Unitrin Advantage Ins. Co. v Carothers (2007 NY Slip Op 52100(U))

Supreme Court, New York County

114851/06

Marylin G. Diamond, J.

Background

On or around March 3, 2006, defendants Francisco Martinez and Miguel Sanchez were involved in an automobile accident while occupants of a vehicle owned by nonparty Rafael Grullon. At the time of the accident, Grullon was insured by plaintiff Unitrin Advantage Insurance Company. Sanchez and Martinez were eligible to claim no-fault benefits under the Grullon policy. On or around March 13, 2006, April 10, 2006 and May 15, 2006, defendant Dr. Jean Miller, an osteopathic specialist, referred Sanchez and Martinez to defendant Andrew Carothers, M.D., P.C. (“Carothers”) for MRI’s. Sanchez and Martinez later appeared at Carothers for an MRI and assigned their claims for no-fault benefits over to Carothers. Carothers subsequently submitted claims for payment for the MRI’s to Unitrin.

Between May 8, 2006 and August 21, 2006, Unitrin informed Carothers, in eight separate articles of correspondence, that a determination on its claims had been delayed because it wished to conduct an examination under oath (“EUO”) of Dr. Carothers in order to determine whether the treatment was medically necessary. However, on June 29, 2006, in the absence of an EUO, Unitrin denied Carothers’ claim for the March 17, 2006 MRI of Sanchez’s knee on the ground that the MRI was not medically necessary. Unitrin did not deny Carothers’ claim for Sanchez’s April 28, 2006 MRI or render any determination regarding the claim for Martinez’s MRI’s.

On July 21, 2006, Unitrin’s counsel sent a demand for an EUO to Carothers regarding both the Sanchez and Martinez claims. On August 9, 2006, Dr. Carothers offered to appear for an EUO, [*2]provided that Unitrin reimburse him for his lost wages and transportation costs. It does not appear that Unitrin ever formally responded to this demand. Rather, it scheduled an EUO on two separate dates. Dr. Carothers failed to appear for either of the EUO’s. On September 12, 2006, Unitrin notified Carothers that it was denying all claims submitted for payment by Carothers for Martinez’s MRI’s on the ground that they were not medically necessary.

On or around August 9, 2006, Carothers and Sanchez commenced an action against Kemper Insurance Company, an affiliate of Unitrin, in the Civil Court, Kings County seeking payment on the same claim for Sanchez’s MRI’s which Unitrin seeks to preclude in this action. Unitrin commenced this action on or around October 11, 2006 against Carothers, Martinez, Sanchez and a number of other medical providers who allegedly treated Sanchez and Martinez and had their no-fault benefits assigned to them. The complaint alleges that the defendant medical providers are not entitled to no-fault benefits because, by not appearing for an EUO, they failed to comply with Unitrin’s request for pertinent information to assist in determining the amount due on the respective claims.

In motion sequence number 001, Carothers moves to dismiss the complaint, pursuant to CPLR 1001, 1003 and 3211(a)(1),(4) ),(7) and (10), on the grounds of (1) documentary evidence, (2) prior pending action, (3) failure to state a cause of action and (4) absence of a necessary party. Plaintiff has cross-moved to amend the complaint. In motion sequence number 002, plaintiff moves for a default judgment against defendants Jean Miller, Five Boro Psychological Services, P.C., JOV Acupuncture, P.C., Espalda Chiropractic, P.C., Parkway Supplies, Inc., Presbyterian Hospital, Physician Services Organization, Inc., Francisco Martinez and Miguel Sanchez.

Discussion

A. Carothers’ Motion to Dismiss – In this action, Unitrin contends that it is not obligated to pay any of the current or future no-fault claims submitted by Carothers for the reimbursement of medical services because Dr. Carothers failed to appear for two scheduled EUO’s. On its motion to dismiss the complaint as against it, Carothers argues that this is an insufficient basis to disclaim coverage. The court agrees.

The relationship between an insurance company, insured and medical providers regarding the submission and payment of claims for no-fault benefits is governed by Insurance Law § 5100 et seq., and the accompanying regulations, see 11 NYCRR § 65 et seq. Pursuant to 11 NYCRR § 65-3.11, insureds or eligible injured persons may assign their rights to no-fault insurance payments to providers of medical and health care services, which may then submit a claim for payment of the medical services directly to the insurance company. The insurer must, within 30 days after proof of a claim is received, either pay or deny the claim, in whole or in part. See 11 NYCRR §65-3.8. However, if an EUO is reasonably required and if the policy so permits, the insurer may demand that the injured person or the injured person’s assignee or representative submit to such an examination in order to establish the claim. See 11 NYCRR §§ 65-1.1[d], 65-3.5.

Carothers does not dispute that recovery under a policy can be precluded upon a willful [*3]failure to submit to an EUO. However, Carothers argues that its failure to appear for two EUO’s cannot by itself constitute a willful failure to submit to an EUO resulting in a material breach of the policy. The court agrees. In order to establish willful failure constituting a material breach of the policy, plaintiff must show that the defendant’s attitude “was one of willful and avowed obstruction,” involving a “pattern of noncooperation for which no reasonable excuse is offered.” Ingarra v. General Acc./PG Ins. Co. Of NY, 273 AD2d 766, 767-68 (3rd Dept. 2003). See also Levy v. Chubb Ins., 240 AD2d 336, 337 (1st Dept.1997); Argento v. Aetna Cas. & Sur. Co., 184 AD2d 487, 488 (2nd Dept. 1992); New York Craniofacial Care v. Lumbermen’s Mut. Cas. Co., 3 Misc 3d 322, 326-27 (Queens Co Civ Ct 2004). The insurer’s burden of proving willfulness is a heavy one. See Levy v. Chubb Ins., 240 AD2d at 337. Here, Unitrin’s complaint is devoid of any allegations which would establish that Dr. Carothers’ failure to appear for the two EUO’s was willful, persistent or demonstrative of a pattern of noncooperation. See New York Craniofacial Care v. Lumbermen’s Mut. Cas. Co., 3 Misc 3d at 327. Indeed, Dr. Carothers did not object to appearing for an EUO, but sought payment for lost wages and transportation expenses, payment to which he was entitled under 11 NYCRR §65-3.5(e). Although Unitrin claims that the amount demanded by Dr. Carothers was unreasonable, there is no indication that it ever attempted to negotiate with Carothers over the request for reimbursement. Instead, it simply commenced this declaratory judgment action. Based on such facts, Unitrin is unable to show that Dr. Carothers willfully failed to appear for the EUO’s.

Plaintiff’s cause of action is also deficient because the complaint fails to allege facts indicating that an EUO was reasonably required. Indeed, the complaint fails to allege that, as required under 11 NYCRR § 65-3.5(e), Unitrin utilized any objective standards in determining that the demanded EUO’s were required to establish proof of the claim. Moreover, the record is devoid of any reasonable justification or explanation for Unitrin’s demands.

Finally, in view of this court’s determination that the complaint should be dismissed as against Carothers, it need not address the defendant’s argument that dismissal is appropriate because of a prior pending action between the parties. The court notes, however, that this action and the Civil Court action arise out of same transactions and/or actionable wrongs and the carrier is not precluded from asserting noncooperation as a defense in the other action.

B. Plaintiff’s Cross-Motion for Leave to Amend – As already noted, Unitrin has cross-moved to amend the complaint so as to add the words “willfully and intentionally” to paragraphs 31, 32, 33 and 34 of the complaint. Presumably, Untrin seeks to add these words in order to allege that Carothers willfully and intentionally failed to appear at the two EUO’s and therefore materially breached the policy. Although leave to amend a complaint shall be freely granted, it is well settled that permission should be denied where the proposed amendment is palpably without merit. See Berger v. Water Commissioners of the Town of Waterford, 296 AD2d 649 (3rd Dept. 2002). Since, as previously discussed, plaintiff cannot establish as a matter of law that Carothers willfully failed to cooperate with its request for an EUO, the cross-motion to amend the complaint must be denied.

C. Plaintiff’s Motion for a Default Judgment – In motion sequence number 002, plaintiff [*4]moves for a default judgment against defendants Jean Miller, Five Boro Psychological Services, P.C., JOV Acupuncture, P.C., Espalda Chiropractic, P.C., Parkway Supplies, Inc., Presbyterian Hospital, Physician Services Organization, Inc., Francisco Martinez and Miguel Sanchez on the ground that they have failed to answer the complaint or otherwise appear. Untrin also seeks a declaratory judgment that it has no present or future obligations to furnish no-fault benefits “under claim number 331AZ403544.” This is the same claim number under which Carothers seeks to obtain payment in the Civil Court Action for its MRI services to Martinez and Sanchez.

The only party opposing the plaintiff’s default motion is Carothers, which argues that the motion should be denied because the relief requested clearly affects the rights of other parties not alleged to be in default. Carothers argues that the relief requested by Unitrin could affect Carothers’ ability to collect on its claim for reimbursement of no-fault benefits. Carothers also argues that plaintiff should not be granted a default judgment in a declaratory judgment action based on the default and on the unverified complaint alone since plaintiff has not established its right to a declaratory judgment.

It is well settled that the decision to grant a declaratory judgment on default is a discretionary one and the court should deny it where the declaratory relief requested clearly affects the rights of other parties not alleged to be in default. See CPLR 3001; Merchants Insurance Company of New Hampshire, Inc. v. Long Island Pet Cemetery, 206 AD2d 827 (4th Dept. 1994). Here, the relief requested by Unitrin could adversely affect both nonparty Grullon, who would be denied insurance coverage for any no-fault claims made by Martinez and Sanchez, and Carothers, who stands in the shoes of Sanchez and Martinez and could be precluded from obtaining benefits under the policy if Sanchez and Martinez were denied no-fault benefits under Grullon’s policy.

Indeed, the court is persuaded that the complaint should be dismissed as against the defaulting parties. On a motion for a default judgment, it is incumbent upon the court to assess the merits of the complaint since a plaintiff who fails to make a prima facie showing of a right to judgment is not entitled to a default judgment even if the motion is unopposed. See Martocci v Bowaskie Ice House, 31 AD3d 1021 (3rd Dept 2006). See also Carnegie Hall Corp. v City Univ. of NY, 286 AD2d 214, 215 (1st Dept 2001); Matter of Dyno v. Rose, 260 AD2d 694 (3rd Dept 1999); Joosten v Gale, 129 AD2d 531 (1st Dept 1987). As the court has already determined, the complaint fails to allege facts indicating that there was a material breach of the policy in that the defendants wilfully failed to submit to a reasonably required EUO. Under the circumstances, it is clear that the complaint fails to state a cause of action against not only Carothers, but against any of the defendants. The complaint as against these other defendants must therefore also be dismissed.

Accordingly, in motion sequence number 001, Carothers’ motion to dismiss is granted, the plaintiff’s cross-motion for leave to amend is denied and the complaint is hereby dismissed as against Carothers. In motion sequence number 002, the plaintiff’s motion for a default judgment is denied and the complaint is hereby dismissed in its entirety as against the remaining defendants.

The Clerk Shall Enter Judgment Herein [*5]

Dated:8-20-07MARYLIN G. DIAMOND, J.S.C.

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