Kemper Independence Ins. Co. v Accurate Monitoring, LLC (2021 NY Slip Op 21253)

[*1]

Supreme Court, New York County, September 23, 2021

APPEARANCES OF COUNSEL

Goldberg, Miller & Rubin, P.C., New York City (Harlan R. Schreiber and Benjamin Bagenski of counsel), for plaintiff.

Gary Tsirelman, P.C., Brooklyn (Stefan Belinfanti of counsel), for Alpha Chiropractic P.C., defendant.

This motion concerns plaintiff Kemper Independence Insurance Company’s potential obligation to pay no-fault insurance benefits. Defendants Lateef Fowler and Cynthia Brown were passengers in a vehicle that was involved in a collision in February 2018. The vehicle was covered by a no-fault insurance policy issued by Kemper. Fowler and Brown assigned their rights to collect no-fault benefits under that policy to various treating medical providers, including defendant Alpha Chiropractic P.C.

In May 2018, Kemper sent Alpha a letter requesting among other things that Alpha produce a witness for an examination under oath (EUO) on May 31, 2018. (See NY St Cts Elec Filing [NYSCEF] Doc No. 78 at 4.) Alpha did not appear on the scheduled EUO date. On June 5, 2018, Kemper sent a second letter, requesting that Alpha produce a witness on June 22, and warning that a second failure to appear would constitute a breach of the policy leading to a denial of Alpha’s claims. (See NYSCEF Doc No. 78 at 1-2.) On June 14, Alpha wrote back to Kemper, seeking a “reasonable justification for the instant EUO request.” (NYSCEF Doc No. 78 at 7.) Kemper declined. In a July 24, 2018 letter to Alpha, Kemper stated that “while the request for EUO is made in good faith and does seek to verify necessity and causality of treatment,” the “Department of Insurance has specifically found that disclosing of the basis for EUO is not required by an insurer.” (NYSCEF Doc No. 78 at 10.) Kemper adjourned the EUO to August 7, 2018, and requested that Alpha’s witness appear on that date whether or not Kemper had provided a “reasonable justification” for that request. (See id. at 11.) Alpha did not appear on August 7.

Kemper later brought this action, seeking a declaration that it is not required to pay no-fault benefits to Fowler and Brown,{**73 Misc 3d at 587} Alpha or the other medical-provider defendants. Kemper moves here for summary judgment under CPLR 3212 against Alpha. The motion is denied.

Discussion

A no-fault-benefits claimant must appear for an examination under oath (EUO) on the reasonable request of the insurer. (See 11 NYCRR 65-1.1.) A claimant’s failure without reasonable cause to appear for a timely and properly scheduled EUO is grounds to deny coverage. An EUO request “must be based upon the application of objective standards so that there is specific objective justification supporting” the choice to seek an EUO. (Id. § 65-3.5 [e].)

Here, Kemper argues that Alpha failed to appear for scheduled examinations under oath (EUOs), which breached Alpha’s obligations under the no-fault policy. Alpha, on the other hand, contends that because Kemper declined Alpha’s request to provide a specific justification for the EUO, Alpha’s refusal to appear for the rescheduled EUO did not breach the terms of the underlying no-fault insurance policy. This court agrees with Alpha.^[FN1]

Kemper relies in part on a 2006 interpretive opinion letter issued by the State Insurance Department (now the State Department of Financial Services [DFS]). This letter concluded that although section 65-3.5 (e) provides that an EUO notice will be effective only if it includes “language advising” the witness of the “right to reimbursement for lost earnings and transportation costs incurred in attending the EUO,” the regulation does not require that “an insurer must include language stating the reason(s) for requiring the EUO” in each {**73 Misc 3d at 588}scheduling notice. (Ops Gen Counsel NY Ins Dept No. 06-12-16 [Dec. 2006].)^[FN2]

The 2006 opinion letter does not, however, indicate whether it is intended also to address the extent of an insurer’s discretion to refuse to provide an EUO-justification should the benefits claimant request it after receiving an initial EUO scheduling notice—the issue presented here. Nor is this court aware of any Appellate Division authority (or, in the First Department, any appellate precedent at all) on the question.

The First Department has held that if a denial of a no-fault claim leads to coverage litigation, the insurer must on request disclose to the benefits claimant the insurer’s “specific objective justification” for having sought an EUO. (Kemper Independence Ins. Co. v AB Med. Supply, Inc., 187 AD3d 671, 671 [1st Dept 2020], quoting 11 NYCRR 65-3.5 [e]; see also American Tr. Ins. Co. v Jaga Med. Servs., P.C., 128 AD3d 441, 441 [1st Dept 2015] [same].) Given that holding, it is difficult to see why an insurer should be excused during the claims-verification process itself from providing on request the insurer’s EUO-justification.

The Department of Financial Services has explained that the EUO-request provisions of DFS’s no-fault regulations are intended to balance two interests: “the importance of EUOs in identifying fraud and violations of New York law in the submission of claims for reimbursement,” on the one hand; and the need “to ensure that insurers would not request EUOs on either a routine or arbitrary basis, but would only do so when reasonably warranted” based on the particular facts underlying a given no-fault claim, on the other. (Ops Gen Counsel NY Ins Dept No. 02-10-14 [Oct. 2002].)^[FN3] If an insurer need not provide specific reasons justifying a given EUO, should a claimant request that justification during the claims-verification process, the justification-requirement language in section 65-3.5 (e) has little teeth. At most, a claimant might, years after the fact, request and obtain a justification should coverage litigation result and proceed to discovery. That contingent possibility alone seems insufficient to fulfill the{**73 Misc 3d at 589} regulatory aim of ensuring that insurers issue EUO requests only when warranted by the facts of particular cases.

This is not to say that an insurer’s justification provided during the claims-verification process must necessarily be lengthy or detailed. Requiring extensive justification would [*2]undermine the regulatory goal of resolving the high volume of no-fault claims quickly, efficiently, and fairly. For that matter, the ultimate purpose of EUO requests is to prevent or limit the granting of fraudulent claims. The insurer thus has an important interest in avoiding overly detailed EUO-request explanations: such explanations would risk tipping the insurer’s hand about when it would—and would not—find a claim suspicious so as to warrant further investigation through EUOs.

To say, though, that an insurer’s “specific objective justification” during the claims-verification process for its EUO request may be satisfactory even if it does not go into granular detail is quite different from saying that an insurer need not offer any justification at all. (See American Chiropractic Care, P.C. v GEICO Ins., 57 Misc 3d 529, 535 [Civ Ct, Kings County 2017] [drawing this distinction].) Here, Kemper expressly refused Alpha’s request to explain Kemper’s reasons for asking Alpha to produce an EUO witness.^[FN4] Given that categorical refusal, Kemper’s second EUO request to Alpha was not reasonable; and Alpha’s failure or refusal to appear for the rescheduled EUO does not form a basis to deny Alpha’s benefits claim.

Kemper’s contrary argument on this point relies in part on a decision of the Appellate Term, Second Department. (See NYSCEF Doc No. 93 ¶ 9, citing Bronx Chiropractic Care, P.C. v State Farm Ins., 63 Misc 3d 132[A], 2019 NY Slip Op 50423[U], *1-2 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists, Mar. 22, 2019].) This court is not persuaded by the holding of Bronx Chiropractic. That decision relies on the two DFS/Insurance Department opinion letters quoted above. But as this court has already discussed, the 2006 opinion letter does not definitively resolve the key question here: whether an EUO scheduling notice{**73 Misc 3d at 590} must disclose the insurer’s justification for the EUO after that justification has been requested by the claimant.^[FN5]

The 2002 opinion letter is also consistent with this court’s conclusions here. That letter states that DFS deliberately decided in enacting its regulations to refrain from requiring insurers to disclose to claimants the insurers’ internal standards for making EUO requests. But requiring production of the “objective standards established by the insurer” regarding when to request EUOs is different from requiring a more limited disclosure of the “specific facts” that, applied to those internal standards in a given case, prompted the insurer to request an EUO. (Ops Gen Counsel NY Ins Dept No. 02-10-14.) The former is materially more intrusive, and more likely to provide a guide to no-fault fraudsters on how to evade insurer scrutiny and detection. Indeed, in Jaga Med. [*3]Servs. and AB Med. Supply, the First Department drew this same distinction: The Court held in those decisions that insurers must turn over in discovery their justifications for requesting EUO-based-verification of particular claims, notwithstanding DFS’s conclusion that section 65-3.5 (e) does not require insurers to produce their underlying internal standards. (See AB Med. Supply, 187 AD3d at 671; Jaga Med. Servs., 128 AD3d at 441; see also American Chiropractic, 57 Misc 3d at 534 [holding that the insurer’s obligation to maintain its internal standards for “Insurance Department( ) oversight” of those standards should be treated as distinct from an insurer’s obligation to provide an explanation for a given EUO request to determine “whether those standards were properly applied with regard to a particular provider”].)

Kemper thus was not entitled to deny Alpha’s no-fault benefits claims based on Alpha’s nonappearance at requested EUOs. Kemper’s motion for summary judgment is denied. Although the facts relating to Alpha’s EUO-nonappearances are undisputed, this court concludes that it would be premature to grant Alpha summary judgment as the nonmoving party under CPLR 3212 (b).{**73 Misc 3d at 591}

Kemper appears to be relying on this motion only on Alpha’s EUO nonappearances. (See NYSCEF Doc No. 75 at 6-7 ¶¶ 21-29 [counsel’s affirmation]; NYSCEF Doc No. 93 ¶ 2 [counsel’s reply affirmation].) But some of Kemper’s motion papers also suggest that even had Alpha appeared for EUOs, Kemper still would have denied its no-fault claims because Kemper had concluded the treatment for which benefits were being sought was not causally related to the underlying vehicle collision. (See NYSCEF Doc No. 75 at 5 ¶¶ 14-15 [counsel’s affirmation]; NYSCEF Doc No. 80 [medical reports].) There is, however, no claim-denial form in the record that might clarify this ambiguity.^[FN6] In these circumstances, this court concludes that a reasonable possibility exists that Kemper could yet establish a valid basis for a declaration of no coverage, making it premature to grant summary judgment to Alpha dismissing Kemper’s claim.

Accordingly, for the foregoing reasons, it is hereby ordered that Kemper’s motion for summary judgment under CPLR 3212 is denied.

Footnotes

Footnote 1:There is also significant reason to doubt that Kemper has established that its EUO letters were timely under the governing regulations, as required to obtain a declaration of no coverage. (See American Tr. Ins. Co. v Longevity Med. Supply, Inc., 131 AD3d 841, 841 [1st Dept 2015].) When the insurer makes an EUO request after receiving claim forms from the injured person or a medical-provider assignee, the request must be made within 15 business days of the insurer’s receipt of a claim form. (See 11 NYCRR 65-3.5 [a]-[b].) Here, Kemper’s first EUO letter states that Alpha “ha[s] made certain No-Fault claims for medical treatment to claimant.” (NYSCEF Doc No. 78 at 4.) But Kemper has not provided proof that this letter was sent within 15 days of receipt of any of those claims. Kemper also contends that its last EUO letter was sent within 15 days of receipt of a claim form. (See NYSCEF Doc No. 75 ¶ 28.) But that form, though dated prior to the last EUO letter, does not on its face reflect when Kemper received it. (See NYSCEF Doc No. 79.) Nor would a single EUO nonappearance support a claim denial in any event.

Footnote 2:This opinion letter appears on the DFS website at http://www.dfs.ny.gov/insurance/ogco2006/rg061216.htm (last visited Sept. 22, 2021).

Footnote 3:This opinion letter appears on the DFS website at https://www.dfs.ny.gov/insurance/ogco2002/rg021014.htm (last visited Sept. 22, 2021).

Footnote 4:Kemper contends that it did provide its reasons, by stating in its EUO letters that Kemper sought “to assess the necessity and causality of treatment and the business relationship of the treating provider to the company.” (NYSCEF Doc No. 93 ¶ 11; see also NYSCEF Doc No. 78 at 4, 10 [EUO letters].) Those statements, though, merely explained the information that Kemper was seeking to verify, not the specific objective justification for why Kemper believed it needed verification.

Footnote 5:An earlier Appellate Term decision cited by Bronx Chiropractic, Flow Chiropractic, P.C. v Travelers Home & Mar. Ins. Co. (44 Misc 3d 132[A], 2014 NY Slip Op 51142[U], *1 [App Term, 2d Dept, 9th & 10th Jud Dists 2014]) carries little weight here for similar reasons: The claimant in that case apparently did not respond to the insurer’s EUO notices at all, let alone request a justification for the EUO. And to the extent that Flow Chiropractic also concluded that an insurer need not provide an EUO-justification when sought in later coverage litigation (see id.), the First Department has since held otherwise in Jaga Med. Servs. and AB Med. Supply.

Footnote 6:The record is, in fact, unclear about whether Kemper ever formally denied Alpha’s claim. (Compare NYSCEF Doc No. 75 at 5 ¶ 15 [counsel’s opening affirmation, indicating that Kemper denied Alpha’s claims], and id. at 19 ¶ 25 [affidavit of no-fault claim representative, indicating that Kemper denied Alpha’s claims], with NYSCEF Doc No. 93 ¶¶ 36-38 [counsel’s reply affirmation, contending that Kemper was not required to have issued a denial-of-claim form to be entitled to a declaration of no coverage in later litigation].)