Kew Gardens Imaging v Liberty Mut. Ins. Co. (2004 NY Slip Op 51077(U))

Civil Court, Kings County

87097KCV2004

Eileen N. Nadelson, J.

This matter involves the disputed billing of $1,791.73 for MRIs which was denied by the arbitrator based upon the grounds of lack of documented medical necessity. Petitioner appealed the arbitrator’s award to a Master Arbitrator, alleging that the arbitrator’s decision was arbitrary, capricious, irrational and without a plausible basis in fact. Based on that argument, Petitioner asked the Master Arbitrator to vacate the award pursuant to CPLR section 7511(b)(1). The Master Arbitrator, however, affirmed the arbitrator’s award.

Petitioner, pursuant to CPLR 7511, now moves this court to vacate the decision of the Master Arbitrator as arbitrary and capricious.

In presenting its claim to the arbitrator, Petitioner evidenced that it submitted its claim, a valid assignment of first party benefits, and that Respondent insurer failed to pay or deny the claim within thirty days of receiving the claim. The arbitrator found that Respondent failed to [*2]pay or deny the claim in a timely manner; however, the arbitrator also found that the MRIs billed for were not medically necessary. Based on this finding, the arbitrator denied the claim, stating that Petitioner failed to meet its burden of proof with respect to the medical necessity of the MRIs. The Master Arbitrator, in affirming the award, found that the arbitrator’s conclusion was based on sufficient evidence to support the award.

CPLR section 7511((b)(iii) provides that an arbitrator’s award may be vacated if it is found that the arbitrator exceeded his power or imperfectly executed it. In Petrofsky v. Allstate Insurance Company, 54 N.Y. 2d 207, 445 N.Y.S. 2d 77 (1981), the Court of Appeals held that the role of a master arbitrator in insurance cases is to assure that the arbitrator reached a decision in a rational manner, that the decision was not arbitrary and capricious, incorrect as a matter of law, or in excess of policy limits or in conflict with other designated no-fault arbitration proceedings. Therefore, the question to be decided by this court is whether the decision of the arbitrator, as confirmed by the Master Arbitrator, was arbitrary, capricious, or incorrect as a matter of law.

Historically, the courts held that the applicable test for review of no-fault arbitrations where error of law is in issue is essentially similar to that utilized for review of quasi-legislative determinations- whether any reasonable hypothesis can be found to support the questioned interpretation. Shand v. Aetna Insurance Company, 74 A.D. 2d 442, 428 N.Y.S. 2d 462 (2d Dept. 1980). Under this theory, a court, in reviewing an arbitrator’s award, should not set it aside for errors of law or fact unless the award is so irrational as to require vacatur. Hanover Insurance Company v. State Farm Mutual Insurance Co., 226 A.D. 2d 533, 641 N.Y.S. 2d 547 (2d Dept. 1996). Even as recently as 1997, the courts in this department upheld arbitrator’s decisions, even if the arbitrator misconstrued the law, provided that the arbitrator’s conclusion was neither irrational nor arbitrary and capricious so as to justify vacating the award. Gravenese v. Allstate Insurance Company, 245 A.D. 2d 507, 666 N.Y.S. 2d 710 (2d Dept. 1997). However, more recently the courts in the second department have taken a different approach when called upon to review arbitral decisions.

In Park Radiology, P.C. v Allstate Insurance Company, 2 Misc. 3d 621, 769 N.Y.S. 2d 870 (Richmond County 2003), a case involving the claim for first party no-fault benefits, the arbitrator, as in the instant case, found that the insurer failed to pay or deny the claim within the prescribed thirty day period. Nevertheless, the arbitrator found that the medical provider failed to establish a prima facie case that the tests performed were medically necessary and so denied the claim. In affirming the award, the master arbitrator cited the Petrofsky case as limiting his ability to vacate an award that is neither arbitrary nor capricious. However, the Civil Court vacated the master arbitrator’s decision and found for the medical provider, asserting that the arbitrator and master arbitrator misconstrued the law.

The law with respect to the burden of proof in first party no-fault claims was established by the court in Bonetti v. Integron National Insurance , 269 A.D. 2d 413, 703 N.Y.S. 2d 217 (2d Dept. 2000). The Bonetti court stated that, with limited exception, an insurer is precluded from [*3]denying a no-fault claim if it fails to timely deny it. Further, an insurer is precluded from challenging the adequacy of a claimant’s proof of medical necessity if it fails to timely deny the claim for no-fault benefits. Vinings Spinal Diagnostic, P.C. v Liberty Mutual Insurance Company, 186 Misc. 2d 287, 717 N.Y.S. 2d 466 (Nassau County 2000). This is true despite a contrary position taken by the New York Department of Insurance.

In an informal opinion letter entitled “No-Fault Burden of Proof,” January 11, 2000, the Department of Insurance indicated that, even if a claim is not timely denied, the claimant may still have to substantiate that the treatment for which reimbursement is sought was medically necessary. This approach has been taken by the arbitrators in no-fault arbitration, but has not been followed by the courts. Das/N.Y. Medical Rehab P.C. v. Allstate Insurance Company, 297 A.D. 2d 321, 746 N.Y.S. 2d 262 (2d Dept 2002).

This court finds that the overwhelming weight of judicial authority in this matter holds that an insurer is precluded from raising any defense, other than lack of coverage, when it fails to comply with the rule requiring it to deny a claim within thirty days of receipt of the claim. Insurance law section 5106(a); New York Medical Center of Queens v. Country-Wide Insurance Company, 295 A.D. 2d 583, 744 N.Y.S .2d 201 (2d Dept. 2002); New York & Presbyterian Hospital v. American Transit Insurance Company, 287 A.D. 2d 699, 733 N.Y.S. 2d 80 (2d Dept. 2001).

Consequently, the court concludes that petitioner met its burden of proof when it presented its claim and proof that Respondent failed to deny the claim within thirty days. Based on the decision in Park Radiology, P.C. , supra, the court holds that the arbitrator’s and Master Arbitrator’s award did not have a rational basis since it is contrary to the state of legal precedent.

The court vacates the decision of the Master Arbitrator and finds for Petitioner in the amount of $1,791.73, with statutory interest and fees as established iin section 5106(a) of the Insurance Law.

Dated: September 27, 2004

__________________________

EILEEN N. NADELSON, J.C.C.