[*1]

Argued October 11, 2007; decided November 20, 2007

Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co., 34 AD3d 532, affirmed.

{**9 NY3d at 316} OPINION OF THE COURT

Graffeo, J.

In this action, a hospital seeks to recover no-fault insurance benefits for services rendered to a patient injured in a motor vehicle accident. We conclude that the insurance company’s failure to timely request verification of the patient’s assignment of benefits to the [*2]hospital precludes the carrier from now contesting the validity of the assignment. We therefore affirm the order of the Appellate Division so holding.

Plaintiff New York and Presbyterian Hospital treated patient Browne in 2004 for injuries he sustained as a result of an automobile accident. At the time of the accident, Browne had an automobile insurance policy with defendant Travelers Property Casualty Insurance Company affording him first-party no-fault coverage. In October 2004, the hospital, through its contract billing agent—Hospital Receivables Systems, Inc.—sought payment of $24,344.96 from Travelers for services provided to Browne. The billing agent sent Travelers a hospital facility form (NYS Form NF-5), a UB-92 form and an assignment of benefits form (NYS Form NF-AOB). The assignment portion of the NYS Form NF-5 and the assignment of benefits form both indicated that Browne’s signature was “on file,” but neither form displayed his actual signature.

Travelers did not reject the forms or request verification of the assignment. After Travelers failed to pay or deny the claim within 30 days of its receipt, the hospital commenced this action against Travelers and Farmington Casualty Company (an affiliated carrier) for payment of its bill as well as statutory interest and attorneys’ fees under Insurance Law § 5106 (a).^[FN1] In its answer, Travelers raised as an affirmative defense the lack of a valid assignment between Browne and the hospital.

Both parties moved for summary judgment and Supreme Court granted the hospital’s motion and directed entry of judgment{**9 NY3d at 317} against Travelers in the amount of $24,344.96 plus statutory interest and attorneys’ fees. The court held that Travelers’ failure to timely contest any deficiency in the assignment documents precluded the carrier from raising the issue in this proceeding. The Appellate Division affirmed and we granted Travelers leave to appeal.

New York’s no-fault automobile insurance system is designed “to ensure prompt compensation for losses incurred by accident victims without regard to fault or negligence, to reduce the burden on the courts and to provide substantial premium savings to New York motorists” (Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d 854, 860 [2003]). In furtherance of these goals, the Superintendent of Insurance has adopted regulations implementing the No-Fault Law (Insurance Law art 51), including circumscribed time frames for claim procedures. [*3]

These regulations require an accident victim to submit a notice of claim to the insurer as soon as practicable and no later than 30 days after an accident (see 11 NYCRR 65-1.1, 65-2.4 [b]). Next, the injured party or the assignee (typically a hospital, as in the case here) must submit proof of claim for medical treatment no later than 45 days after services are rendered (see 11 NYCRR 65-1.1, 65-2.4 [c]).^[FN2] Upon receipt of one or more of the prescribed verification forms used to establish proof of claim, such as the NYS Form NF-5, an insurer has 15 business days within which to request “any additional verification required by the insurer to establish proof of claim” (11 NYCRR 65-3.5 [b]).^[FN3] An insurer may also request “the original assignment or authorization to pay benefits form to establish proof of claim” within this time frame (11 NYCRR 65-3.11 [c]). Significantly, an insurance company must pay or deny the claim within 30 calendar days after receipt of the proof of claim (see Insurance Law § 5106 [a]; 11 NYCRR 65-3.8 [c]). If an insurer seeks additional verification, however, the 30-day window is tolled until it receives the relevant information requested (see 11 NYCRR 65-3.8 [a] [1]).

An insurer’s failure to pay or deny a claim within 30 days carries substantial consequences. By statute, overdue payments{**9 NY3d at 318} earn monthly interest at a rate of two percent and entitle a claimant to reasonable attorneys’ fees incurred in securing payment of a valid claim (see Insurance Law § 5106 [a]). More importantly, a carrier that fails to deny a claim within the 30-day period is generally precluded from asserting a defense against payment of the claim (see Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274, 282 [1997], rearg denied 90 NY2d 937 [1997]). This Court has recognized a narrow exception to this preclusion remedy for situations where an insurance company raises a defense of lack of coverage (see Central Gen. Hosp. v Chubb Group of Ins. Cos., 90 NY2d 195, 199 [1997]). In such cases, an insurer who fails to issue a timely disclaimer is not prohibited from later raising the defense because “the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed” (Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188 [2000]). [*4]

As a corollary to the Presbyterian preclusion rule, Appellate Division case law consistently holds that a carrier’s failure to seek verification or object to the adequacy of claim forms pursuant to 11 NYCRR 65-3.5 precludes it from interposing any defenses based on such deficiencies (see e.g. Westchester Med. Ctr. v Safeco Ins. Co. of Am., 40 AD3d 984 [2d Dept 2007]; LMK Psychological Servs., P.C. v Liberty Mut. Ins. Co., 30 AD3d 727, 728-729 [3d Dept 2006]). We concur and note that an insurer that requests additional verification after the 10- or 15-business-day periods but before the 30-day claim denial window has expired is entitled to verification. In these instances, the 30-day time frame to pay or deny the claim is correspondingly reduced (see 11 NYCRR 65-3.8 [j]; Nyack Hosp. v General Motors Acceptance Corp., 8 NY3d 294, 300 [2007]).

Here, after Travelers obtained the NYS Form NF-5 and the assignment of benefits form—both of which plainly stated that the patient’s signature was “on file”—it did not ask for further verification or request the original assignment, as permitted by the regulations. Travelers also failed to pay or deny the claim within 30 calendar days of receipt of the hospital’s proof of claim. Nevertheless, Travelers argues that its neglect in demanding verification or timely denying coverage is irrelevant because the hospital’s failure to proffer a validly executed assignment equates to a lack of coverage, a defense that is not subject to preclusion under Chubb. We disagree.{**9 NY3d at 319}

In Chubb, the insurer asserted as a defense that the claimant’s injuries arose out of a prior work-related accident rather than a car accident. Alternatively, the carrier refused payment on the ground that the patient’s treatment was excessive. We held that the insurer was not barred from arguing that the injuries were unrelated to the accident because, if true, the treatment would not have been covered by the automobile liability policy in the first instance. On the other hand, we indicated that an excessive treatment defense ordinarily does not implicate a coverage issue, in which situation the preclusion rule applies (90 NY2d at 199).^[FN4]

Here, there is no dispute that the hospital rendered medical services to Browne in the amount of $24,344.96 for injuries arising out of a motor vehicle accident, that Browne’s policy with Travelers was in effect at the time of the accident and that the policy covered the [*5]accident. In our view, any defect or deficiency in the assignment between Browne and the hospital simply does not implicate a lack of coverage warranting exemption from the preclusion rule. We therefore determine that the failure by Travelers to seek verification of the assignment in a timely manner prevents the carrier from litigating the issue now.^[FN5]

To conclude otherwise, as proposed by the dissent, frustrates a core objective of the no-fault regime—”to provide a tightly timed process of claim, disputation and payment” (Presbyterian, 90 NY2d at 281). Upon receipt of a no-fault claim, the regulations shift the burden to the carrier to obtain further verification or deny or pay the claim. When, as here, an insurer does{**9 NY3d at 320} neither, but instead waits to be sued for nonpayment, the carrier should bear the consequences of its nonaction. To allow an insurance company to later challenge a hospital’s standing as an assignee merely encourages the carrier to ignore the prescribed statutory scheme. As we observed in Presbyterian:

“No-fault reform was enacted to provide prompt uncontested, first-party insurance benefits. That is part of the price paid to eliminate the common-law contested lawsuits . . . The tradeoff of the no-fault reform still allows carriers to contest ill-founded, illegitimate and fraudulent claims, but within a strict, short-leashed contestable period and process designed to avoid prejudice and red-tape dilatory practices” (id. at 285 [citation omitted]).

Finally, Travelers contends that an assignment of benefits is a necessary component of the hospital’s prima facie case for recovery of no-fault benefits. Even assuming that this is true, we conclude that an assignment form stating that the patient’s signature is “on file” satisfies that burden where the carrier does not timely take action to verify the existence of a [*6]valid assignment (see Hospital for Joint Diseases v Allstate Ins. Co., 21 AD3d 348 [2d Dept 2005]). Since Travelers does not otherwise contest the hospital’s entitlement to no-fault payments, the courts below appropriately awarded summary judgment to the hospital. We have considered Travelers’ remaining contentions and find them without merit.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Pigott, J. (dissenting). I respectfully dissent. In my view, Travelers should not be precluded from asserting the affirmative defense that plaintiff Hospital lacked standing to sue—i.e., that it did not obtain a valid assignment from the recipient of medical services—even though Travelers did not obtain additional verification or deny the claim within the prescribed time periods set forth in the no-fault insurance regulations.^[FN*]

As explained by the majority, Travelers failed to request additional{**9 NY3d at 321} verification after receiving the Hospital’s claim and assignment of benefits forms, nor did it deny or pay the claim within the required 30-day time period. Nevertheless, after the Hospital commenced this action against Travelers for payment, Travelers asserted an affirmative defense that the Hospital lacked standing to bring the suit on the grounds that it did not obtain a valid assignment of benefits from the patient.

Of course, a plaintiff must have standing in order to bring an action in the courts of this State. “Whether a person seeking relief is a proper party to request an adjudication is an aspect of justiciability which, when challenged, must be considered at the outset of any litigation” (Society of Plastics Indus. v County of Suffolk, 77 NY2d 761, 769 [1991], citing Matter of Dairylea Coop. v Walkley, 38 NY2d 6, 9 [1975]). “Standing is a threshold determination, resting in part on policy considerations, that a person should be allowed access to the courts to adjudicate the merits of a particular dispute that satisfies the other justiciability criteria” (Society of Plastics Indus., 77 NY2d at 769). This Court has also recognized that “questions of . . . standing of parties may be characterized as raising questions of subject matter jurisdiction” (Lacks v Lacks, 41 NY2d 71, 74 [1976]; see also City of New York v State of New York, 86 NY2d 286, 292 [1995] [“The issue of lack of capacity to sue does not go to the jurisdiction of the court, as is the case when the plaintiffs lack standing”]).

Only where there is a properly executed assignment does an assignee become the “real party in interest” and acquire standing to enforce the rights of an assignor (James McKinney & Son v Lake Placid 1980 Olympic Games, 61 NY2d 836, 838 [1984]). “[T]o effect an assignment . . . there [must] be a perfected transaction between the assignor and assignee, intended by those parties to vest in the assignee a present right in the things [or rights] assigned” (Leon v Martinez, 84 NY2d 83, 88 [1994], citing 4 Corbin, Contracts § 879, at 528 [1951]). Without an assignment from the patient, a medical services provider clearly lacks standing to sue a no-fault insurance carrier to directly collect payment for services it rendered to the patient (see 11 NYCRR 65-3.11 [b] [1], [2] [“(i)n order for a health care provider (or) hospital to receive direct payment from the insurer, the{**9 NY3d at 322} health care provider or hospital must submit to the insurer . . . a properly executed Authorization to Pay Benefits” or “a properly executed assignment” from the injured party]).

As discussed by the majority, in Central Gen. Hosp. v Chubb Group of Ins. Cos. (90 NY2d 195 [1997]), we held that a no-fault insurer was not precluded from raising a defense of lack of coverage despite an untimely disclaimer. In so holding, the Court stated that “[t]he denial of liability based upon lack of coverage within the insurance agreement . . . is distinguishable from disclaimer attempts based on a breach of a policy condition” (id. at 199). The majority here further explains that a carrier is not precluded from asserting a noncoverage defense because “the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed” (majority op at 318, quoting Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188 [2000]). In my view, a carrier’s defense based on the lack of a valid assignment equates to a defense implicating “lack of coverage within the insurance agreement” (Chubb, 90 NY2d at 199), and thus, should similarly not be precluded. Although there is no dispute that the assignor-patient was covered by the insurance policy with Travelers and received medical treatment at the Hospital, similar to our concerns in Chubb, the policy here does not contemplate [*7]payment to the Hospital in the first instance. Indeed, the Hospital has no legal right to collect payment if and until a valid assignment is obtained from the patient. Thus, in my view, Travelers’ defense challenging the validity of the assignment is akin to a defense premised upon lack of coverage.

Further, contrary to the majority’s position, in my view, standing cannot be artificially created by a carrier’s failure to object within the time periods set forth in the no-fault insurance regulations. Put another way, a medical services provider cannot establish standing by merely relying upon a carrier’s prelitigation inaction. By allowing a plaintiff to do so, the majority, in essence, creates a rule whereby a plaintiff can establish its standing by estoppel, as a result not only of a defendant’s inaction, but by its simple neglect, oversight or clerical error.

I must take issue with the majority’s view that this position would encourage noncompliance with the no-fault statutory and regulatory scheme. If an insurer fails to timely pay a valid claim, it is subject to the payment of interest at 2% per month plus attorneys’ fees (see Insurance Law § 5106 [a]; 11 NYCRR 65-3.9,{**9 NY3d at 323} 65-3.10), which is why these matters are better resolved in an arbitration setting rather than through the courts as has occurred here. Our decision today, in my view, encourages the use of the courts by eliminating an essential element of most lawsuits—standing—and runs the risk of encouraging this type of litigation at the carrier’s peril.

Thus, here, the Hospital should be required to affirmatively prove standing, upon Travelers’ objection, as part of its prima facie case (see TPZ Corp. v Dabbs, 25 AD3d 787, 789 [2d Dept 2006] [holding that the plaintiff was not entitled to summary judgment in an action to collect on a promissory note because “it failed to present competent proof of its standing as an assignee of the note” and defendant challenged “(t)he validity of the assignment of the note to the plaintiff, and the plaintiff’s standing to prosecute (the) action” in its answer]; Rockland Lease Funding Corp. v Waste Mgt. of N.Y., 245 AD2d 779 [3d Dept 1997] [holding that the plaintiff lacked standing to bring the action where there was no record evidence supporting its contention that it obtained an assignment]). The Hospital could have done so simply by producing proper documentary evidence of the assignment vesting it with the right to collect payment. Because the Hospital failed to do so, it did not establish its entitlement to judgment as a matter of law.

Accordingly, I would reverse the Appellate Division order and deny plaintiff’s motion for summary judgment.

Chief Judge Kaye and Judges Ciparick, Read, Smith and Jones concur with Judge Graffeo; Judge Pigott dissents and votes to reverse in a separate opinion.

Order affirmed, with costs.

Footnotes

Footnote 1: Originally, plaintiff Hospital for Joint Diseases, as the assignee of two other patients, jointly sued Travelers and Farmington for nonpayment of no-fault benefits. Those claims were subsequently withdrawn.

Footnote 2: A hospital may request payment from the insurer by submitting a properly executed authorization to pay benefits or properly executed assignment on one of the prescribed verification forms or an assignment of benefits form (see 11 NYCRR 65-3.11 [b]).

Footnote 3: Where a claimant submits an application for no-fault benefits (NYS Form NF-2) without verification forms, the insurer has 10 business days to forward the “prescribed verification forms it will require prior to payment of the initial claim” (11 NYCRR 65-3.5 [a]).

Footnote 4: As another example, courts have held that an insurance company is not prevented from later denying a claim where the injured party deliberately caused the collision as part of a fraudulent scheme, holding that an intentional crash is not an “accident” covered by the policy (see Matter of Allstate Ins. Co. v Massre, 14 AD3d 610 [2d Dept 2005]; State Farm Mut. Auto. Ins. Co. v Laguerre, 305 AD2d 490 [2d Dept 2003]).

Footnote 5: We note that this conclusion is consistent with Appellate Division precedents that have considered similar circumstances (see Westchester Med. Ctr. v Safeco Ins. Co. of Am., 40 AD3d 984 [2d Dept 2007]; LMK Psychological Servs., P.C. v Liberty Mut. Ins. Co., 30 AD3d 727 [3d Dept 2006]; Nyack Hosp. v Encompass Ins. Co., 23 AD3d 535 [2d Dept 2005], appeal dismissed 8 NY3d 895 [2007]; Hospital for Joint Diseases v Allstate Ins. Co., 21 AD3d 348 [2d Dept 2005]; Nyack Hosp. v Metropolitan Prop. & Cas. Ins. Co., 16 AD3d 564 [2d Dept 2005], lv denied 5 NY3d 713 [2005]; New York Hosp. Med. Ctr. of Queens v New York Cent. Mut. Fire Ins. Co., 8 AD3d 640 [2d Dept 2004], lv denied 3 NY3d 609 [2004]; Presbyterian Hosp. in City of N.Y. v Aetna Cas. & Sur. Co., 233 AD2d 433 [2d Dept 1996], lv dismissed 89 NY2d 1030 [1997]).

Footnote *: As a side note, at least one commentary has noted that the Civil Court of the City of New York and District Courts in Nassau and Suffolk Counties have been inundated with lawsuits filed by medical providers seeking reimbursement of first-party benefits for services rendered to injured claimants. It attributes this “litigation explosion” to two factors: (1) the perception of the medical providers that the American Arbitration Association forum, where medical providers have traditionally filed claims, is biased in favor of the insurer; and (2) decisions of the courts over the past six or seven years which have been favorable to the medical providers (see Lustig and Schatz, Outside Counsel, The End of Litigation Explosion in New York No-Fault, NYLJ, June 21, 2007, at 4, col 4).

[*1]

Argued October 9, 2007; decided November 15, 2007

Raffellini v State Farm Mut. Auto. Ins. Co., 36 AD3d 92, reversed.

{**9 NY3d at 199} OPINION OF THE COURT

Graffeo, J.

The issue in this case is whether a “serious injury” exclusion in a supplementary uninsured/underinsured motorist endorsement to an automobile liability policy is enforceable. We conclude that it is. [*2]

In April 1998, plaintiff Nicholas Raffellini suffered back injuries when his vehicle was struck by a car that had driven through a red traffic light. Plaintiff’s medical expenses and other basic economic loss damages were paid through no-fault insurance. He then pursued recovery for his pain and suffering from the driver of the car that caused the accident. The driver’s insurance carrier agreed to pay plaintiff a settlement of $25,000—the limit of coverage under that policy. Plaintiff’s own insurer, defendant State Farm Mutual Automobile Insurance Company, did not object to the settlement.

After he received the $25,000 settlement payment, plaintiff demanded that State Farm pay him $75,000 in pain and suffering damages under the supplementary uninsured/underinsured motorist (SUM) endorsement, a component of plaintiff’s policy that provided up to $100,000 in coverage. When State Farm refused the demand, plaintiff commenced this breach of contract action. State Farm answered the complaint and asserted, among other defenses, that plaintiff could not recover under the SUM endorsement because he “did not sustain serious injury” and his exclusive remedy was, therefore, the receipt of no-fault benefits.

Plaintiff moved to strike the serious injury defense from State Farm’s answer, claiming that Insurance Law § 3420 (f) (2), which addresses SUM benefits, does not impose serious injury as a condition precedent to recovery. State Farm countered that Insurance Law § 3420 (f) (2) must be read in tandem with Insurance Law § 3420 (f) (1), which contains a serious injury requirement for uninsured motorist benefits. The insurer further submitted that an Insurance Department regulation, Regulation 35-D, requires that SUM recovery be conditioned on a finding of serious injury.

Supreme Court granted plaintiff’s motion to strike State Farm’s serious injury defense on the basis that Insurance Law § 3420 (f) (2) does not reference a serious injury exclusion and Regulation 35-D is inconsistent with the statute. The Appellate Division affirmed and granted State Farm’s motion for leave to{**9 NY3d at 200} appeal to this Court, certifying the question: “Was the opinion and order of this court dated October 24, 2006, properly made?” We answer this question in the negative and reverse the order of the Appellate Division, thereby reinstating State Farm’s serious injury defense.

The controversy concerning application of a serious injury requirement in these circumstances stems from the statutory framework. Insurance Law § 3420 (f) (1) mandates that insurers provide uninsured motorist coverage in every New York motor vehicle liability policy. The payment of mandatory uninsured motorist benefits is conditioned on a finding that the insured suffered a serious injury as defined in Insurance Law § 5102 (d). Section 3420 (f) (1) states: “No payment for non-economic loss shall be made under [*3]such policy provision to a covered person unless such person has incurred a serious injury, as such terms are defined in” the No-Fault Law.

Insurance Law § 3420 (f) (2) (A) addresses additional, optional personal injury coverage that can be purchased by a policyholder: “Any such policy shall, at the option of the insured, also provide supplementary uninsured/underinsured motorists insurance for bodily injury, in an amount up to the bodily injury liability insurance limits of coverage provided under such policy . . . .” Under this statute, the coverage is not triggered unless “the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be exhausted by payment of judgments or settlements” (Insurance Law § 3420 [f] [2] [A]). Unlike subsection (f) (1), subsection (f) (2) is silent as to whether an insured must prove serious injury in order to receive supplementary benefits. Plaintiff contends that, by referencing serious injury in subsection (f) (1) and not subsection (f) (2), the Legislature permitted insurers to condition recovery of mandatory uninsured motorist benefits on the existence of a serious injury but intended to preclude them from conditioning recovery of supplementary benefits on such a finding.

Plaintiff’s argument runs contrary to the interpretation of the Superintendent of Insurance expressed in Regulation 35-D, codified at 11 NYCRR subpart 60-2. Regulation 35-D was promulgated in 1992 “to interpret section 3420 (f) (2) of the Insurance Law, in light of ensuing judicial rulings and experience, by establishing a standard form for SUM coverage, in order to eliminate ambiguity, minimize confusion and maximize its utility” (11 NYCRR 60-2.0 [c]). The regulation{**9 NY3d at 201} requires that “[e]very SUM endorsement issued shall be the Supplementary Uninsured/Underinsured Motorists Endorsement prescribed by subdivision (f) of this section” (11 NYCRR 60-2.3 [c]). Subdivision (f) sets forth the precise language insurers are to use in the endorsement, including an “EXCLUSIONS” section which reads: “This SUM coverage does not apply . . . for non-economic loss, resulting from bodily injury to an insured and arising from an accident in New York State, unless the insured has sustained serious injury as defined in Section 5102 (d) of the New York Insurance Law” (11 NYCRR 60-2.3 [f] [EXCLUSIONS] [3]). State Farm asserts that it incorporated the form language in the SUM endorsement it issued to plaintiff, as it was required to do.

It is well settled that the Legislature may authorize an administrative agency “to fill in the interstices in the legislative product by prescribing rules and regulations consistent with the enabling legislation” (Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d 854, 865 [2003], quoting Matter of Nicholas v Kahn, 47 NY2d 24, 31 [1979]). “In so doing, an agency can adopt regulations that go beyond the text of that legislation, provided they are not [*4]inconsistent with the statutory language or its underlying purposes” (Matter of General Elec. Capital Corp. v New York State Div. of Tax Appeals, Tax Appeals Trib., 2 NY3d 249, 254 [2004]). A duly promulgated regulation that meets these criteria has the force of law.

We have previously recognized that the Legislature has vested the Superintendent of Insurance with “broad power to interpret, clarify, and implement the legislative policy” by promulgating regulations (Medical Socy., 100 NY2d at 863-864, quoting Ostrer v Schenck, 41 NY2d 782, 785 [1977]) and has directed the Superintendent to “prescribe forms” (see Insurance Law § 301 [b]). Thus, in Medical Society, where the Superintendent’s power to adopt regulations imposing strict time requirements on the filing of no-fault claims was challenged, this Court found the regulations valid, even though the No-Fault Law itself is silent on the question of time periods. We noted that the time frames, intended to combat an escalating fraud problem, were consistent with the policy underlying the No-Fault Law—to provide prompt compensation to legitimate claimants. In other contexts, we have relied on the Superintendent’s interpretation of New York insurance law, expressed in Regulation 35-D, as “persuasive authority” (see Matter of Allstate Ins. Co. [Stolarz—{**9 NY3d at 202};New Jersey Mfrs. Ins. Co.], 81 NY2d 219, 224 [1993]) and we have specifically cited Regulation 35-D when identifying the exclusions authorized for uninsured/underinsured motorist benefits (see Matter of Liberty Mut. Ins. Co. [Hogan], 82 NY2d 57, 60 [1993]).

Plaintiff argues that, insofar as Regulation 35-D imposes a serious injury requirement on the recovery of supplementary benefits, it is inconsistent with Insurance Law § 3420 (f) (2) and is therefore unenforceable. There is no question that “if [a] regulation runs counter to the clear wording of a statutory provision, it should not be accorded any weight” (Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459 [1980] [citation omitted]). But in this case, the relevant statutory provision and the regulation are not contradictory. Insurance Law § 3420 (f) (2) is silent on the issue of whether an insured can recover SUM benefits absent a serious injury and that silence does not, in this case, imply that the Legislature intended to permit such recovery.

The legislative history of the relevant provisions refutes the argument that, by placing the serious injury exclusion in the mandatory benefits provision but not the supplementary benefits provision, the Legislature intended to preclude the Superintendent from authorizing application of a serious injury exclusion for supplementary benefits. Before uninsured motorist coverage was developed almost 50 years ago, it was not uncommon for a person injured in a motor vehicle accident by an uninsured tortfeasor to be unable to recover any damages. To redress this problem, in 1958 the Legislature created the Motor Vehicle Accident Indemnification Corporation to provide compensation for individuals injured by uninsured motorists, whether or not the injured individuals possessed automobile insurance themselves (L [*5]1958, ch 759; see Matter of Lloyd [Motor Veh. Acc. Indem. Corp.], 23 NY2d 478 [1969]). At the same time, legislation was passed requiring the inclusion of mandatory uninsured motorist coverage in every automobile liability policy issued in New York (L 1958, ch 759, § 4). “The primary objective of this legislation was to afford the innocent victims of uninsured motorists the same protection available to victims of insured motorists with respect to their relative ability to obtain compensation for losses sustained in an automobile accident” (Fox v Atlantic Mut. Ins. Co., 132 AD2d 17, 21 [2d Dept 1987]). The Legislature’s mandatory uninsured motorist coverage provision—the predecessor {**9 NY3d at 203}to Insurance Law § 3420 (f) (1)—was codified at Insurance Law § 167 (2-a).

Mandatory uninsured motorist coverage therefore significantly predated the No-Fault Law, which was not enacted until 1973 (L 1973, ch 13). The No-Fault Law changed the legal landscape by imposing a distinction between basic economic loss (primarily medical expenses and lost wages up to $50,000), which would be covered regardless of fault in an accident, and noneconomic loss (pain and suffering), recoverable only through a personal injury claim against a tortfeasor responsible for the injuries (Insurance Law § 5102 [a], [b], [c]). As to the latter, the No-Fault Law required that injured parties be precluded from pursuing personal injury claims unless they suffered a “serious injury” (Insurance Law § 5104 [a]).^[FN*]

In 1977, the Legislature amended the mandatory uninsured motorist benefits statute—Insurance Law § 167 (2-a)—to clarify that the recovery available under this coverage was not to be diminished by an insurer’s payment of no-fault benefits (L 1977, ch 892, § 3). At the same time, the Legislature added a new paragraph to section 167 (2-a) establishing supplementary uninsured/underinsured motorist coverage. This new paragraph—the predecessor to Insurance Law § 3420 (f) (2)—gave an insured the option of purchasing additional uninsured motorist coverage beyond the mandatory minimum as well as “underinsurance” coverage to guard against the possibility of injury by a tortfeasor who was insured but in an amount insufficient to fully compensate the [*6]injured party. The newly-added second paragraph read as a continuation of the first, providing that “[a]ny such policy shall, at the option of the insured, also provide supplementary uninsured motorists insurance . . . .” (L 1977, ch 892, § 3 [emphasis added].) As is the case with mandatory benefits,{**9 NY3d at 204} the purpose of supplementary benefits was “to provide the insured with the same level of protection he or she would provide to others were the insured a tortfeasor in a bodily injury accident” (Matter of Prudential Prop. & Cas. Co. v Szeli, 83 NY2d 681, 687 [1994]). Rather than characterizing supplementary benefits as a distinct type of coverage, our Court has viewed underinsured motorist coverage as an extension of uninsured motorist coverage:

“The statutory allowance for supplementary uninsured motorists insurance coverage expands the ‘uninsured motorist’ category to include one who, while maintaining proof of financial responsibility as required by law, and thus being an ‘insured motorist’, nevertheless may be considered an ‘uninsured motorist’ because he is ‘underinsured’ when compared to the coverage of an insured who has exercised the option to purchase supplementary insurance” (Reichel v Government Empls. Ins. Co., 66 NY2d 1000, 1003 [1985]).

The serious injury exclusion at the heart of this dispute was added to the statutory scheme in 1981 (L 1981, ch 435) when mandatory and supplementary benefits were still addressed in adjoining paragraphs of the same subdivision—Insurance Law § 167 (2-a). The Legislature inserted the serious injury language in the first paragraph—the mandatory coverage portion—of that subdivision. But there is no indication in the legislative history of the amendment that the Legislature decided to apply a serious injury exclusion solely to mandatory coverage and not to supplementary benefits. Because both paragraphs of section 167 (2-a) related to uninsured motorist benefits and supplementary coverage was framed as an extension of the mandatory coverage outlined in the first paragraph, the exclusion can reasonably be viewed as having been intended to apply to both categories of benefits. Based on the structure of section 167 (2-a), we cannot say that the Legislature’s failure to restate the serious injury provision in the second paragraph evinced an intent to preclude application of such an exclusion to supplementary benefits.

It was not until 1984, when the Insurance Law was recodified and renumbered in its entirety (L 1984, ch 367), that the two paragraphs were separated into two subsections, resulting in the placement of the serious injury exclusion in Insurance{**9 NY3d at 205} Law § 3420 (f) (1) and not in Insurance Law § 3420 (f) (2). This recodification was not meant to effect a substantive change in the law—certainly, there is no reason to conclude that the Legislature split the two paragraphs into separate subsections to create a distinction between the two types of coverages that did not already exist. Given this legislative evolution, we are unpersuaded that the placement of the serious injury exclusion in Insurance Law § 3420 (f) (1) but not section 3420 (f) (2) reflects a legislative determination to restrict the serious injury exclusion to mandatory benefits. [*7]

Indeed, as the Superintendent apparently concluded, such a distinction would not be consistent with the policy underlying supplementary benefits, which are designed to give insureds the same level of protection that would have been available to others under the policy if the insureds were the tortfeasors who caused personal injuries. When an insured injures someone in a motor vehicle accident, the injured party is subject to the serious injury requirement in the No-Fault Law and cannot sue for noneconomic loss unless the serious injury threshold is met (see Insurance Law § 5104 [a]). Since the purpose of supplementary coverage is to extend to the insured the same level of coverage provided to an injured third party under the policy, the insured must also meet the serious injury requirement before entitlement to supplementary benefits. If this were not the case, the insured would receive coverage more comprehensive than that available to a third party injured by the insured.

It is evident from the facts of this case that the application of the serious injury exclusion is consistent with the policy supporting supplementary benefits. Here, plaintiff received payment for his basic economic loss through no-fault benefits. When he sued the negligent party who caused the collision, he was seeking recovery for noneconomic loss. Having obtained the $25,000 limit of coverage from the negligent driver’s insurer, he then sought additional noneconomic loss damages under the SUM endorsement to his State Farm insurance policy. Since a third party injured as a result of plaintiff’s negligence would have had to demonstrate serious injury to obtain noneconomic loss damages under plaintiff’s policy, it follows that plaintiff himself must prove serious injury to recover under his SUM endorsement—as Regulation 35-D requires. State Farm is therefore entitled to pursue its serious injury defense.{**9 NY3d at 206}

Accordingly, the order of the Appellate Division should be reversed, with costs, plaintiff’s motion to strike defendant’s fifth affirmative defense denied, and the certified question answered in the negative.

Chief Judge Kaye and Judges Ciparick, Read, Smith, Pigott and Jones concur.

Order reversed, etc.

Footnotes

Footnote *:

” ‘Serious injury’ means a personal injury which results in death; dismemberment; significant disfigurement; a fracture; loss of a fetus; permanent loss of use of a body organ, member, function or system; permanent consequential limitation of use of a body organ or member; significant limitation of use of a body function or system; or a medically determined injury or impairment of a non-permanent nature which prevents the injured person from performing substantially all of the material acts which constitute such person’s usual and customary daily activities for not less than ninety days during the one hundred eighty days immediately following the occurrence of the injury or impairment” (Insurance Law § 5102 [d]).

[*1]

Argued April 27, 2006; decided June 13, 2006

Matter of New York Cent. Mut. Fire Ins. Co. v Aguirre, 20 AD3d 538, reversed.

APPEARANCES OF COUNSEL

Mitchell Dranow, Mineola, for appellants.

Cullen and Dykman LLP, Brooklyn (Joseph Miller, Jeffrey C. Fegan and Jean-Pierre van Lent of counsel), for respondent.

{**7 NY3d at 773} OPINION OF THE COURT

Memorandum.

The order of the Appellate Division should be reversed, with costs, and the petition to stay arbitration dismissed.

Jorge Aguirre and Rosa and Amanda Alzate were allegedly injured on August 4, 2002 while sitting in a car owned by F.A. Rodriguez, which was parked on Northern Boulevard in [*2]Queens, New York. Their injuries occurred when another car was struck and pushed into the rear bumper of the Rodriguez vehicle by a car operated by an unidentified hit-and-run driver.

New York Central Mutual Fire Insurance Company had issued an automobile insurance policy to Rodriguez, which included Supplementary Uninsured/Underinsured Motorists (SUM) coverage with bodily injury limits of $25,000 per person and $50,000 per accident. The policy’s SUM endorsement set forth several conditions, including the following:

“Notice and Proof of Claim. As soon as practicable, the insured or other person making claim shall give us written notice of claim under this SUM coverage.

“As soon as practicable after our written request, the insured or other person making claim shall give us written proof of claim, under oath if required, including full particulars of the nature and extent of injuries, treatment, and other details we need to determine the SUM amount payable.

“The insured and every other person making claim hereunder shall, as may reasonably be required, submit to examinations under oath by any person we name and subscribe the same. Proof of claim shall be made upon forms we furnish unless we fail to furnish such forms within 15 days after receiving notice of claim” (emphasis added).

On August 15, 2002, an attorney representing Aguirre and the Alzates sent a letter to the attention of New York Central Mutual’s “No-Fault Department” to make a claim under Rodriguez’s policy’s SUM provisions. He enclosed claimants’ completed and subscribed New York State applications for no-fault insurance benefits. On September 3, 2002, the insurer sent a letter acknowledging the three claims. This{**7 NY3d at 774} letter directed the attorney’s attention to and quoted the above-described “Notice and Proof of Claim” condition, and advised him as follows:

“New York Central Mutual is currently investigating the facts and circumstances of the [claimed] loss. We require the immediate completion and return of the enclosed Notice of Intention to Make Claim forms.

“Your failure to cooperate will jeopardize any rights which you may have under this policy for us to make Supplementary Uninsured Motorists payments” (emphasis added).[*3]

Claimants never filled out and returned the proof-of-claim forms, which asked for information about the accident and claimants’ injuries. In May 2003, however, they served a request for uninsured motorist arbitration on New York Central Mutual, which responded on June 19, 2003 with a proceeding in Supreme Court to stay arbitration. Supreme Court granted the insurer’s petition because of claimants’ failure to return the completed forms, concluding that this [*4]was a “condition precedent under the policy” for which timely disclaimer was not required. The Appellate Division affirmed on the same basis, and we granted leave to appeal. We now reverse.

As an initial matter, the policy’s requirement to fill out and return a proof-of-claim form is an exclusion or a condition of coverage, as the insurer concedes. This case is not analogous to Zappone v Home Ins. Co. (55 NY2d 131 [1982]), where there was no coverage under the contract of insurance. Accordingly, the outcome of this appeal turns on whether New York Central Mutual disclaimed liability or denied coverage “as soon as reasonably possible” within the meaning of Insurance Law § 3420 (d).

An “insurer’s failure to provide notice as soon as is reasonably possible precludes effective disclaimer, even [where] the policyholder’s own notice of the incident to its insurer is untimely” (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 67 [2003]). The “timeliness of an insurer’s disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage” (id. at 68-69 [internal quotation marks omitted]). When “the basis for denying coverage was or should have been readily apparent before the onset of the delay [of disclaimer],” the insurer’s explanation is insufficient as a matter of law (id. at 69).{**7 NY3d at 775}

In Jetco, we held that an insurer’s unexcused 48-day delay in notifying an insured of denial of coverage was unreasonable as a matter of law. Here, the delay was significantly longer. New York Central Mutual sent claimants a letter on September 3, 2002, directing their “immediate completion and return” of the notice-of-claim forms. The word “immediate” denotes New York Central Mutual’s expectation of receipt of the completed forms right away, or without substantial loss or interval of time after they were sent. Thus, the insurer became aware of its basis for denying coverage—that claimants had not completed and returned properly filled-out proof-of-claim forms—at a point in time significantly before June 19, 2003, when it petitioned to stay arbitration. That completed forms were never returned or that the letter did not set a precise deadline for their return does not extend the insurer’s time to disclaim or deny coverage, or excuse its delay in doing so.^[FN*] [*5]

R.S. Smith, J. (dissenting). Claimants were required under the policy to send a notice to the insurance company “[a]s soon as practicable.” The Court today holds, in substance, that this requirement was nullified because the insurance company did not, as soon as possible after as soon as practicable, send claimants a notice that they had failed to send a notice. The Catch-22 quality of this holding is [*6]too much for me, and I dissent.

Insurance Law § 3420 (d) requires an insurance company to give written notice of a disclaimer of coverage “as soon as is reasonably possible.” I would hold that, where the disclaimer is based on a claimant’s failure to submit a document in timely fashion, and there is no fixed deadline for the claimant’s submission, the time to disclaim does not start running at least until the belated submission arrives. To hold otherwise, it seems to me, places an unreasonable and unnecessary burden on the insurance company.

New York Central Mutual acted reasonably here. It demanded, as was its right, a proof of claim (or “Notice of Intention to {**7 NY3d at 776}Make Claim”) form, and then waited to see when and if claimants sent the form in. New York Central Mutual no doubt assumed, quite appropriately, that until the form arrived it was in no position to judge whether the claimants had submitted the form “as soon as practicable.” The insurance company could also reasonably assume that, if it never received the form, it could forget about the claim.

The form was never submitted. This was not an insignificant oversight; a proof of claim form enables an insurance company to investigate a claim and to decide whether it is legitimate or not. To permit claimants who have never submitted proof of their claim to recover is to open the door to claims that are spurious or fraudulent. Under today’s holding, however, insurance companies cannot use the failure to submit proof of claim as a defense unless they [*7]themselves do what the claimant is supposed to do—send a notice before too much time has gone by. I do not think it makes sense to impose this requirement on insurance companies, and I do not think the statute requires it.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt and Graffeo concur in memorandum; Judge R.S. Smith dissents in an opinion in which Judge Read concurs.

Order reversed, etc.

Footnotes

Footnote *: The dissent complains that there is a Catch-22 quality to the majority’s position. But there is also a certain circularity to the insurer’s argument that it could not disclaim as soon as reasonably possible until after it received the filled out proof-of-claim forms because it could not evaluate whether claimants had timely provided the facts until the forms were reviewed and still does not know if the facts claimants might have provided would have been timely or not, because claimants never returned the forms. The simple answer to this conundrum, of course, is for the insurer to set a deadline for return of a proof-of-claim form. And, of course, if the insurer suspects fraud in this case, it can still fight the claim in the arbitration on this basis.

[*1]

Argued February 9, 2005; decided April 5, 2005

Rekemeyer v State Farm Mut. Auto. Ins. Co., 7 AD3d 955, modified.

{**4 NY3d at 472} OPINION OF THE COURT

G.B. Smith, J.

This is a declaratory judgment action in which plaintiff seeks a declaration that she is entitled to payment under the supplementary uninsured/underinsured motorists (SUM) [*2]provision of her insurance contract. The insurance carrier disclaimed on the ground that written notice of the SUM claim was not given as soon as practicable and that a copy of the summons and complaint in plaintiff’s legal action was not immediately given to it. On the facts of this case, we hold that the carrier must show prejudice before it may disclaim coverage due to plaintiff’s late notice of SUM claim.

On May 8, 1998, plaintiff, Cynthia Rekemeyer, was rear-ended while driving her car. Shortly after the accident occurred, Rekemeyer notified State Farm of the occurrence and made a claim for no-fault benefits. At the time of the accident, plaintiff had been unable to work for 18 years due to an existing back problem. Throughout 1998, plaintiff received medical care from a number of doctors for accident related injuries. In December 1998 and again in February 2000, at the request of State Farm, plaintiff was evaluated by a doctor of State Farm’s choice concerning accident related injuries.

On April 27, 1999, plaintiff filed suit against the driver of the other car, Sherwood Bouyea. By letter dated July 21, 1999, plaintiff notified State Farm of the lawsuit. In a bill of particulars {**4 NY3d at 473}dated July 1999, plaintiff alleged that she had suffered “severe and permanent injuries to her left arm and cervical spine.” In September 1999, plaintiff learned that Bouyea’s maximum liability coverage was $50,000. Plaintiff’s demand was for $1 million.

In October 1999, plaintiff underwent surgery on her back for injuries she alleges she sustained as a result of the car accident. On March 12, 2000, Bouyea’s attorney offered $45,000 to settle the claim. On March 31, 2000, plaintiff notified State Farm that she would pursue SUM coverage under her own policy. On April 10, 2000, Bouyea’s attorney made a settlement offer of $50,000. On April 25, 2000, State Farm disclaimed coverage based upon plaintiff’s failure to notify it of the SUM claim as soon as practicable and because of failure to notify it immediately of the lawsuit.

In October 2000, plaintiff brought this declaratory judgment action against State Farm. State Farm answered the complaint. It then filed a motion for summary judgment dismissing the complaint for failure to comply with the insurance contract provision requiring notice of the SUM claim as soon as practicable. On June 19, 2003, Supreme Court denied defendant’s motion to dismiss, and, citing Matter of Metropolitan Prop. & Cas. Ins. Co. v Mancuso (93 NY2d 487 [1999]), granted plaintiff’s motion for a declaratory judgment for SUM coverage. Supreme Court stated:

“On the facts of this case, it cannot be concluded that plaintiff did not give notice of her SUM claim as soon as practicable as a matter of law. The slowly evolving nature of plaintiff’s injuries, her pre-existing injury and daily pain, [*3]intervening surgeries and the bona fide questions as to severity and causation of the new injury, along with the tortfeasor’s defenses on the issue of liability can reasonably be said to have prevented knowledge that the tortfeasor was underinsured until at or about such time as a settlement offer near or at the limit of his policy was tendered. It was at that point that plaintiff promptly notified defendant of her SUM claim. Thus, defendant’s motion must be denied and plaintiff’s cross motion will be granted.”

On May 20, 2004, Appellate Division reversed and determined:

“[P]laintiff knew or reasonably should have known that {**4 NY3d at 474}Bouyea’s insurance was insufficient to provide full compensation for her injuries and yet she inexplicably waited six months before providing notice to defendant of her intent to make a claim for supplemental coverage. We find such notice to have been untimely and, thus, Supreme Court erred in granting her cross motion for summary judgment.” (7 AD3d 955, 957 [2004].)

On September 21, 2004, this Court granted plaintiff leave to appeal.

Initially, plaintiff argues that she submitted her notice of SUM claim to State Farm as soon as practicable and did not breach the insurance contract. We have held that in the SUM context, the phrase “as soon as practicable” means that “the insured must give notice with reasonable promptness after the insured knew or should reasonably have known that the tortfeasor was underinsured” (Matter of Metropolitan Prop. & Cas. Ins. Co. v Mancuso, 93 NY2d at 495). The requirement that the insured give notice as soon as practicable “contemplates elasticity and a case-by-case inquiry as to whether the timeliness of the notice was reasonable, taking all of the circumstances into account” (see id. at 494; see also Mighty Midgets v Centennial Ins. Co., 47 NY2d 12, 19 [1979]).

We agree with the Appellate Division that plaintiff did not submit her notice of SUM claim as soon as practicable. Although plaintiff had disabling injuries prior to the accident that may have interfered with her assessment of the extent of new injuries, she stated in her bill [*4]of particulars in the underlying personal injury action—drafted eight months before plaintiff notified defendant of her claim for SUM coverage—that she had suffered serious and permanent injuries as a result of the accident. The record thus belies any claim that she was unaware that her injuries were serious. Moreover, Bouyea informed plaintiff in September 1999 that he was insured for only $50,000. Accordingly, the Appellate Division appropriately concluded that plaintiff’s notice of her SUM claim in March 2000—approximately six months later—was untimely.

Plaintiff also urges this Court to relax its application of the no-prejudice rule in SUM cases where the carrier has been timely put on notice of the accident. This argument is persuasive. The rule in New York has been for years that an insured’s failure to provide timely notice of an accident relieves the carrier of its obligation to perform regardless of whether it can demonstrate {**4 NY3d at 475}prejudice (see Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436, 442-443 [1972]). This rule is known as the no-prejudice rule. Although this rule has sometimes been characterized as the “traditional rule,” it is actually a limited exception to two established contract principles: “(1) that ordinarily one seeking to escape the obligation to perform under a contract must demonstrate a material breach or prejudice; and (2) that a contractual duty [requiring strict compliance] ordinarily will not be construed as a condition precedent absent clear language showing that the parties intended to make it a condition” (Unigard Sec. Ins. Co. v North Riv. Ins. Co., 79 NY2d 576, 581 [1992] [citations omitted]). The idea behind strict compliance with the notice provision in an insurance contract was to protect the carrier against fraud or collusion (see id.).

More recently in Matter of Brandon (Nationwide Mut. Ins. Co.), this Court held that a SUM carrier that received timely notice of a claim must show prejudice before disclaiming SUM benefits based on late notice of a legal action (see 97 NY2d 491, 494-495, 498 [2002]). In the SUM context, the Brandon court was unwilling to extend the no-prejudice exception in regard to late notice of a legal suit because “unlike most notices of claim—which must be submitted promptly after the accident, while an insurer’s investigation has the greatest potential to curb fraud—notices of legal action become due at a moment that cannot be fixed relative to any other key event, such as the injury, the discovery of the tortfeasor’s insurance limits or the resolution of the underlying tort claim.” (Id. at 498.)

There are important public policy issues that continue to arise both in federal and state courts which warrant a review of the no-prejudice exception, particularly when the insured has given timely notice of occurrence or claim (see Mark A. Varrichio & Assoc. v Chicago Ins. Co., 312 F3d 544, 548-550 [2002] [certified question to New York Court of Appeals of whether timely notice of occurrence required the insurer to show prejudice before disclaiming for late notice of lawsuit; question withdrawn because parties settled]). This case presents us with an opportunity [*5]to reexamine the applicability of the no-prejudice rule in the SUM context.

The facts of the current case, while different from Brandon, also warrant a showing of prejudice by the carrier. Here, plaintiff gave timely notice of the accident and made a claim for no-fault benefits soon thereafter. That notice was sufficient to promote the valid policy objective of curbing fraud or collusion. Moreover,{**4 NY3d at 476} the record indicates that State Farm undertook an investigation of the accident. It also required plaintiff to undergo medical exams in December 1998 and February 2000. Under these circumstances, application of a rule that contravenes general contract principles is not justified. Absent a showing of prejudice, State Farm should not be entitled to a windfall (Brandon, 97 NY2d at 496 n 3, citing Clementi v Nationwide Mut. Fire Ins. Co., 16 P3d 223, 230 [Colo 2001]). Additionally, State Farm should bear the burden of establishing prejudice “because it has the relevant information about its own claims-handling procedures and because the alternative approach would saddle the policyholder with the task of proving a negative” (id. at 498; see also Unigard, 79 NY2d at 584 [placing the burden of showing prejudice on the reinsurer]). Thus, we hold that where an insured previously gives timely notice of the accident, the carrier must establish that it is prejudiced by a late notice of SUM claim before it may properly disclaim coverage.

Our analysis today is in line with other jurisdictions which require that carriers show prejudice before untimely notice of a SUM claim is held to be a material breach in the contract warranting disclaimer (see Clementi v Nationwide Mut. Fire Ins. Co., 16 P3d 223, supra; State Auto. Mut. Ins. Co. v Youler, 183 W Va 556, 396 SE2d 737 [1990]; Ouellette v Maine Bonding & Cas. Co., 495 A2d 1232 [Me 1985]; State Farm Mut. Auto. Ins. Co. v Burgess, 474 So 2d 634 [Ala 1985]; Pennsylvania Gen. Ins. Co. v Becton, 475 A2d 1032 [RI 1984]; Rampy v State Farm Mut. Auto. Ins. Co., 278 So 2d 428, 435 [Miss 1973]; see also Alcazar v Hayes, 982 SW2d 845, 854 [Tenn 1998] [where an insured has failed to provide timely notice of a claim, there is a rebuttable presumption that the carrier has been prejudiced]).

Accordingly, the order of the Appellate Division should be modified, without costs, by denying defendant’s motion for summary judgment and remitting to the trial court for the carrier to have an opportunity to demonstrate prejudice, and, as so modified, affirmed.

Judges Ciparick, Rosenblatt, Graffeo, Read and R.S. Smith concur; Chief Judge Kaye taking no part.

Order modified, etc. [*6]

[*1]

Argued February 8, 2005; decided March 29, 2005

{**4 NY3d at 319} OPINION OF THE COURT

Rosenblatt, J.

On this certified question from the United States Court of Appeals for the Second Circuit, we are asked whether, under our “no-fault” insurance laws (see Insurance Law § 5101 [*2]et seq. and implementing regulations), insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims. We conclude that they may.

Patients covered by no-fault insurance often assign their claims to their health care providers rather than seek reimbursement from insurance carriers directly (see 11 NYCRR 65-3.11). Regulations require the carriers to make prompt decisions on claims once the provider has furnished adequate factual support (see 11 NYCRR 65.15).

This case began when State Farm filed a complaint in the United States District Court for the Eastern District of New York seeking a judgment declaring that it need not reimburse defendants—fraudulently incorporated medical corporations—for assigned claims submitted under no-fault. The complaint also sought equitable relief and damages against defendant companies and individuals for unjust enrichment and fraud. State Farm alleged, in essence, that to obtain payments from the carriers under the requirements of no-fault insurance, defendants willfully evaded New York law prohibiting nonphysicians from sharing ownership in medical service corporations.^[FN1]

According to the complaint, the unlicensed defendants paid physicians to use their names on paperwork filed with the State to establish medical service corporations. Once the medical service corporations were established under the facially valid cover of the nominal physician-owners, the nonphysicians actually operated the companies. To maintain the appearance that the physicians owned the entities, the nonphysicians caused the corporations to hire management companies (owned by the nonphysicians), which billed the medical corporations inflated rates for {**4 NY3d at 320}routine services. In this manner, the actual profits did not go to the nominal owners but were channeled to the nonphysicians who owned the management companies.

Notably, State Farm never alleged that the actual care received by patients was unnecessary or improper. The patients insured by State Farm presumably received appropriate care from a health professional qualified to give that care. State Farm’s complaint centers on fraud in the corporate form rather than on the quality of care provided.

The Federal District Court dismissed State Farm’s complaint, holding that defendants’ noncompliance with the licensing and incorporation statutes did not extinguish State Farm’s duty to pay, so long as the actual providers acted within the scope of their licenses in [*3]rendering care. The Second Circuit then certified to this Court the question whether

“a medical corporation that was fraudulently incorporated under N.Y. Business Corporation Law §§ 1507, 1508, and N.Y. Education Law § 6507(4)(c) [is] entitled to be reimbursed by insurers, under New York Insurance Law §§ 5101 et seq., and its implementing regulations, for medical services rendered by licensed medical practitioners” (372 F3d 500, 510 [2004]).

We accepted the certification and now answer that such corporations are not entitled to reimbursement.

Insurance Law § 5102 et seq. requires no-fault carriers to reimburse patients (or, as in this case, their medical provider assignees) for “basic economic loss.” Interpreting the statute, the Superintendent of Insurance promulgated 11 NYCRR 65-3.16 (a) (12) (effective April 4, 2002) and excluded from the meaning of “basic economic loss” payments made to unlicensed or fraudulently licensed providers, thus rendering them ineligible for reimbursement.^[FN2]

If State Farm’s allegations are true, as we must construe them to be at this stage, the defendant companies undisputedly fail to meet the applicable state licensing requirements, which prohibit {**4 NY3d at 321}nonphysicians from owning or controlling medical service corporations. Furthermore, a fraudulently incorporated medical company is “[a] provider of health care services” within the meaning of the regulation.

Defendants contend they are entitled to reimbursement even if fraudulently licensed. They first argue that the actual care that patients received was within the scope of the licenses of those who treated the patients. Defendants posit that this licensing compliance brings them within the regulatory framework for reimbursement. We disagree. The fact remains that the reimbursement goes to the medical service corporation that exists to receive [*4]payment only because of its willfully and materially false filings with state regulators.

Defendants also argue that the quoted regulation conflicts with the prompt payment goals of the no-fault statutes. The Second Circuit treated this issue as a difficult policy balance: on the one hand, there is our State’s prohibition against lay ownership of shares in medical corporations (and the accompanying potential for fraud), and on the other, our encouragement of prompt payment of insurance claims, as reflected in the statutes.

The regulation is valid. We are guided by the well-established principle of administrative law that the Superintendent’s “interpretation, if not irrational or unreasonable, will be upheld in deference to his special competence and expertise with respect to the insurance industry, unless it runs counter to the clear wording of a statutory provision” (Matter of New York Pub. Interest Research Group v New York State Dept. of Ins., 66 NY2d 444, 448 [1985]). Where, as here, the Superintendent has properly crafted a rule within the scope of his authority, that rule has the force of law and represents the policy choice of this State.^[FN3]

The Superintendent’s regulation allowing carriers to withhold reimbursement from fraudulently licensed medical corporations governs this case. We hold that on the strength of this regulation, carriers may look beyond the face of licensing documents to identify willful and material failure to abide by state and local law. Defendants argue that the carriers will turn {**4 NY3d at 322}this investigatory privilege into a vehicle for delay and recalcitrance.

The regulatory scheme, however, does not permit abuse of the truth-seeking opportunity that 11 NYCRR 65-3.16 (a) (12) authorizes. Indeed, the Superintendent’s regulations themselves provide for agency oversight of carriers, and demand that carriers delay the payment of claims to pursue investigations solely for good cause (see 11 NYCRR 65-3.2 [c]). In the licensing context, carriers will be unable to show “good cause” unless they can demonstrate behavior tantamount to fraud. Technical violations will not do. For example, a failure to hold an annual meeting, pay corporate filing fees or submit otherwise acceptable paperwork on time will not rise to the level of fraud. We expect, and the Legislature surely intended, vigorous enforcement action by the Superintendent against any carrier that uses the [*5]licensing-requirement regulation to withhold or obstruct reimbursements to nonfraudulent health care providers.

The Second Circuit questioned whether, if the fraudulent corporations were not entitled to reimbursement, State Farm could recover money already paid out under theories of fraud or unjust enrichment. Because we rest our holding on the Superintendent’s amended regulation declaring fraudulently licensed corporations ineligible for reimbursement, no cause of action for fraud or unjust enrichment would lie for any payments made by the carriers before that regulation’s effective date of April 4, 2002. State Farm’s complaint does not clearly indicate, one way or the other, whether it has paid money to defendants after the amended regulation took effect. We therefore answer only the certified question and decline to consider whether State Farm has alleged sufficient facts to support causes of action for fraud or unjust enrichment.

Based on the foregoing, the certified question should be answered in the negative.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Graffeo, Read and R.S. Smith concur.

Following certification of a question by the United States Court of Appeals for the Second Circuit and acceptance of the question by this Court pursuant to section 500.17 of the Rules of {**4 NY3d at 323}Practice of the Court of Appeals (22 NYCRR 500.17), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified question answered in the negative.

Footnotes

Footnote 1: See e.g. Business Corporation Law § 1507 (“A professional service corporation may issue shares only to individuals who are authorized by law to practice in this state a profession which such corporation is authorized to practice . . .”).

Footnote 2: See 11 NYCRR 65-3.16 (a) (12) (“A provider of health care services is not eligible for reimbursement under section 5102 (a) (1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement . . .”). In his amicus brief, the Superintendent asserts that he promulgated this rule to combat rapidly growing incidences of fraud in the no-fault regime, fraud that he has identified as correlative with the corporate practice of medicine by nonphysicians.

Footnote 3: We have already unanimously concluded that the regulation is within the Superintendent’s authority to issue and will not disturb that result (see Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d 854, 866 [2003] [“Here, however, the challenged regulations create not a new category of exclusion, but rather merely a condition precedent with which all claimants must comply in order to receive benefits under the statute.”]).

[*1]

Argued January 13, 2004; decided February 19, 2004

Allstate Ins. Co. v Stein, 305 AD2d 972, affirmed.

{**1 NY3d at 417} OPINION OF THE COURT

R.S. Smith, J.

This appeal concerns the timeliness of an action by an insurance company as subrogee of an accident victim to whom the insurance company has paid additional personal injury protection (APIP) benefits. The question presented is whether the statute of limitations runs from the date of the accident or the date when {**1 NY3d at 418}the first APIP benefits were paid. We hold [*2]that the statute runs from the date of the accident, and that the insurer’s action is therefore time-barred.

Factual Background

On May 24, 1995, a vehicle operated by Daniel Stein struck a vehicle being operated by Amy Walker and injured her. New York’s No-Fault Law required that Walker have insurance coverage providing “[f]irst party benefits” consisting of reimbursement, to the extent specified by statute, for “[b]asic economic loss” (health expenses, loss of earnings, and other reasonable and necessary expenses) (Insurance Law § 5102 [a], [b]; § 5103 [a]). As the term “no-fault” implies, these first party benefits were payable to Walker regardless of who was at fault, and neither Walker nor her insurer could recover them from Stein (Insurance Law § 5104 [a]).

As authorized by New York Insurance Department Regulations (11 NYCRR) § 65-1.3 (though not required by statute), Walker had also purchased an APIP endorsement from Allstate Insurance Company covering her for “extended economic loss”—i.e., economic loss exceeding the time and dollar limits of the “basic economic loss” that is subject to mandatory no-fault coverage. Recovery of “extended economic loss” from third parties is not restricted by the no-fault statute.

On August 2, 1996, Walker began an action against Stein in Supreme Court, alleging that she had sustained a serious injury, which would permit her to recover noneconomic loss without violating the no-fault statute (Insurance Law § 5104 [a]), and also seeking to recover economic loss other than her basic economic loss. Thus, Walker sought to recover from Stein the same “extended economic loss” that was covered by the APIP endorsement in her Allstate policy.

By June 29, 1998, Walker’s basic no-fault coverage had evidently been exhausted, and Allstate made its first payment of APIP benefits to Walker. Allstate alleges that by May of 2001 it had paid more than $42,000 to Walker in APIP benefits. By making those payments, Allstate became subrogated to a portion of Walker’s claim against Stein.

On February 20, 2001, counsel for the parties in Walker’s action against Stein appeared, along with counsel for Allstate, at a conference before Supreme Court. Walker’s counsel stated that Walker and Stein had agreed on a $300,000 settlement of the action. Counsel for Stein stated that the release Stein expected to {**1 NY3d at 419}get from Walker “cuts off any rights that Allstate would have against either Mr. Stein or [Stein’s insurance carrier]” and requested a “clarification . . . to that effect” from Allstate’s counsel. Allstate’s counsel, without commenting directly on the request for clarification, stated that Walker “has been made aware of the possible subrogation claim in the amount of 43 thousand dollars . . . and that she understands that in entering into this release.” Counsel for Walker added his own “clarification” stating that Walker is “giving a general release to the defendant [and] . . . is reserving whatever rights or obligations or defenses she or her husband may have to any party to this proceeding, including Allstate Insurance Company, and I’m not conceding on the record that there’s a right of subrogation or anything else.”

Thus, it seems that the three parties represented at the conference had three different, and inconsistent, understandings of the settlement: Stein understood that he was getting a complete release, good against both Walker and Allstate; Allstate understood that it was preserving what it called a “subrogation claim,” though its counsel’s statement may be read as implying a claim against Walker for part of the $300,000, rather than against Stein for some [*3]additional amount; and Walker apparently understood that she would keep the whole $300,000, and did not recognize that Allstate was entitled to anything. Walker’s counsel added that “[W]e’re all going to let the law . . . determine what rights and obligations, if any, anyone has,” and the court echoed this comment: “[I]t’s clear on the record that all three parties are saying that they intend to fully enforce their rights to the full extent of the law and defenses that they might have.”

On February 23, 2001, Walker’s counsel delivered to Stein’s counsel an unqualified general release in Stein’s favor, executed by Walker and her husband, but not by Allstate. Stein resisted paying Walker the full $300,000 in return for this release. He paid Walker $200,000, and sought to require Walker and Allstate to resolve the allocation of the remaining $100,000 between themselves: first, Stein offered a $100,000 draft payable to both Walker and Allstate; he later began an interpleader action. Walker rejected the $100,000 draft and caused a judgment in the amount of $100,000 to be entered against Stein. Stein moved to vacate the judgment.

Despite its counsel’s comments at the settlement hearing, Allstate apparently made no effort to recover from Walker any portion{**1 NY3d at 420} of the $300,000 settlement. However, on May 4, 2001 Allstate, “as Subrogee of Amy M. Walker,” began its own action against Stein. This action, the third to be brought (after Walker’s original lawsuit and Stein’s interpleader action), is the one whose timeliness is now in issue. Allstate’s complaint alleged that Walker had been injured through Stein’s negligence; that as a result of those injuries, she had suffered losses for which Allstate paid her compensation in the form of APIP benefits; that Allstate had become Walker’s subrogee under the terms of its policy and the applicable insurance regulations; and that Allstate was therefore entitled to recover from Stein the APIP benefits it had paid. Stein moved to dismiss Allstate’s action based on, among other grounds, the statute of limitations.

Supreme Court resolved the three-cornered dispute by allowing Walker’s judgment against Stein to stand, dismissing Stein’s interpleader complaint and denying Stein’s motion to dismiss Allstate’s action. Stein appealed to the Appellate Division, which, by a three-two vote, reversed the denial of Stein’s motion to dismiss, holding that Allstate’s claim was barred by the statute of limitations. Allstate appeals as of right (CPLR 5601 [a]).

Discussion

Stein contends that Allstate, as Walker’s subrogee, stands in Walker’s shoes and was therefore required to bring suit by May 24, 1998, three years after the date of Walker’s accident, and almost three years before Allstate in fact sued.^[FN1] Allstate contends that, by making APIP payments to Walker, it acquired a new cause of action against Stein on June 29, 1998 and was permitted to sue until three years after that date.^[FN2]

In deciding the issue in Stein’s favor, the Appellate Division majority analyzed the question, we think correctly, as follows: [*4]

“Allstate’s subrogation action is governed by the same statute of limitations applicable to action No. 1, the personal injury action commenced by the Walkers against Stein. That is consistent with the principles that a subrogation claim is derivative of the {**1 NY3d at 421}underlying claim and that the subrogee possesses only such rights as the subrogor possessed, with no enlargement or diminution. It is likewise consistent with the principle that a defendant in a subrogation action has against the subrogee all defenses that he would have against the subrogor, including the same statute of limitations defense that could have been asserted against the subrogor” (305 AD2d 972, 974 [2003] [citations omitted]).

Allstate does not dispute that the above quotation correctly states the law applicable to subrogation generally. It contends, however, that the right asserted by Allstate in this case is not an ordinary subrogation right, but a creature of statute (as implemented by Insurance Department regulation), and that this case is therefore analogous to Matter of Motor Veh. Acc. Indem. Corp. v Aetna Cas. & Sur. Co. (89 NY2d 214 [1996] [MVAIC]) and Aetna Life & Cas. Co. v Nelson (67 NY2d 169 [1986]).

MVAIC concerned the right of the Motor Vehicle Accident Indemnification Corporation (MVAIC) to recover from the insurer of a vehicle no-fault benefits that MVAIC had paid after the vehicle’s insurer denied coverage. In that case, the defendant insurer claimed that MVAIC’s right was “in the nature of subrogation” and that MVAIC thus had no greater rights than its insured and was subject to the same statute of limitations (MVAIC, 89 NY2d at 220). This Court held otherwise, stating that MVAIC’s entitlement to reimbursement was “created or imposed by statute, but for which [it] would not exist” (id. at 221).

The MVAIC court relied on Aetna Life & Cas. Co. v Nelson, which concerned the attempt of a no-fault insurer to enforce a statutory lien pursuant to Insurance Law § 673 (2) (now § 5104 [b]). Noting that the statute of limitations contained in CPLR 214 (2) “only governs liabilities which would not exist but for a statute” (67 NY2d at 174), this Court in Aetna held that the liability there at issue was in that category. We stated that the statute creating that liability

“does not codify common-law principles; it creates new and independent statutory rights and obligations in order to provide a more efficient means for adjusting financial responsibilities arising out of automobile accidents” (id. at 175 [citation omitted]).{**1 NY3d at 422}

This case is different from MVAIC and Aetna because it involves a traditional equitable subrogation, not a liability created by statute. Indeed, no statute even refers to APIP benefits, much less a subrogation claim by an APIP carrier against a tortfeasor. Allstate relies not on a statute but on an Insurance Department regulation, 11 NYCRR 65-1.3, which sets forth a form of APIP endorsement which is “approved and promulgated” by the Department of Insurance (§ 65-1.3 [a]). The APIP endorsement approved by the Department includes a subrogation clause, as follows: [*5]

“In the event of any payment for extended economic loss, the Company is subrogated to the extent of such payments to the rights of the person to whom, or for whose benefit, such payments were made. Such person must execute and deliver instruments and papers and do whatever else is necessary to secure such rights. Such person shall do nothing to prejudice such rights.”

The regulation, however, does not create a new right which did not exist at common law, but merely prescribes the form of a clause that declares Allstate’s pre-existing right. On the facts of this case, Allstate would have a right of subrogation against Stein if there were no applicable regulation, and indeed even if there were no explicit subrogation clause in the insurance policy. Subrogation is a venerable equitable doctrine, not a recent invention of the Insurance Department. Almost 80 years ago, our Court explained the doctrine of subrogation as follows:

“It is so well settled as not to require discussion that an insurer who pays claims against the insured for damages caused by the default or wrongdoing of a third party is entitled to be subrogated to the rights which the insured would have had against such third party for its default or wrongdoing. This right of subrogation is based upon principles of equity and natural justice. We recognize at once the fairness of the proposition that an insurer who has been compelled by his contract to pay to or in behalf of the insured claims for damages ought to be reimbursed by the party whose fault has caused such damages . . .” (Ocean Acc. & Guar. Corp. v Hooker Electrochemical Co., 240 NY 37, 47 [1925]; see also Aetna Cas. & Sur. Co. v Jackowe, 96 AD2d 37, {**1 NY3d at 423}44 [2d Dept 1983] [quoting, in the context of an APIP carrier’s subrogation rights, the statement in Kozlowski v Briggs Leasing Corp., 96 Misc 2d 337, 342 (Sup Ct, Kings County 1978): “subrogation is equitable in nature, not dependent on contract”]).

Allstate protests that, if the statute of limitations on its subrogation claim runs from the date of the accident, the claim may be time-barred before the right of subrogation exists, so that the subrogee would never have an opportunity to bring suit on the claim. But this sort of risk is inherent in subrogation; the subrogee acquires only the rights that the subrogor had, and so any subrogee may find its claim defeated by a defense based on the subrogor’s action or inaction. In such a case, the subrogee’s remedy is against the subrogor, for conduct that has prejudiced the subrogee’s right. The APIP endorsement quoted above specifically provides that the subrogor shall “do nothing to prejudice” the insurer’s rights of subrogation. This provision too is merely declaratory of longstanding equitable principles (see e.g. Ocean, 240 NY at 47).

As the Appellate Division majority pointed out, Allstate’s plight here results from its own failure “to insist on the resolution of its subrogation claim against the tortfeasor for APIP payments as part of a global settlement of the personal injury claims” (305 AD2d at 975). Nothing required Allstate to acquiesce, as it did, in a settlement between Walker and Stein in which all the consideration went to Walker and none to Allstate. Allstate was, by virtue of [*6]subrogation, entitled to the portion of Walker’s recovery that is allocable to her claim for “extended economic loss.” At the February 20, 2001 conference Allstate’s counsel seemed to recognize this, stating to the court that “the plaintiff has been made aware of the possible subrogation claim in the amount of 43 thousand dollars.” But Allstate never followed up the implied threat to recover its $43,000 from the settlement proceeds that Walker received, choosing instead to bring a time-barred action against Stein.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo and Read concur.

Order affirmed, with costs.

Footnotes

Footnote 1: CPLR 214 (5) imposes a three-year statute of limitations for most personal injury actions.

Footnote 2: Allstate relies on CPLR 214 (2), providing a three-year limitation period for “an action to recover upon a liability, penalty or forfeiture created or imposed by statute.”