Gokey v Blue Ridge Ins. Co., 22 Misc 3d 1129[A], 2009 NY Slip Op 50361[U] [Sup Ct, Ulster County 2009]). CPLR 5004’s nine percent per annum is superseded by Insurance Law § 5106 [a]’s two percent per month (see Pro-Med Med., P.C. v MVAIC (74 Misc 3d 130[A], 2022 NY Slip Op 50135[U] [App Term 2d Dept, 2d, 11th & 13th Dists 2022]).

After calculating the sum total of the first-party benefits awarded in this arbitration plus interest thereon, ATIC shall pay Nexray an attorney’s fee equal to 20 percent of that sum total subject to a maximum fee of $1,360.00, as provided for in 11 NYCRR 65-4.6 [d].

Additionally, this Court sustains the $227.50 attorney’s fee for preparatory services in connection with the master arbitration. This is in accordance with 11 NYCRR 65-4.10 [j] [2] [i].

Moreover, pursuant to 11 NYCRR 65-4.10 [j] [4], having successfully prevailed in this Article 75 proceeding, Nexray is entitled to an additional attorney’s fee (see Global Liberty Ins. Co. of NY v Nexray Family Chiropractic, 178 AD3d 525 [1st Dept 2019]; GEICO Ins. Co. v AAAMG Leasing Corp., 148 AD3d 703 [2d Dept 2017]).

Nexray’s counsel did not submit an affirmation specifying details with regard to work [*10]performed in this Article 75 special proceeding. It is not known whether an attorney or support staff performed the work. The cross-petition contains mostly boilerplate statements which could apply to most Article 75 proceedings to confirm No-Fault arbitration awards, with a few insertions specific to this particular claim. The cross-petition asserted that Nexray “should be granted leave to serve an afirmation in order to set forth its resonable attroneys’ fees in defending this action.”

A special proceeding, such as one commenced pursuant to CPLR 7511 to vacate an arbitration award, “is a civil judicial proceeding in which a right can be established or an obligation enforced in summary fashion. Like an action, it ends in a judgment (CPLR 411), but the procedure is similar to that on a motion (CPLR 403, 409). Speed, economy and efficiency are the hallmarks of this procedure.” (Vincent C. Alexander, Prac Commentaries, McKinney’s Cons Laws of NY, CPLR C401:01.) Counsel should have included an affirmation containing details describing the work performed (see Matter of Bay Needle Care Acupuncture, P.C. v Country Wide Ins. Co., 176 AD3d 695 [2d Dept 2019] [claim for hourly fee for prevailing on policy issue not substantiated with any time records]). It behooved counsel to do so considering the expedited nature of special proceedings.

In a Kings County No-Fault insurance case involving an appeal to the Court of Appeals, the court awarded $250.00 per hour but this was in connection with the litigation of a novel or unique issue (see Viviane Etienne Med. Care PC v Country-Wide Ins. Co., 59 Misc 3d 579 [Sup Ct, Kings County 2018]). The issue in the case at bar was neither novel nor unique, especially since the preclusion rule for untimely assertions of lack of medical necessity is established law.

Consdering the factors delineated herein, this Court awards $220.00 for work performed by Nexray’s counsel on this Article 75 proceeding. This Court applied the $70.00 per hour fee for policy issues litigated in arbitration or at the trial level, and assumed that there was attorney involvement for two hours at the most. In addition, the $80.00 per hour personal appearance fee is awarded. (See 11 NYCRR 65-4.6 [c].)

ATIC shall also pay Nexray $40.00 as reimbursement for the fee paid to the AAA (see 11 NYCRR 65-4.5 [s] [1]).

As the prevailing party, Nexray shall recover its costs and disbursements, to be taxed by the Clerk.

Other Requested Relief

Any requested relief not expressly addressed herein has nonetheless been considered and is hereby expressly rejected.

Conclusion

Accordingly, it is hereby ORDERED, ADJUDGED, and DECREED that:

(1) ATIC’s petition to vacate the master arbitration award of Joseph J. O’Brien in AAA Case No. 99-21-1191-9817 is denied and this special proceeding is dismissed.

(2) Nexray’s cross-petition to confirm said master arbitration award is granted.

(3) Said master arbitration award is confirmed in its entirety.

(4) Nexray is awarded the principal amount of $2,450.73 as No-Fault insurance health service benefits, along with simple interest thereon (i.e., not compounded) at two per cent per month on a pro rate basis using a 30-day month, computed from January 25, 2021 to the date of payment of the principal amount, but excluding January 25, 2021 from being counted within the [*11]period of interest.

(5) After calculating the sum total of the principal amount of $2,450.73 plus the interest thereon, ATIC shall pay Nexray an attorney’s fee equal to 20 percent of that sum total, subject to a maximum fee of $1,360.00.

(6) ATIC shall pay Nexray an attorney’s fee of $227.50 in connection with the master arbitration.

(7) ATIC shall pay Nexray an attorney’s fee of $220.00 for work performed by counsel on this Article 75 proceeding.

(8) Nexray shall recover from ATIC costs and disbursements as allowed by law to be taxed by the Clerk.

Footnotes

Footnote 1: Respondent’s reply affirmation in support of the cross-petition, filed on May 13, 2023 (day after oral argument), is not considered inasmuch as it was not timely filed and no application to accept it was made to this Court (see CPLR 402, 2214, 3012; 22 NYCRR 202.8, 202.9).

Footnote 2: The notice of petition seeks vacatur of “the arbitration award issued by Arbitrator Matthew K. Viverito, Esq. and/or Master Arbitrator Joseph J. O’Brien, Jr., Esq.” (NYSCEF Doc No. 2, notice of petition), but it must be deemed to seek vacatur of just the master arbitration award inasmuch as the latter is the final determination of the arbitration process. The No-Fault Regulations provide that “court review pursuant to an article 75 proceeding” is from the “decision of a master arbitrator” (11 NYCRR 65-4.10 [h] [1] [i]). In fact, a party may not appeal from an arbitration award without first seeking master arbitration (see Matter of Staten Is. Hosp. v USAA, 103 AD2d 744 [2d Dept 1984]; Matter of Griffith v Home Indem. Co., 84 AD2d 332 [1st Dept 1982]; Matter of Lampasona v Prudential Prop. & Cas. Ins. Co., 111 Misc 2d 623 [Sup Ct, Kings County 1981]). “[T]he Legislature intended the provision of CPLR article 75 to apply only to the review of the awards of master arbitrators (see, Insurance Law § 5106[c])” (Matter of Custen v General Acc. Fire and Life Ins. Co., 126 AD2d 256 [2d Dept. 1987]). Naturally, if the hearing arbitrator’s award is imperfect, this can impact judicial review of a master arbitration award affirming it.

Footnote 3: Rather than denote the parties here as “Petitioner” and “Respondent” in discussion, the parties’ names are used. This is to facilitate the reader’s understanding of the facts, arguments, analysis, and determination. This also minimizes confusion because the respondent in the underlying arbitration (ATIC) is not the respondent herein but rather is the petitioner herein. The respondent herein, Nexray, was not the respondent in the arbitration, but was the applicant.

Footnote 4: Health service providers obtain standing to pursue No-Fault insurance compensation in arbitration by virtue of having received an assignment of benefits from the respective person claiming to have been injured in a covered motor vehicle accident; such person is often denoted as an “assignor.”

Footnote 5: Paragraph 28 of the petition describes the AAA Case No. as 99-21-1191-9817, which was assigned to the master arbitration appeal. The original arbitration was assigned AAA Case No. 17-21-1191-9817.

Footnote 6: This statutory scheme was developed by New York’s legislature in 1973, as part of a tradeoff whereby lawsuits for pain and suffering resulting from personal injuries in motor vehicle accidents were limited to instances of serious injury (see generally Insurance Law art 51; L 1973, ch 13, as amended L 1977, ch 892; John R. Dunne, New York’s No-Fault Automobile Insurance Law A Glimpse of the Past and a Glance at the Future, 50 NY St BJ 284 [June 1978]; J. Benedict, New York Adopts No-Fault: A Summary and Analysis, 37 Albany L Rev 662 [1973]).

Footnote 7: Although Insurance Law Article 51 does not mention the term “No-Fault,” shortly after the post-motor vehicle accident economic loss compensation system was enacted in 1973, the appellation “No-Fault” was adopted in common parlance to describe it.

Footnote 8: This Court uses the term “health service bills” instead of “medical bills” because the No-Fault Law provides for reimbursement of “(i) medical, hospital . . . , surgical, nursing, dental, ambulance, x-ray, prescription drug and prosthetic services; (ii) psychiatric, physical therapy . . . and occupational therapy and rehabilitation . . . and (iv) any other professional heath services” (Insurance Law § 5102 [b] [1]). Hence, the No-Fault insurance system encompasses not just “medical” services. In the instant case, the services were MRIs.

Footnote 9: The prescribed claim forms are included within 11 NYCRR Part 65 (Regulation 68) Appendix 13. Besides Form NF-3 (verification of treatment by attending physician or other provider of health service), Appendix 13 contains Form NF-4 (verification of hospital treatment) and Form NF-5 (hospital facility form).

Footnote 10: There is a prescribed assignment of benefits form (Form NF-AOB) in 11 NYCRR Part 65 (Regulation 68) Appendix 13.

Footnote 11: The process of submitting a No-Fault claim to the insurer is governed by 11 NYCRR Subpart 65-3, which contains §§ 65-3.1 et seq.

Footnote 12: Form NF-10 is also included within 11 NYCRR Part 65 (Regulation 68) Appendix 13.

Footnote 13: References to NYSCEF filings lacking page numbers are to the PDF page numbers.

Footnote 14: Again, a fee defense was also asserted but this was of no consequence since excessive fees was not an issue in arbitration.

Footnote 15: This is the AAA’s electronic case management and filing platform maintained on the Internet; it is known as “Modria,” which was the name of the company which developed it for the AAA (see Liveblogging #ODR2014: The Developing Field of Online Dispute Resolution, https://civic.mit.edu/index.html%3 Fp=1452.html [last accessed Mar. 19, 2023]; Welcome to the Modria Resolution Center for the American Arbitration Association, https://aaa-nynf.modria.com/ [last accessed Mar. 19, 2023]).

Footnote 16:Among the more substantial changes in the 1977 legislation were the adoption of fee schedules to limit health service expenses and modifying the threshold categories to be able to sue for pain and suffering.

Footnote 17:Nothing in the Governor’s Bill Jacket for Chapter 13 of the Laws of 1977 or other contemporary records comments on the provision adopting master arbitration review of hearing arbitrators’ decisions, so it is not known why the master arbitration process was created (see Matter of Bamond v Nationwide Mut. Ins. Co., 75 AD2d 812, 813 [2d Dept 1980], affd 52 NY2d 957 [1981]). This Court speculates that at least one reason was that No-Fault arbitration was compulsory and the Legislature desired to permit a party to an arbitration to seek review of the hearing arbitrator’s award on the basis of an assertion of an error of law, which traditionally was not a basis for review in an Article 75 proceeding (see Mott v State Farm Ins. Co., revd on other grounds 55 NY2d 224 [1982]).

Footnote 18:Most non-No-Fault insurance arbitration awards cannot be vacated due to an error of law (see Matter of Sprinzen v Nomberg, 46 NY2d 623, 629-630 [1979]). No-Fault insurance arbitrations are different; an error of law can be the basis for reversal — by a master arbitrator. In that sense, the master arbitrator’s review is broader than that of a court, since a court will not vacate an arbitration award due to an error of law (see Matter of Petrofsky v Allstate Ins. Co., 54 NY2d 207, 211-212 [1981]; Acuhealth Acupuncture, P.C. v Country-Wide Ins. Co., 176 AD3d 800, 802 [2d Dept 2019]).

Footnote 19:11 NYCRR 65-4.10 (a) provides as follows:

Grounds for review. An award by an arbitrator rendered pursuant to section 5106(b) of the Insurance Law and section 65-4.4 or 65-4.5 of this Subpart may be vacated or modified solely by appeal to a master arbitrator, and only upon one or more of the following grounds:

(1) any ground for vacating or modifying an award enumerated in article 75 of the Civil Practice Law and Rules (an article 75 proceeding), except the ground enumerated in CPLR subparagraph 7511(b)(1)(iv) (failure to follow article 75 procedure);

(2) that the award required the insurer to pay amounts in excess of the policy limitations for any element of first-party benefits; provided that, as a condition precedent to review by a master arbitrator, the insurer shall pay all other amounts set forth in the award which will not be the subject of an appeal, as provided for in section 65-4.4 or 65-4.5 of this Subpart;

(3) that the award required the insurer to pay amounts in excess of the policy limitations for any element of additional first-party benefits (when the parties had agreed to arbitrate the dispute under the additional personal injury protection endorsement for an accident which occurred prior to January 1, 1982); provided that, as a condition precedent to review by a master arbitrator, the insurer shall pay all other amounts set forth in the award which will not be the subject of the appeal, as provided for in section 65-4.4 or 65-4.5 of this Subpart;

(4) that an award rendered in an arbitration under section 65-4.4 or 65-4.5 of this Subpart, was incorrect as a matter of law (procedural or factual errors committed in the arbitration below are not encompassed within this ground);

(5) that the attorney’s fee awarded by an arbitrator below was not rendered in accordance with the limitations prescribed in section 65-4.6 of this Subpart; provided that, as a condition precedent to review by a master arbitrator, the insurer shall pay all other amounts set forth in the award which will not be the subject of the appeal, as provided for in section 65-4.4 or 65-4.5 of this Subpart.