American Tr. Ins. Co. v Ortho City Servs. Inc. (2023 NY Slip Op 50527(U))

Index No. 530474/2022

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

The following numbered papers were read on this petition:

In an Article 75 proceeding commenced by an insurance company to vacate the awards of a No-Fault insurance hearing arbitrator and a master arbitrator in favor of a health service provider, where the latter failed to submit opposition to the insurance company’s verified petition, should the court review the verified petition to determine whether it makes out a prima facie case in support of the relief requested?

Does a No-Fault insurer make out a prima facie case in support of vacatur of an arbitration award on the asserted ground that the arbitrator erred with respect to an issue of medical necessity when no defense of lack of medical necessity was asserted in its Form NF-10 denials of claim?

Background

This is a special proceeding — pursuant to CPLR Article 75 — commenced by American Transit Insurance Company (“ATIC”) seeking an order and judgment vacating a No-Fault Insurance master arbitration award of Toby Susan DeSimone, Esq. (dated July 21, 2022), which affirmed the arbitration award of Mitchell Lustig, Esq. (dated April 2, 2022) granting Respondent Ortho City Services Inc.’s (“Ortho”) claim for $2,021.74 in No-Fault insurance compensation for the rental to Assignor Carmen Lopez ^[FN1] of a continuous passive motion unit and a cold water therapy unit from February 18, 2021 to March 3, 2021.^[FN2] ,^[FN3] Assignor had allegedly [*2]been injured in an October 16, 2020 motor vehicle accident. The medical supplies were prescribed by Dr. Laxmidhar Diwan following his right shoulder arthroscopic surgery performed on Assignor on February 3, 2021.

The arbitration was organized by the American Arbitration Association (“AAA”), which 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.

The arbitration was assigned Case No. 17-21-1214-9074 ^[FN4] by the AAA. At oral argument before this Court on May 12, 2023, Petitioner ATIC appeared and argued that the above-referenced arbitration awards should be vacated. Respondent Ortho has neither submitted opposition nor appeared in this special proceeding.

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 Lustig failed to follow well settled law” (id. ¶ 37). “As a result, Petitioner’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. ¶ 59).

As a predicate to its contentions in the petition that that both arbitration awards should be vacated, ATIC asserted that “The claims totaling $2,021.74 for dates of service 02/18/2021 – 03/03/2021 were denied because the services were not medically necessary as per the peer [*3]review of Dr. Raghava Polavarapu, a medical expert. (id. ¶¶ 26, 39). ATIC’s evidence submitted to the hearing arbitrator ^[FN5] “clearly satisfied its burden” (id. ¶ 40). Ultimately the medical provider had to prove by a preponderance of the evidence that its services were reasonable and necessary, claimed ATIC; the petition to vacate cited to Dayan v Allstate Ins. Co. (49 Misc 3d 151[A], 2015 NY Slip Op 51751[U] [App Term, 2d Dept, 2d, 11th & 13th Dists 2015]), and Park Slope Med. and Surgical Supply, Inc. v. Travelers Ins. Co. (37 Misc 3d 19, 22 n [App Term, 2d Dept, 2d, 11th & 13th Dists 2012]) (id. ¶ 41). “In order for an applicant to prove that the services were medically necessary, it must meaningfully refer to, or rebut, the conclusions set forth in the peer review,” maintained the petition, which cited to Pan Chiropractic, P.C. v Mercury Ins. Co. (24 Misc 3d 136[A], 2009 NY Slip Op 51495[U] [App Term, 2d Dept, 2d, 11th & 13th Dists 2009]) (id. ¶ 42). Ortho failed to offer any rebuttal at all, never mind one that meaningfully referred to Dr. Polavarapu’s peer review, as was required by Pan Chiropractic, P.C. and the more than 100 published decisions citing to it, insisted ATIC (id. ¶ 43).

Further, claimed ATIC, “Petitioner’s peer review and or IME report ^[FN6] exposed the Respondent and claimant for providing and receiving unnecessary medical treatment for the purpose of over-billing the carrier and bolstering the claimant’s personal injury claim” (id. ¶ 46). “The arbitrator, as finder of fact, is required to weigh the evidence when making a determination whether services were medically necessary. [Ortho] did not submit a rebuttal to the peer review and/or IME report. As such, the arbitrator did not have any evidence to suggest that the services were medically necessary” (id. ¶ 55).

Discussion

As noted above, Respondent Ortho has not appeared in this special proceeding, either with written opposition or oral argument. The question arises whether Petitioner ATIC’s petition to vacate the master arbitration award should be granted solely on default — on the nonappearance of Respondent Ortho. This Court answers the question in the negative.

“[T]he announced policy of this State favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties. One way to encourage the use of the arbitration forum we recently noted would be to prevent parties to such agreements from using the courts as a vehicle to protract litigation. This conduct has the effect of frustrating both the initial intent of the parties as well as legislative policy [citation & internal quotation marks omitted].” (Nationwide Gen. Ins. Co. v Investors Ins. Co. of Am., 37 NY2d 91, 95 [1975].) “Judicial review of an arbitrator’s award is extremely limited” (Pearlman v Pearlman, 169 AD2d 825 [2d Dept 1991]). This is especially true with respect to No-Fault [*4]insurance arbitrations. The standard for Article 75 court scrutiny of a master arbitrator’s review of a hearing arbitrator’s award in terms of whether there was an error of law ^[FN7] is whether it is 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]). Similarly, with respect to factual issues reviewed by a master arbitrator, the proper standard of his review was whether the latter reached his decision in a rational manner, i.e., whether it was arbitrary and capricious, irrational, or without a plausible basis; the master arbitrator may not engage in an extensive factual review, which includes weighing the evidence, assessing the credibility of various medical reports, and making independent findings of fact (Matter of Petrofsky v Allstate Ins. Co., 54 NY2d 207 [1981]).^[FN8]

Were this Court to vacate a No-Fault insurance master arbitration award merely because a verified petition to vacate has been filed within the context of an Article 75 proceeding and the respondent failed to appear in opposition, the policy preference for the adjudication of such disputes through arbitration would be significantly frustrated. It is quite possible that a health service provider who prevailed in arbitration and was awarded a relatively low sum of money simply finds it not financially or logistically worthwhile to retain legal counsel to interpose opposition. Merely because one side had the resources to challenge the arbitration award in court and the other declined to undertake the effort to retain counsel should not impel the court to ipso facto rubber-stamp the unopposed petition commencing the special proceeding.

Rather, the court should treat this situation as the functional equivalent of when a plaintiff moves for a default judgment. As part of its application for a judgment by default, the plaintiff must submit “proof of the facts constituting the claim. . .” (CPLR 3215 [f]). The affidavit of merit must provide enough facts to enable the court to determine that a viable cause of action exists against the party in default (Roy v 81 E 98th KH Gym, LLC, 142 AD3d 985 [2d Dept 2016]).

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.)

In Matter of FIA Card Servs. v Thompson (18 Misc 3d 1146[A], 2008 NY Slip Op 50450[U] [Dist Ct, Nassau County 2008], the court discussed a petitioner’s burden when commencing a special proceeding to confirm an arbitration award. The court’s analysis would likewise apply to special proceedings to vacate an arbitration award. “In evaluating the proof offered by a petitioner in support of the foregoing, it must be kept in mind that ‘the standards governing motions for summary judgment are applicable to special proceedings generally (Matter of Port of New York Auth. [62 Cortlandt St. Realty Co.], 18 NY2d 250, 255, cert denied sub nom. McInnes v. Port of New York Auth., 385 U.S. 1006)[.]’ Brusco v. Braun, 199 AD2d 27, 31 (1st Dept. 1993) aff’d 84 NY2d 674 (1994); See also: CPLR 409(b); Friends World College v. Nicklin, 249 AD2d 393 (2nd Dept. 1998); Bahar v. Schwartzreich, 204 AD2d 441 (2nd Dept. 1994). Accordingly, to prevail, a petitioner must submit proof in evidentiary form. Friends of Animals, Inc. v. Associate Fur Manufacturers, Inc., 46 NY2d 1065 (1979)[.] A petitioner’s failure to do so will result in the denial of the petition, regardless of the sufficiency of any papers in opposition. Winegrad v. New York University Medical Center, 64 NY2d 851 (1985); Delgado v. Butt, [48] AD3d [735] (2nd Dept. 2008); Martinez v. 123-16 Liberty Ave. Realty Corp., 47 AD3d 901 (2nd Dept. 2008)[.]” (Id. at *5 [parallel citations omitted].)

In a special proceeding to stay arbitration, the petitioner must make out a prima facie [*5]case (Matter of Empire Ins. Co. v Milioner, 187 AD2d 277 [2d Dept 1992]). A court may determine that a claim is not properly before it in an Article 78 special proceeding (see Matter of McCoy v Annucci, 199 AD3d 1143 [3d Dept 2021]). A special proceeding seeking pre-action discovery must provide the facts and the law which supports the relief sought (Matter of Accetta, 39 Misc 3d 1218[A], 2013 NY Slip Op 50657[U] [Sup Ct, Kings County 2013]).

Taking into account this case law, this Court holds that in an Article 75 proceeding to vacate the award of a No-Fault insurance arbitration, where the respondent health service provider failed to submit opposition to the verified petition, the Court should review the verified petition to determine whether it makes out a prima facie case in support of the relief requested.

Determination

The instant arbitration concerned two bills submitted by Ortho to ATIC for payment. One bill, in the amount of $1,400.70 was for the rental of a continuous passive motion machine for the right shoulder (NYSCEF Doc No. 5, Ortho’s arbitration submission, at 10-12). The other bill, in the amount of $621.04, was for the rental of a cold water therapy unit (id. at 20-22). Both bills were denied on two grounds: (1) fees were not in accordance with fee schedule, and (2) surgery and surgically related services to the right shoulder were not causally related to the accident of record, based on the attached peer review of Dr. Raghava Polavarapu (id. at 15-18, 25-28).

Hearing Arbitrator Lustig found that no evidence was submitted in support of a defense relating to fees charged (NYSCEF Doc No. 3, Arbitrator Lustig’s Award, at numbered p 2.) He found that Dr. Polavarapu’s peer review was not sufficient for ATIC to satisfy its burden of proof that the medical supplies at issue were not medically necessary and/or causally related to the February 3, 2021 accident. “Dr. Polavarapu’s peer review only discusses the medical necessity and/or causal relationship to the accident of the underlying right shoulder surgery performed by Dr. Diwan on February 3, 2021. At no time in his peer review report does Dr. Polavarapu discuss or opine on the medical necessity and/or causal relationship to the accident of the rental of the CPM Machine and CTU specifically in dispute herein. . . . Consequently, I find that Dr. Polavarapu’s peer review report dated June 28, 2021 fails to set forth a sufficient factual basis and medical rationale for the denial of the rental of the CPM and CTU in dispute in this matter.” (Id. at numbered p 4.)

Arbitrator Lustig also wrote: “Finally, to the extent that Dr. Polavarapu suggested that the assignor’s injuries were unrelated to the accident, it is the Respondent’s burden to demonstrate that the Assignor’s condition or injury was not caused or exacerbated to any degree by the underlying automobile accident but was, rather, pre-existing. I find that Dr. Polavarapu’s peer review report is not sufficient to meet this heavy burden. Indeed, as specifically noted by Dr. Diwan on page 3 of his examination report of the Assignor on December 14, 2020: ‘Within a reasonable degree of medical certainty [the Assignor’s right shoulder injuries] were [a] direct result of 10/16/2020 motor vehicle accident.’ ” (Id. at numbered p 5.)

Master Arbitrator DeSimone affirmed Hearing Arbitrator Lustig. “I find the lower [*6]arbitrator decided this claim based upon his review and evaluation of the record, as well as case law. I find the award below was clearly articulated and had a rational and plausible basis in the evidence. The lower arbitrator was persuaded by Applicant/Appellee’s submissions. There was no evidence presented which would establish any valid ground to set aside the award of the lower arbitrator. I see no reason [to] disturb the arbitrator’s decision. The award is therefore affirmed in its entirety.” (NYSCEF Doc No. 4, Master Arbitrator DeSimone’s Award, at 5.)

In determining whether ATIC’s verified petition made out a prima facie case in support of its cause of action to vacate it, this Court notes that ATIC claimed that Arbitrator Lustig erred with respect to his finding concerning an asserted issue of medical necessity. The factual averment in the verified petition that Ortho’s claims (bills) “were denied because the services were not medically necessary” (NYSCEF Doc No. 1, petition, ¶ 26) — and throughout its verified petition, ATIC continued to refer to lack of medical necessity as a defense supporting its nonpayment of Ortho’s bills (id. ¶¶ 38-42, 46, 55) — is contradicted by ATIC’s Form NF-10 denials of claim it submitted into the record (NYSCEF Doc No. 5, Ortho’s arbitration submission, at 15-18, 25-28). Said denials of claim asserted as a defense for nonpayment that the surgery and surgically related services to the right shoulder were not causally related to the accident of record (id.).

Nowhere in the verified petition to vacate the arbitration determination was there any reference to a defense of lack of a causal relationship between the rental of the medical supplies and the subject motor vehicle accident.

In essence what ATIC claimed for its prima facie case in this special proceeding is that Arbitrator Lustig erred regarding lack of medical necessity. This Court concludes as a matter of law that an alleged arbitrator’s error concerning the issue of lack of medical necessity fails to make out a prima facie case in support of vacatur of the arbitrator’s award in an Article 75 proceeding when lack of medical necessity was not the original basis for denying payment of the bills. 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]). An insurer is not permitted to assert a defense in litigation which was not preserved in the denial of claim form (see Metropolitan Radiological Imaging, P.C. v State Farm Mut. Auto. Ins. Co., 7 Misc 3d 675, 678 [Civ Ct, Queens Co. 2005]).

If a No-Fault insurer is contesting an arbitration award with a verified petition which fails to discuss the arbitrator’s analysis of the defense asserted in the respective denials of claim issued in response to the bills submitted, then the insurer has clearly failed to establish a prima facie case to vacate the arbitration award.

Accordingly, although Arbitrator Lustig did discuss an issue of lack of medical necessity in his award, this Court deems it surplusage inasmuch as ATIC’s denials of claim did not assert lack of medical necessity as a defense. That portion of his award which determined the issue of an asserted lack of causal relationship between the services and the accident could have been challenged in this proceeding — as it was a stated defense in the denials of claim — but ATIC [*7]failed to raise it in its verified petition.

There being a lack of a prima facie case in the verified petition for vacating the arbitration awards, this Court rejects ATIC’s contentions that Arbitrator Lustig’s award “was arbitrary and capricious, irrational and without a plausible basis” (NYSCEF Doc No. 1, petition, ¶ 35), that its “rights were prejudiced by the partiality of the arbitrator, and that the arbitrator exceeded his/her power and failed to make a final and definite award” (id. ¶ 59). ATIC failed to make out a prima facie case in support of any of the grounds listed in CPLR 7511 (b) (1) for vacating an arbitration award: that the rights of a party were prejudiced by (i) corruption, fraud or misconduct in procuring the award; (ii) partiality of an arbitrator appointed as a neutral, except where the award was by confession; (iii) an arbitrator, or agency or person making the award, exceeding his power or so imperfectly executing it that a final and definite award upon the subject matter submitted was not made; or (iv) a failure to follow the procedure of Article 75.

Conclusion

Accordingly, it is hereby ORDERED, ADJUDGED, and DECREED that that ATIC’s petition is denied, this special proceeding is dismissed, and the master arbitration award of Toby Susan DeSimone, Esq., which affirmed the arbitration award of Mitchell Lustig, Esq., is confirmed in its entirety.

Footnotes

Footnote 1: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 an “assignor.”

Footnote 2: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, NextStep, was not the respondent in the arbitration, but was the applicant.

Footnote 3:The notice of petition seeks vacatur of “the arbitration award issued by Arbitrator Mitchell Lustig, Esq. and/or Master Arbitrator Toby Susan DeSimone, 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 4:Paragraph 28 of the petition describes the AAA Case No. as 99-21-1214-9074, which was assigned to the master arbitration appeal. The original arbitration was assigned AAA Case No. 17-21-1214-9074.

Footnote 5:The term “hearing arbitrator” is used herein instead of “arbitrator” to avoid confusion with the term “master arbitrator.”

Footnote 6:The reference to an “IME report” in paragraphs 39, 43, 46, 47, and 55 are inapropos. There was no IME report upon which ATIC relied in denying compensation. There was only a peer review and, as we shall see, it did not even refer to lack of medical necessity.

Footnote 7:“In No-Fault insurance arbitration, an error of law is a ground for reversal by a master arbitrator of a hearing arbitrator’s award (11 NYCRR 65-4.10 [a] [4]). This is an exception to the principle generally applicable to arbitration that errors of law do not warrant vacatur of an arbitrator’s award (see, e.g., Wien & Malkin LLP v Helmsley-Spear, Inc., 6 NY3d 471,479 [2006]). This Court has held that the error-of-law ground for reversal applies only to substantive law, and not to the means by which factual issues are assessed (see Matter of American Tr. Ins. Co. v Right Choice Supply, Inc., — Misc 3d —, 2023 NY Slip Op 23039 [Sup Ct, Kings County 2023]).

Footnote 8:11 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.