[*1]

District Court of Nassau County, First District, March 13, 2014

APPEARANCES OF COUNSEL

Baker Sanders, L.L.C., Garden City, for plaintiff.

Printz & Goldstein, Woodbury, for defendant.

Plaintiff, All-In-One Medical Care, P.C., commenced this no-fault action against defendant, Government Employees Insurance Company (GEICO), following GEICO’s denial of plaintiff’s claims for no-fault benefits for physical therapy services provided in January and February 2011. Plaintiff’s assignor, Santo Fernandez, was injured in an accident in May 2010. GEICO denied the claims based upon the results of independent medical examinations (IMEs) conducted in October 2010 by three different doctors (Drs. Emmanuel, Sesto, and Yiu). GEICO defends this case at trial solely upon the IME and live testimony of the first doctor, Dr. Jacquelin Emmanuel.

Pursuant to the parties’ stipulation, the trial of plaintiff’s claim was limited to the defense of lack of medical necessity. Dr. Emmanuel was defendant’s only witness. Plaintiff presented no witnesses in rebuttal. Each party submitted medical records for the court’s consideration. Their respective submissions were introduced into evidence on consent and without objection.

According to Dr. Emmanuel’s testimony, he examined Mr. Fernandez twice, first on September 13, 2010, and again on October 25, 2010. The first exam was conducted shortly after Mr. Fernandez had undergone arthroscopic shoulder surgery. Dr. Emmanuel concluded, at that time, that Mr. Fernandez’s spinal sprains/strains had “resolved,” but his right shoulder injuries were still “healing.” After noting Mr. Fernandez’s complaints of tenderness in his right shoulder, Dr. Emmanuel found significant limitations in the right shoulder’s range of motion. Dr. Emmanuel accordingly recommended that Mr. Fernandez should continue to receive physical therapy for his right shoulder, three times a week, for the following four weeks.

Dr. Emmanuel reexamined Mr. Fernandez on October 25, 2010. Mr. Fernandez’s complaints at that time included “radiating neck pain and pain in his low back and right shoulder.” However, upon examination, Mr. Fernandez displayed “no acute distress.” Dr. Emmanuel found no evidence of tenderness or spasm upon palpation of the cervical or lumbar spinal musculature. Range of motion was normal or near normal. The right shoulder arthroscopic entry portals had healed. Dr. Emmanuel found “no impingement signs” in the right shoulder.

Based upon the latter examination findings, Dr. Emmanuel concluded that “no further physical therapy or massage is medically {**43 Misc 3d at 729}necessary.” His report further explained: “Although there were findings of slightly decreased ranges of motion in the cervical spine and right shoulder regions, this is subjective rather than objective. There is no evidence of spasms or instability and all orthopedic tests are negative.”

Dr. Emmanuel’s trial testimony echoed his IME findings. He explained in a clear, consistent, and credible manner why he had concluded that Mr. Fernandez required no further treatments. Notwithstanding the existence of continued subjective complaints, Dr. Emmanuel’s objective examination of Mr. Fernandez found only mild range of motion limitations. Absent objective evidence of tenderness or spasm, he saw no need for continued physical therapy.

[1]; Under current Appellate Term precedent, such trial evidence, if credited, is sufficient to make out a lack of medical necessity defense to post-IME services, and shift the burden to plaintiff of demonstrating the medical necessity of post-IME treatments. (See Amato v State Farm Ins. Co., 40 Misc 3d 129[A], 2013 NY Slip Op 51113[U]; [App Term, 2d Dept, 9th & 10th Jud Dists 2013];.) This court, as factfinder at trial, concludes that Dr. Emmanuel had a sound factual basis and medical rationale for his opinion that no further treatment was necessary. Accordingly, unless plaintiff satisfied its burden of proving to the contrary, defendant is entitled to judgment dismissing plaintiff’s no-fault claim.

In the face of such showing by defendant, plaintiff attempted to meet its burden through submission of post-IME medical records. “Follow-up progress notes” from Dr. Jean Claude Demetrius document monthly post-IME evaluations of Santo Fernandez that were performed between November 2010 and February 2011. In his January 11, 2011 report, for example, Dr. Demetrius notes that the patient’s pain course “has been moderately improved with current physical therapy and acupuncture” but “still has significant pain in neck and lower back with radiating pain and paresthesia to the both upper and lower extremities.” In addition, Mr. Fernandez continued to complain about shoulder pain. Upon examination of the patient’s shoulders, Dr. Demetrius found mild tenderness in the right shoulder, severe tenderness in the left shoulder, and decreased range of motion in the upper extremities.

Based upon these findings and other documented examination results, Dr. Demetrius’s “diagnostic impression” included cervical and lumbar strain/sprain, cervical and lumbar discogenic{**43 Misc 3d at 730} disease/radiculopathy, and right/left shoulder joint pain secondary to contusion and ligament/tendon tear. His “diagnostic plan” called for “[c];ontinued physical therapy” and a follow-up reevaluation in four to six weeks. Similar findings and recommendations were made in his earlier and later reports.

Submission of these records, as part of a stipulated evidence package, raises an interesting evidentiary question. Can the plaintiff meet its own burden to prove medical necessity solely through submission of post-IME medical records? Or must it submit live witness testimony from a treating doctor, or other medical expert, establishing by expert proof that the subject services were appropriate and medically necessary?

The decision in Amato did not reach the issue. Unlike this case, the plaintiff in Amato submitted “no evidence.” (See 40 Misc 3d 129[A], 2013 NY Slip Op 51113[U], *2.) Since the plaintiff in Amato “proffered no evidence” respecting the patient’s condition following the date of the IME, any finding that the patient’s condition may have “worsened after the IME” would be “speculative, at best.” (Id.) Consequently, the Appellate Term directed entry of judgment in favor of defendant, dismissing the complaint, due to the complete absence of rebuttal proof from the plaintiff respecting the necessity of the post-IME treatments.

Here, in contrast, plaintiff did not rest upon the strength of its cross-examination of Dr. Emmanuel. Instead, it submitted the treating doctor’s records of the post-IME examinations. Can this court accept the findings and conclusions of the treating doctor without hearing his testimony in court at trial? In the absence of specific guidance from the Appellate Term, this court necessarily must look to decisions made by other appellate courts. Since this court sits under the Second Department’s umbrella, it looks principally to that Court’s decisions in analogous circumstances and related contexts. The rulings made in such cases are far from uniform.

In one leading case involving a claim of medical malpractice, the Appellate Division, Second Department, addressed at length the admissibility of physicians’ office records under the “business records” exception to the hearsay rule. (Wilson v Bodian, 130 AD2d 221, 228-234 [2d Dept 1987], citing CPLR 4518.) Plaintiff’s evidence in that case included the office records of a treating doctor, Dr. Hyman. Although plaintiff’s counsel claimed to have subpoenaed the doctor, “[n];either the process server nor any other witness nor any affidavit of service was produced to{**43 Misc 3d at 731} verify the unavailability of Dr. Hyman.” (130 AD2d at 224.) When the records were offered into evidence, the defendant objected on hearsay grounds. As counsel noted in his objection, “I cannot cross-examine those records.” (Id. at 225.)

On defendant’s appeal from a jury verdict in plaintiff’s favor, defendant renewed his objection to the admission of the records. The Appellate Division rejected the argument. After surveying “inconsistent” rulings made by other courts, the Second Department “reaffirm[ed]; that a physician’s office records, supported by the statutory foundations set forth in CPLR 4518 (a), are admissible in evidence as business records.” (130 AD2d at 230-231.) “Similar to hospital records, it is the business and duty of a physician to diagnose and treat a patient’s illness. Therefore, entries in the office records germane to diagnosis and treatment are admissible, including medical opinions and conclusions.” (Id. at 231 [emphasis added];.)

Since the decision in Wilson v Bodian, the Second Department has not consistently followed the last part of its ruling. In some cases, it continues to hold that a doctor’s office records, including “the medical opinions contained therein,” are properly admissible as evidence if “germane to the diagnosis and treatment” of the doctor’s patient. (See Murray v Weisenfeld, 37 AD3d 432, 433 [2d Dept 2007];.)

Other decisions take a very different approach. In Wagman v Bradshaw (292 AD2d 84 [2d Dept 2002]), for example, the Court drew a distinction between admissible medical records containing the results of specified medical tests (e.g., MRIs), and subjective opinion evidence interpreting the MRI test results in “a written report prepared by a nontestifying healthcare professional.” (292 AD2d at 88.) According to the Court’s decision in Wagman, such a report would be deemed “patently inadmissible hearsay as the declarant, the preparer of the report, is unavailable for cross-examination.” (Id.)

Similarly, in Daniels v Simon (99 AD3d 658 [2d Dept 2012]), the Second Department held that the Supreme Court “correctly declined to admit into evidence various medical reports prepared by physicians who examined Deborah Daniels on behalf of her insurance carrier. The reports of these nontestifying physicians were inadmissible because the physicians were unavailable for cross-examination.” (99 AD3d at 660, citing inter alia Wagman v Bradshaw.) Without mentioning Wilson v Bodian, the Court in Daniels v Simon concluded that a medical report “is not admissible as a business record where, as here, it contains the physician’s opinion or expert proof.” (Id.)

{**43 Misc 3d at 732}Plaintiff’s proof of medical necessity in this case rests entirely upon post-IME reports, containing the treating doctor’s findings and opinions respecting the need for continued physical therapy treatments. Consequently, under the principles announced in Wagman v Bradshaw and its progeny, defendant could have objected to the submission of the reports prepared by Dr. Demetrius unless he could be cross-examined about his findings and opinions. Had defendant made such an objection in advance of trial, the parties could have obtained an in limine ruling from the court, and, depending upon the court’s ruling, they could have adjusted their presentations accordingly.

[2]; But defendant voiced no such objection. To the contrary, the post-IME records were part of a stipulated package of medical records that both sides deemed relevant to the issue at hand. In view of that stipulation, this court need not weigh in, at this time, on whether Wilson or Wagman should be followed in no-fault matters where the plaintiff offers medical record evidence of post-IME medical treatments which includes an uncalled treating doctor’s opinions. To the extent that the subject reports contain examination findings respecting Mr. Fernandez’s condition subsequent to the date of the last IME, the reports are clearly admissible as records “germane to diagnosis and treatment.” (Wilson v Bodian at 231.) To the extent the reports can be read as expressing an opinion regarding the patient’s need for additional physical therapy treatments, in the absence of objection that opinion may be weighed, along with the other evidence, in determining whether plaintiff met its burden of establishing the medical necessity of the post-IME treatments.

However, that conclusion does not end the court’s analysis. Although plaintiff’s proof of post-IME examinations by Dr. Demetrius might be enough to make out a prima facie case for medical necessity under Amato, submission of those records, without supporting testimony from Dr. Demetrius, raises a second issue, namely, whether the court should draw a negative inference from plaintiff’s decision to not call Dr. Demetrius as a witness.

Again, the court looks principally to Second Department rulings in related contexts. Although the leading cases do not involve no-fault matters, general principles announced in such cases have equal applicability to the case at bar.

Both in cases heard by the court, and in cases heard by a jury, an adverse inference may be drawn if a party fails to “call a witness who would normally be expected to support that party’s version of events.” (See Matter of Adam K., 110 AD3d 168, 176-{**43 Misc 3d at 733}178 [2d Dept 2013];.) The rationale for the rule rests on “the commonsense notion” that a party will normally call a witness who would be expected to provide testimony in the party’s favor. (See Matter of Adam K., 110 AD3d at 181.)

In cases where a party fails to call a treating doctor, an adverse inference may be drawn if the doctor is under a party’s control, and can provide relevant, noncumulative testimony regarding a patient’s condition. (See Matter of Adam K., 110 AD3d at 180, citing Zito v City of New York, 49 AD3d 872, 874 [2d Dept 2008]; see also Wilson v Bodian, 130 AD2d at 234.) Treating doctors, unlike reviewing doctors, possess “the greatest knowledge about the patient.” (Matter of Adam K. at 180.) Therefore, as a general rule, a party’s failure to call the treating doctor to give testimony on a material issue allows the court to draw an adverse inference “as to any evidence which the missing . . . witness ‘would be in a position to controvert.’ ” (Matter of Adam K. at 179, quoting Matter of Jane PP. v Paul QQ., 65 NY2d 994, 996 [1985];.)

However, the rule “may not be used to draw any inferences beyond that.” (Matter of Adam K. at 179, quoting Matter of Jane PP. v Paul QQ. at 996.) An adverse inference, by itself, “does not permit establishment of the ultimate conclusion” that must be reached in a given matter. (Matter of Adam K. at 179.)

[3]; In the instant case, the ultimate issue to be decided is whether plaintiff met its burden of establishing the medical necessity of post-IME physical therapy treatments. Although Dr. Emmanuel’s testimony respecting his October 2010 examination may have been enough to shift the burden to plaintiff to establish the necessity of the post-IME treatments in January and February 2011, plaintiff countered Dr. Emmanuel’s testimony by submitting Dr. Demetrius’s post-IME medical records. Those records not only went into evidence without objection, but, more importantly, were not rebutted by any opposing proof from defendant.

Critically, Dr. Demetrius’s monthly medical reports include detailed evaluations of the patient’s ongoing complaints, the treating doctor’s findings, and the doctor’s recommendation for continuation of physical therapy treatments. Moreover, the reports, on their faces, set forth a facially valid factual basis and medical rationale for continuing the treatments before, during, and after January 2011. Based upon the treating doctor’s opinion that Mr. Fernandez’s condition had “moderately {**43 Misc 3d at 734}improved” with physical therapy, but he was still suffering from right and left shoulder joint pain, decreased range of motion in the upper extremities, and radiating pain and paresthesia to both the upper and lower extremities, plaintiff continued to provide physical therapy treatments to Mr. Fernandez.

Unlike the circumstances presented in Amato, plaintiff’s evidence takes the case out of the realm of “speculation” regarding the patient’s post-IME condition. On the other hand, under “missing witness” principles, plaintiff’s failure to call Dr. Demetrius cannot be ignored. By not calling him as a witness to give testimony regarding his diagnosis and treatment, plaintiff avoided exposing him to cross-examination. Since he clearly was in a position to give relevant, noncumulative testimony on a contested medical necessity issue, an adverse inference arises. Plaintiff’s failure to call him therefore allows the court to infer that he would not have been able to meaningfully controvert Dr. Emmanuel’s testimony respecting the patient’s condition in September and October 2010.

But that adverse inference helps defendant only to a limited extent. At least where, as here, defendant submitted no evidence contesting plaintiff’s admissible medical record evidence respecting the patient’s condition in January and February 2011, the absence of testimony from Dr. Demetrius is not dispositive.

Conclusion

In the final analysis, defendant’s proof satisfied its burden under Amato, shifting the burden to plaintiff to demonstrate through admissible proof that the post-IME services rendered by plaintiff were medically necessary. Plaintiff satisfied that burden through submission of medical records containing findings and opinions of the treating doctor, Dr. Demetrius. The medical records document the factual basis and medical rationale for the continued post-IME physical therapy treatments. Although plaintiff’s failure to call Dr. Demetrius as a witness gives rise to a limited adverse inference, that adverse inference by itself is not enough to defeat plaintiff’s otherwise sufficient medical record proof of medical necessity.

Accordingly, judgment is rendered for the plaintiff, for the full principal amount claimed ($321.14), with interest, costs, disbursements and attorney’s fees as allowed by law.

District Court of Nassau County, First District

CV-038125-12

Law Offices of Gabriel & Shapiro, LLC, Attorneys for Plaintiff, 3361 Park Avenue, Suite 1000, Wantagh, New York,11793, 516-308-7373; Wilson, Bave, Conboy, Cozza & Couzens, P.C, Two William Street, White Plains, New York, 10601, 941-686-9010

Michael A. Ciaffa, J.

The following papers have been considered by the Court

on this motion: submitted January 30, 2014

_________________________________________________________ _______________

Papers Numbered

_____________________________________________________________ ___________

Notice of Motion, Affirmation & Exhibits Annexed………………………1 – 2

Affirmation in Opposition…………………………………………………………..3

Reply Affirmation……………………………………………………………………..4

In this action for no-fault benefits, defendant moves for an order dismissing plaintiff’s complaint, or granting defendant summary judgment, based upon a ruling by a federal judge dismissing a related personal injury claim by plaintiff’s assignor. Conflicting appellate term decisions complicate this Court’s resolution of the motion.

According to proof submitted with defendant’s motion, plaintiff’s assignor, Barbara Harvey, alleged in a federal court personal injury action that a vehicle owned by Ryder Truck Rental, Inc. (“Ryder”) ran over her left leg on January 1, 2011. Ryder moved for summary judgment on the ground that Ms. Harvey “cannot establish with any admissible evidence that [Ryder] owned the vehicle involved in [Ms. Harvey’s] accident.”Magistrate Judge Gold granted Ryder’s motion and dismissed the action. In so ruling, he noted the existence of a police report containing hearsay evidence linking the Ryder truck to the accident. The police report identified a woman who was able to provide the licence plate number of the Ryder truck. However, that woman apparently obtained her information from an unidentified male witness. [*2]

Ryder’s federal court motion included an affidavit from the vehicle’s lessee, claiming that the truck was parked and locked outside the lessee’s business throughout the date of the accident. In the face of such proof, and in the absence of submission of contrary “admissible evidence” raising “a genuine issue of material fact,” Ms. Harvey’s allegations were deemed “insufficient” to defeat Ryder’s Rule 56 motion. Harvey v John Doe and Ryder Truck Rental, Inc., 11-CV-5185, Memorandum & Order dated August 12, 2012 (EDNY).

The defendant in this no-fault case, Old Republic Insurance Company (“Old Republic”), insured Ryder respecting no-fault claims. It maintains that the federal court’s ruling collaterally estops plaintiff from seeking no-fault benefits for services provided to Ms. Harvey after the accident. Its argument proceeds on the premise that the federal court “has already ruled as a matter of law that the subject Ryder truck was not involved in the alleged January 1, 2011 automobile accident.”

Contrary to defendant’s contention, the federal court never ruled that the subject Ryder truck “was not involved” in Ms. Harvey’s accident. Rather, in a narrowly drawn decision applying federal procedural law, the court concluded that plaintiff lacked sufficient “admissible evidence” to rebut allegations made in Ryder’s Rule 56 motion. Consequently, without definitively determining whether Ms. Harvey had been struck by the Ryder truck, the court summarily dismissed her personal injury claim against Ryder under Fed.R.Civ.P. 56(a).

Nevertheless, the federal court’s decision granting summary judgment to Ryder constitutes a determination on the merits of Ms. Harvey’s claim. See Siegel, NY Practice, § 287. Merits-based summary judgment determinations, like the decision made in the federal court case, will often collaterally estop a party from pursuing related claims made in a subsequent lawsuit “based on the same foundation facts.” See, e.g. Eidelberg v. Zellermayer, 5 AD2d 658, 663 (1st Dept 1958), affd. 6 NY2d 815 (1959).

Upon closer examination, defendant’s collateral estoppel motion cannot be decided easily under these general formulations. As Judge Katherine Levine reiterated in Psychology YM, PC v Travelers Property Cas. Ins. Co., 2011 NY Slip Op 51744 (Civ Ct Kings Co.), “[t]he equitable doctrine of collateral estoppel is grounded in the facts and realities of particular litigation, rather than rigid rules.” Id., quoting Buechel v Bain, 97 NY2d 295, 303 (2001).

Psychology YM, like this case, involved a provider who had taken a no-fault assignment from a woman who was allegedly injured in an auto accident. The defendant insurer, Travelers, moved for summary judgment on grounds of collateral estoppel, based upon an earlier ruling in a trial between a different provider and Travelers. In the other action, the trial judge granted a directed verdict to defendant based upon witness testimony which established, to the trial judge’s satisfaction, that the claimant’s injuries did not arise as a result of a motor vehicle accident. Notwithstanding that verdict, Judge Levine concluded that the prior finding did not preclude plaintiff from taking its no-fault claim to trial. After expressing “grave doubts” whether any privity exists between the medical provider plaintiffs in the two actions, she noted that “the instant plaintiff had no [*3]opportunity, much less a full and fair opportunity, to appear and defend itself” in the other action. Judge Levine accordingly concluded that the plaintiff “should not be deprived of its right to litigate all issues in the instant matter, including mounting a vigorous defense to defendant’s contention that the assignee was not involved in a covered accident.”

The facts at bar are somewhat distinguishable. In Psychology YM, the two actions involved different providers who were each successors to different assigned no-fault claims from their common assignor. Here, the prior action at issue was brought by plaintiff’s assignor, herself. Nevertheless, Judge Levine’s decision sets forth a sound conceptual framework for analyzing defendant’s collateral estoppel claim, under well settled Court of Appeals precedents.

As a starting point, the Court’s decision in Psychology YM observes that collateral estoppel generally precludes the relitigation of an issue which was “actually and necessarily previously decided in a prior proceeding” against “those in privity” with a party, “regardless of whether the tribunals or causes of action are the same.” Id. (citations omitted). However, under applicable Court of Appeals precedent, “[c]ollateral estoppel is an elastic doctrine’ and the fundamental inquiry’ must be whether relitigation should be permitted in a particular case in light of what are often competing policy considerations, including fairness to the parties and the conservation of resources.” Id., quoting Staatsburg Water Co. v Staatsburg Fire Dist., 72 NY2d 147, 152 (1988). Toward that end, “a court must analyze whether the party sought to be bound and the party against whom the litigated issue was decided have a relationship that would justify preclusion, and whether preclusion, with its severe consequences, would be fair under the particular circumstances. Doubts should be resolved against imposing preclusion to ensure that the party to be bound can be considered to have had a full and fair opportunity to litigate.” Id. quoting Buechel v Bain, supra, 97 NY2d at 304-5.

Furthermore, in order for collateral estoppel to apply in the context of an assignor-assignee relationship, the proponent of collateral estoppel must demonstrate that privity “must have arisen after the event out of which the estoppel arises.” Id., quoting Gramatan Home Investors Corp v Lopez, 46 NY2d 481, 486 (1979)(“Gramatan“). Under this formulation of the Court’s “privity” doctrine, where an assignee’s succession to the rights of its assignor takes place “prior to the institution of suit against the assignor,” the assignee will not be bound by a judgment rendered in the other lawsuit. Id., quoting Gramatan.

Both before and after the decision in Psychology YM, appellate courts have applied a similar analytical framework to collateral estoppel claims by no-fault insurers. In cases where no-fault benefits are assigned before the commencement of litigation involving the health provider’s assignor, and no attempt is made to name or serve the provider in the other litigation, appellate courts in both the First and Second Department have squarely rejected arguments that the outcome of the other case should be deemed [*4]binding upon the provider. See, e.g. Ideal Med. Supply v Mercury Cas. Ins. Co., 39 Misc 3d 15 (App Term 1st Dept, 2013); Magic Recovery Med. & Surg. Supply Inc. v State Farm Mut. Auto. Ins. Co., 27 Misc 3d 67 (App Term 2d Dept, 2010).

In Ideal Med. Supply, for example, a medical provider’s assignor was named a party to a prior declaratory judgment action which “resulted in a declaration that defendant [insurer] was entitled to deny all no-fault claims arising from injuries allegedly sustained by plaintiff’s assignor.” Following entry of that declaratory judgment, the insurer moved for summary judgment dismissing a plaintiff medical provider’s no-fault claim on grounds of collateral estoppel. The Appellate Term affirmed an order denying the motion. Its decision explained: “Since the plaintiff medical provider was not a party to the declaratory judgment action it is not bound by the Supreme Court’s determination, as it did not have a full and fair opportunity to contest the issues in that proceeding.” 39 Misc 3d at 16, citing Gilberg v Barbieri, 53 NY2d 285, 291 (1981). Furthermore, “[a]lthough plaintiff’s assignor was a named party in the prior action, plaintiff cannot be deemed to be in privity with its assignor, since the declaratory judgment action was commenced after the assignment.” Id., citing Gramatan.

Similarly, Magic Recovery involved assigned claims for no-fault benefits by a medical supply company which had provided medical equipment to its assignors following two automobile collisions. Nearly two years after plaintiff had submitted its no-fault claims, defendant obtained declaratory judgments, on default, against plaintiff’s assignors, upon “proof that the incidents were staged to defraud defendant.” 27 Misc 3d at 68. Notwithstanding the entry of these default judgments against plaintiff’s assignors, a majority of the Appellate Term, Second Department, denied the insurer’s motion for summary judgment on grounds of collateral estoppel.

Over the dissent of Justice Golia, the majority explained: “Plaintiff herein was neither named nor served in the declaratory judgment actions nor, at the time, was it in privity with someone who was, and plaintiff otherwise had no full and fair opportunity to appear and defend its interests in those proceedings. Accordingly, the judgments do not collaterally estop plaintiff from recovering in this action.” 27 Misc 3d at 69, citing inter alia Gramatan.

In contrast to these rulings, in at least one recent decision the Appellate Term, Second Department, dismissed a medical provider’s claim for no-fault benefits based on a verdict rendered in a lawsuit by plaintiff’s assignor. Triboro Quality Med. Supply, Inc v State Farm Mut-Auto Inc. Co., 2012 NY Slip Op 51289 (App Term, 2d Dept). The jury’s verdict in that lawsuit “determined that the vehicle of defendant’s insured never made contact’ with plaintiff’s assignor.” According to the Appellate Term’s decision, the issue decided by the jury in the earlier personal injury action was “identical” to the issue in the [*5]no-fault case of whether the assignor’s injuries arose “out of an insured incident.” Thus, the earlier determination demonstrated that plaintiff “was ineligible to receive reimbursement of no-fault benefits because the assignor’s injuries did not result from an insured incident.”

The decision in Triboro cannot be readily reconciled with the decisions in Magic Recovery and Ideal Med. Supply. In the latter cases, the appellate courts’ decisions conclude that the provider and its assignor were not in sufficient “privity” with each other, and that the provider had not been afforded a full and fair opportunity to contest the issue presented in the prior action. However, in Triboro, the court assumes sufficient privity between the provider and its assignor by virtue of the assignment. The decision in Triboro also includes an implicit finding that the provider failed to meet its “burden of establishing the absence of a full and fair opportunity to litigate” whether the insured vehicle made contact with its assignor.

Viewed realistically, Triboro may signal an inclination to follow the views expressed by Justice Golia in his dissent in Magic Recovery . In Justice Golia’s opinion, concepts of privity, as applied in Court of Appeals decisions (e.g. Gramatan), have little relevance to no-fault claims. 27 Misc 3d at 72-3. Furthermore, given the statutory and regulatory scheme closely tying the rights of a person injured in an accident to the rights of a provider seeking payment for medical services pursuant to an assignment from that person, Justice Golia contended that “the medical provider and the eligible injured person are so inextricably connected to each other and to the creation of the claim at issue, that the actions of one must be referable to the legal position of the other.” 27 Misc 3d at 75.

Since the decision in Triboro, however, the Appellate Term, Second Department has continued to cite and follow Magic Recovery without citing or mentioning its contrary Triboro ruling. See, e.g. Smooth Dental, PLLC v Preferred Mutual Ins. Co., 37 Misc 3d 67 (App Term 2d Dept, 2012). On the other hand, Triboro has not been cited by any court. And while Justice Golia’s dissent in Magic Recovery was referenced in the concurring opinion of Justice Schoenfeld in Ideal Med. Supply, that concurring opinion concluded that the court was “compelled to adhere to the rule set forth in Gramatan without a signal to the contrary from a higher appellate authority.” 39 Misc 3d at 17.

In these circumstances, the decision in Triboro, considered together with Justice Golia’s dissent in Magic Recovery, certainly warrant careful consideration. However, absent clarification from the Appellate Term, Second Department, the majority opinion in Magic Recovery still controls this Court’s analysis. On balance, based upon this Court’s reading of the leading Court of Appeals decisions, and the careful analytical framework outlined by Judge Levine in Psychology YM, PC v Travelers Prop. Cas. Ins. Co., this Court concludes that plaintiff’s claim in this case ought to be tried on the merits.

Notwithstanding the federal court decision dismissing the assignor’s personal [*6]injury claim against Ryder Truck Rental, this Court accordingly holds that plaintiff is not collaterally estopped by that ruling from pursuing its independent no-fault claim against the defendant insurer, Old Republic. In light of the Court of Appeals’ decision in Gramatan Home Investors Corp v Lopez, supra, the plaintiff provider in a no-fault case should not be deemed in “privity” with its assignor. Furthermore, as Justice Schoenfeld notes his concurring opinion in Ideal Med. Supply v Mercury Cas. Ins. Co., supra, “[c]onsiderations of due process prohibit binding a party to the result of an action in which that party has not been given an opportunity to be heard.” The Court therefore declines to follow Triboro, and instead adheres to the contrary rulings in Magic Recovery and Ideal Med. Supply.

Defendant’s motion is accordingly DENIED.

So Ordered:

District Court Judge

Dated: February 18, 2014

cc:Wilson, Bave, Conboy, Cozza & Couzens, PC

Law Offices of Gabriel & Shapiro, LLC

[*1]

District Court of Nassau County, First District, December 24, 2013

APPEARANCES OF COUNSEL

Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuwirth, Garden City, for plaintiff. Stern & Montana, LLP, New York City, for defendant.

{**42 Misc 3d at 852} OPINION OF THE COURT

Michael A. Ciaffa, J.

Defendant Allstate insured a vehicle owned by a nonparty, Narciso E. Mestanza. On July 30, 2010, the insured vehicle was involved in an auto accident.

Plaintiff, Medical Select, P.C., provided medical services to three individuals who were injured in the accident. Following plaintiff’s submission of timely assigned claims for no-fault benefits, defendant Allstate denied plaintiff’s claims. It did so on the ground that plaintiff’s assignors had not submitted a required written notice within 30 days of the accident date. The validity of that late notice defense was the sole issue submitted for trial.

Regulatory Background

In pertinent part, applicable no-fault regulations provide that “[n]o action shall lie” against an insurer for no-fault benefits unless certain “condition[s] precedent” are satisfied (see 11 NYCRR 65-1.1 [d] [CONDITIONS]). They include two “independent” notice requirements: (1) receipt of “written notice . . . given by, or on behalf of, each eligible injured person” regarding “the time, place and circumstances of the accident,” and (2) receipt of written “proof of claim” for health services expenses from “the eligible injured person or that person’s assignee or representative.” (See New York & Presbyt. Hosp. v Country-Wide Ins. Co., 17 NY3d 586, 589-590 [2011], quoting 11 NYCRR 65-1.1 [d] [CONDITIONS].) The two notice requirements are “separate and distinct.” (New York & Presbyt. Hosp. v Country-Wide Ins. Co. at 590.) Failure to satisfy either one can justify denial of a provider’s claim. (Id.)

Different time limits apply to each requirement. First, the written “notice of [*2]accident” requirement generally mandates submission of that notice “as soon as reasonably practicable, but in no event more than 30 days after the date of the accident.” (See 11 NYCRR 65-1.1 [d] [CONDITIONS].) The “proof {**42 Misc 3d at 853}of claim” requirement, in turn, generally mandates submission of a no-fault claim by the provider “as soon as reasonably practicable but, in no event later than 45 days after the date services are rendered.” (See id.)

The current time limits for submission of no-fault claims were enacted in 2001, when the former time limits were drastically reduced. (See New York & Presbyt. Hosp. v Country-Wide Ins. Co.; see also Hempstead Pain & Med. Servs., P.C. v General Assur. Co., 13 Misc 3d 980 [Suffolk Dist Ct 2006].) “Specifically, the notice of accident requirement was reduced from 90 days to 30 days, and the time to provide proof of claim was reduced from 180 days to 45 days . . . in order to, among other things, prevent the fraud and abuse . . . linked to the lengthy time frames.” (New York & Presbyt. Hosp. v Country-Wide Ins. Co. at 591.) At the same time, however, the standards for excusing late filings were “relaxed” to allow for consideration of “bona fide claims which were subject to bureaucratic delay or mishap” or other “reasonable excuse” for a delay. (See Hempstead Pain & Med. Servs., P.C. v General Assur. Co. at 983.)

Accordingly, under presently applicable regulations, both time limits are subject to a significant “safety valve” provision. (See Long Beach Med. Ctr. v Landmark Ins. Co., 2012 NY Slip Op 33546[U], *3 [Nassau Dist Ct 2012].) Pursuant to the plain wording of the current regulation (11 NYCRR 65-3.3 [e]),

“[w]hen an insurer denies a claim based upon the failure to provide timely written notice of claim or timely submission of proof of claim by the applicant, such denial must advise the applicant that late notice will be excused where the applicant can provide reasonable justification of the failure to give timely notice.”

Furthermore, an insurer must “establish standards for review of its determinations that applicants have provided late notice of claim or late proof of claim” and must do so “based upon objective criteria.” (11 NYCRR 65-3.5 [l].)

Other provisions in the regulations serve to facilitate the insurer’s receipt of timely written notice “[w]henever the insurer receives notice of claim by telephone” (11 NYCRR 65-3.4 [a]). The insurer in such a case “shall request the name, address and telephone number of the applicant . . . along with reasonably obtainable information regarding the time, place and circumstances of the accident which will enable the insurer to begin processing the claim.” (Id.) Upon receipt of such information, {**42 Misc 3d at 854}the insurer must send out no-fault application forms (NF-2) to potential claimants, and if the forms are not returned within 30 days of the date of the original mailing, it must follow up by sending the forms a second time (see 11 NYCRR 65-3.4 [b]; 65-3.6 [a]).

The latter requirement obviously contemplates the frequent submission and consideration of late claims from injured parties. When considered together with the “safety valve” provision requiring late notice advisories and the application of objective standards for consideration of late claims, the current regulations strike a careful balance [*3]between the general time limits for claim submissions and the need for individualized consideration of injured parties’ late claims for no-fault benefits.

Facts Adduced at Trial

According to the proof adduced at trial, Allstate initially received notice of the accident from its insured within one week of the accident date. It was apparently advised, at that time, that three other individuals (plaintiff’s assignors) had been injured in the accident.

In accordance with applicable no-fault regulations (11 NYCRR 65-3.4 [b]), Allstate thereupon mailed out blank NF-2 applications for no-fault benefits to the three individuals on August 8, 2010. No responses were received within the first 30 days after the mailings.

The following month, on September 7, 2010, Allstate once again mailed out blank NF-2 applications for no-fault benefits to the same three individuals. This time, all three filled the forms out, listing details of the accident and their injuries. All three signed the forms, each one dated September 20, 2010. Allstate received the forms approximately two weeks later, on October 5 and 6, 2010.

Following receipt of the signed NF-2s, Allstate took no immediate steps to advise plaintiff’s assignors that their NF-2s had been submitted too late, nor did it advise them that a late submission could be excused. Instead, it was not until Allstate began receiving assigned claims from the plaintiff provider that it first asserted, in its timely denials of the provider’s claims, that it was refusing to pay for necessary treatments due to the assignors’ failure to give written notice to defendant within 30 days of the accident.

Each of the denials includes the following explanation:

“Claim denied for failure to comply with written {**42 Misc 3d at 855}notice requirement. Notice must be given as soon as reasonably practicable, but in no event more than 30 days after the accident date, unless the eligible injured person submits written proof providing clear and reasonable justification for failure to comply with such time limitation.”

Using almost identical language, the denials added: “reasonable justification not proven, for proof of claim. [T]herefore claim is denied.”

Discussion

Defendant’s proof at trial rests principally upon the undeniable fact that the NF-2s from plaintiff’s assignors were not received within 30 days of the accident date (July 30, 2010). The NF-2s, in fact, were received in early October 2010—approximately five weeks too late. No explanation for the delay was provided by plaintiff’s assignors as part of their late NF-2 submissions. Nor does plaintiff offer any excuse or explanation as part of the proof adduced at trial.

Nevertheless, it remains defendant’s burden to establish its late notice defense in accordance with the regulations governing consideration of late claims. In order for defendant to establish such a defense, it must necessarily prove that the denials “contain[ed] the required advisement” that late notice “will be excused where the applicant can provide reasonable justification of the failure to give timely notice.” (See SZ Med. P.C. v Country-Wide Ins. Co., 12 Misc 3d 52, 55 [App Term, 2d Dept, 2d & 11th Jud Dists 2006].) In SZ Med., the Appellate Term held, in a case involving late claims by a provider, that the insurer “waived reliance on the 45-day rule as a basis to deny the claims” where the insurer “points to no portion of its claim denial forms which contain the required advisement.” (Id.) Although the instant case involves the different and independent 30-day time limit for submission of a written notice from an accident victim, the late notice advisory regulation applies equally to both time limits. It follows, therefore, that the principles applied in SZ Med. apply equally in cases, like this one, where late notice of an accident is received from an injured party. Consequently, this court holds that an insurer cannot prevail on such a late notice defense unless it proves that it satisfied its own obligations by providing the injured party with the required late notice advisory (11 NYCRR 65-3.3 [e]).

On the other hand, it is equally clear from case law decisions that the late notice advisory regulation “does not mandate . . . {**42 Misc 3d at 856}specific mandatory language.” (Hempstead Pain & Med. Servs., P.C. v General Assur. Co. at 982.) Rather, the regulation, “reasonably interpreted,” requires “only that the claimant be apprised that a late claim denial is not necessarily final and is subject to being given an opportunity to demonstrate a reasonable justification for delay.” (Id.) Applying the latter interpretation, Judge Hackeling’s well reasoned decision found “no violation” of the regulation where the insurer’s denial stated “if there is any additional information you wish to submit, we may reconsider our position.” (Id. at 981, 983.)

Unlike the circumstances presented in SZ Med. P.C. v Country-Wide Ins. Co., the insurer’s denials include language which partially tracks the language of 11 NYCRR 65-3.3 (e). However, on balance, the court concludes that the language employed fails to substantially satisfy the requirements of this section. At the very least, a valid denial must include some language indicating that the claimant “may submit additional information (such as justification for delay) and that reconsideration is possible.” (Hempstead Pain & Med. Servs., P.C. v General Assur. Co. at 982.) The denials, here, fail to do so.

Reasonably read, the insurer’s denials in this case merely pay lip service to the requirement that the applicant be advised that late notice “will be excused” upon submission of a “reasonable justification” for the late submission. Instead of containing the required advisory, the denials simply present a fait accompli conclusion that “reasonable justification” was “not proven.” Although plaintiff’s assignors were copied on the denials, they were never specifically advised, in the denials or otherwise, that they could or should submit additional information explaining why the NF-2 forms were submitted more than 30 days after the accident.

Allowing an insurer to issue denials like these, as a means of avoiding otherwise valid claims, seems fundamentally unfair and contradicts both the letter and intent of the rules governing late no-fault claims. This court has found nothing in the applicable case law which would authorize such a circumvention of the no-fault regulations. Simply stated, the regulations, as a whole, contemplate meaningful efforts by the insurer to give [*4]notice to applicants of their right to provide a reasonable explanation for any late notice.

While the regulations do not require an insurer to give immediate notice to accident victims of their ability to submit facts explaining or justifying the late submission of written notice of the accident, the regulations unambiguously provide{**42 Misc 3d at 857}

“[w]hen an insurer denies a claim based upon the failure to provide timely written notice of claim or timely submission of proof of claim by the applicant, such denial must advise the applicant that late notice will be excused where the applicant can provide reasonable justification of the failure to give timely notice.” (11 NYCRR 65-3.3 [e] [emphasis added].)

Consequently this court holds that the insurer must scrupulously respect the safety valve provisions of the regulations, and give explicit notice in any denial on grounds of late notice that a “late claim denial is not necessarily final” and will be reconsidered if the applicant submits “reasonable justification” for the delay. (Cf. Hempstead Pain & Med. Servs., P.C. v General Assur. Co. at 982.)

In the case at bar, such “explicit notice” is lacking. Moreover, defendant’s trial proof did not demonstrate that it had established “standards for review” of late claims, or that it had established “procedures, based upon objective criteria, to ensure due consideration of denial of claims based upon late notice or late submission of proof of claim.” (11 NYCRR 65-3.5 [l].)

When these shortcomings are considered together with the absence of “explicit notice” to the applicants of the need for a “reasonable explanation” for their delay, the court concludes, on balance, that defendant’s proof at trial falls short of the proof required to make out a “late notice of accident” defense.

Accordingly, defendant’s late notice defense is rejected, on the law and the facts. In the absence of proof that defendant’s denials included explicit notice to the applicants that their late claims could be excused upon submission of a reasonable explanation for the delay, defendant cannot maintain that a “condition precedent” for no-fault coverage was breached. (Cf. Jersey Rehab PA, P.C. v IDS Prop. Cas. Ins. Co., 39 Misc 3d 1218[A], 2013 NY Slip Op 50652[U] [Nassau Dist Ct 2013].) Therefore, plaintiff is awarded judgment on its claims for no-fault benefits, as requested in its complaint.

[*1]

District Court of Nassau County, First District, September 26, 2013

APPEARANCES OF COUNSEL

McCormack & Mattei, P.C., for defendant. Baker, Sanders, LLC, for plaintiff.

{**41 Misc 3d at 997} OPINION OF THE COURT

Fred J. Hirsh, J.

Defendant moves for summary judgment dismissing this action to obtain payment of first-party no-fault benefits.

Background

Garden State Anesthesia Associates, PA (GSAA) provided anesthesia services to Angela Gowan-Walker on March 8, 2011, March 29, 2011, April 12, 2011 and June 7, 2011. GSAA took an assignment of benefits from Gowan-Walker and submitted its claims for payment to defendant Progressive Casualty Insurance Company. Progressive acknowledged receipt of the claims for services provided as follows: (1) March 8, 2011 on April 27, 2011; (2) March 29, 2011 on May 9, 2011; (3) April 12, 2011 on May 23, 2011; and (4) June 7, 2011 on July 5, 2011. Progressive has not paid or denied any of these claims.

By letter dated May 4, 2011, Progressive advised GSAA its claim for services provided on March 8, 2011 was being delayed pending Gowan-Walker appearing for an examination under oath (EUO).

Even though Gowan-Walker appeared for an examination under oath on May 27, 2011, Progressive issued a follow-up letter to GSAA dated June 6, 2011 advising GSAA its claim for services provided on March 8, 2011 was being delayed pending Gowan-Walker appearing for an examination under oath.

Progressive sent a letter dated June 17, 2011 to GSAA advising GSAA processing of its claim for medical services provided on March 8, 2011 was being delayed pending receipt of medical records from Garden State Pain Management, Dr. David Brizer, Dr. Rajan Gulati, Dr. Moinhuddin Ahmed, Dr. Jennifer Heinze, Dr. Ralph Bowman, and Dr. Minesh Patel; the complete workers’ compensation file from the workers’ compensation carrier who had paid workers’ compensation benefits to Gowan-Walker in connection with a February 14, 2009 accident; the complete workers’ compensation file from the workers’ compensation carrier who had paid Gowan-Walker with workers’ compensation benefits for a March 22, 2006 accident; the complete injury and treatment records for an April 28, 2011 loss with GEICO; and{**41 Misc 3d at 998} the complete no-fault file from GEICO relating to the April 28, 2011 loss.

Progressive sent a follow-up notice to GSAA dated July 20, 2011 advising GSAA review of its claim for services provided on March 8, 2011 was still being delayed because the information and documentation referenced above had not yet been received.

Progressive sent letters identical to the June 17, 2011 and July 20, 2011 letters to GSAA regarding the claims submitted for services on March 29, 2011, April 12, 2011 and June 7, 2011. The letters relating to the March 29, 2011 and April 12, 2011 claims are dated June 17, 2011 and July 20, 2011. The letters relating to the June 7, 2011 claim are dated July 14, 2011 and August 17, 2011.^[FN1]

The papers do not reflect what information Progressive was able to obtain from the aforementioned medical providers and/or when the medical providers furnished Progressive with the requested information or documentation.

On June 23, 2011, Progressive sent a letter to Gowan-Walker’s attorney copied to Gowan-Walker advising them processing of her no-fault claim was being delayed pending receipt of the records from the abovementioned medical providers and the workers’ compensation files relating to Gowan-Walker’s March 22, 2006 and February 14, 2009 incidents and receipt of the no-fault file relating to Gowan-Walker’s April 28, 2011 motor vehicle incident. This letter also requested Gowan-Walker sign authorizations authorizing Progressive to obtain the files relating to the workers’ compensation matters and April 28, 2011 motor vehicle accident.

By letters dated September 14, 2011, October 20, 2011, December 2, 2011 and January 18, 2012 addressed to Gowan-Walker’s attorney and copied to Gowan-Walker, both were advised Progressive’s processing of Gowan-Walker’s no-fault claim was being delayed because Progressive had not yet received the workers’ compensation files relating to Gowan-Walker’s March 22, 2006 and February 14, 2009 incidents, the no-fault file relating to Gowan-Walker’s April 28, 2011 motor vehicle accident, and an authorization signed by Gowan-Walker authorizing release of those records.{**41 Misc 3d at 999}

None of the aforementioned letters sent by Progressive to Gowan-Walker or her attorney were copied to GSAA.

Progressive has never requested any verification or information directly from GSAA regarding its claims.

Discussion

An insurer must pay or deny a no-fault claim within 30 days of receipt unless its time to pay the claim is tolled or extended. (11 NYCRR 65-3.8 [a], [c].)

An insurer has 15 business days from receipt of a claim to request verification. (11 NYCRR 65-3.5 [b].) If an insurer does not receive the requested verification within 30 days of the original request, the insurer must, within 10 calendar days, issue a follow-up verification request to the party from whom verification is requested. (11 NYCRR 65-3.6 [b].)

An insurer does not have to pay or deny a claim until it receives all timely requested verification. (St. Barnabas Hosp. v American Tr. Ins. Co., 57 AD3d 517 [2d Dept 2008]; New York & Presbyt. Hosp. v Allstate Ins. Co., 31 AD3d 512 [2d Dept 2006].)

Where the verification requested is an examination under oath, the verification is deemed to have been received on the day the EUO was conducted. (11 NYCRR 65-3.8 [a].)

The EUO of Gowan-Walker was conducted on May 27, 2011. Therefore, Progressive had 30 days from that date to pay or deny GSAA’s claims unless its time to pay or deny the claims was otherwise tolled or extended.

Actions brought before an insurer has received all timely requested verification are premature and are subject to dismissal. (St. Vincent Med. Care, P.C. v Country Wide Ins. Co., 80 AD3d 599 [2d Dept 2011]; All Boro Psychological Servs., P.C. v Allstate Ins. Co., 38 Misc 3d 134[A], 2013 NY Slip Op 50069[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2013].)

Issuance of a delay letter that does not request verification does not toll the statutory time in which a claim must be paid or denied. (Parsons Med. Supply, Inc. v Progressive Northeastern Ins. Co., 36 Misc 3d 148[A], 2012 NY Slip Op 51649[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]; Points of Health Acupuncture, P.C. v Lancer Ins. Co., 28 Misc 3d 133[A], 2010 NY Slip Op 51338[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2010].)

The purpose of verification is to permit the carrier to obtain and review all information relevant and appropriate to a claim{**41 Misc 3d at 1000} submitted by the provider so the carrier can determine if the claim should be paid or denied in whole or in part. (See Fair Price Med. Supply Corp. v Travelers Indem. Co., 10 NY3d 556 [2008]; 11 NYCRR 65-3.5 [b].)

Verification should be requested only when there is a good reason to do so and should be done as expeditiously as possible. (11 NYCRR 65-3.2 [c].)

The term “verification” is not defined by the no-fault regulations. The appellate courts have not provided a workable definition of verification or a clear statement of what information or documentation can be obtained by verification. The no-fault regulations and case law do not clearly establish whether the carrier obtains an extension of time to pay a claim of all no-fault claims when there is any outstanding verification or whether the extension can be obtained if the requested verification is relevant or related to the specific claim.

A reading of the transcript of the EUO indicates much of the information sought relates to treatment provided to Gowan-Walker by doctors who were treating her for migraines and Multiple Sclerosis. GSAA provided anesthesia for diagnostic and therapeutic nerve blocks and injections.

In order to obtain a toll or extension to pay a no-fault claim because of outstanding verification, the information requested must have some rational or reasonable relationship to the specific provider’s claim. In some cases, the relationship between the requested verification and the claimant’s claim is obvious, e.g. requests for medical records for the treatment in question, letters of medical necessity for the testing or treatment, copies of X ray or MRI films or test results. In other cases, such as this one, the relationship between the requested verification and the claim is not apparent. In such cases, in order to obtain the extension of time to pay or deny the claim the insurer must offer some explanation regarding the nexus or relationship between the requested verification and the claim being reviewed.

An insurer does not obtain an extension of time to pay a no-fault claim when the verification requested and outstanding is not related or relevant to the insurer’s review and evaluation of the specific provider’s claim. Otherwise, an insurer could obtain a toll or extension of time to pay any no-fault claim by requesting verification from all providers or claimants and then not paying or denying the claim until all verification, related or unrelated to the specific claim, had been received. Permitting an{**41 Misc 3d at 1001} insurer to obtain a toll or extension of time to pay a no-fault claim until it receives verification that is unrelated and irrelevant to the insurer’s evaluation of the specific claim would be contrary to the stated purpose of the no-fault law which is to insure prompt payment of claims for medical treatment provided to motor vehicle accident victims regardless of fault. (LMK Psychological Servs., P.C. v State Farm Mut. Auto. Ins. Co., 12 NY3d 217 [2009]; Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co., 9 NY3d 312 [2007]; 11 NYCRR 65-3.2 [a].)^[FN2]

The lack of merit of Progressive’s position can be gleaned from the affirmation of Progressive’s counsel that states “Defendant’s motion for Summary Judgment should be granted in its entirety as the medical services provided were not medically necessary as well as the assignor never had durable medical equipment delivered” even though medical necessity is not in issue in this action and the action does not involve durable medical supplies.

This court questions how information relating to an April 28, 2011 motor vehicle accident can be relevant to the evaluation of claims submitted for treatment provided on March 8, March 29 and April 12, 2011.

Questions of fact exist as to whether the letters which Progressive relies upon are verification requests or delay letters. The letters advise GSAA that Progressive is seeking information. However, the letters do not request any specific information or documentation from GSAA regarding or relating to its claims. These letters appear to be advising GSAA that payment of its claims will be delayed until the information requested from other medical providers and other insurers, some of which has no apparent relationship to GSAA’s claims, has been received. Nothing in these letters or defendant’s papers indicates how the information requested is related or relevant to Progressive’s evaluation of GSAA’s claims. The court could find these letters are delay letters, not verification requests.

For the foregoing reasons, defendant’s motion for summary judgment is denied.

Footnotes

Footnote 1: All of the letters sent by Progressive to GSAA state the claims are being denied on the grounds the fees are not in accordance with the no-fault fee schedule. However, the letters do not indicate how the fees in question deviate from the permissible fees. Progressive does not assert fee schedule as a basis for granting summary judgment.

Footnote 2: If a person sustains both orthopedic and dental injuries in the same motor vehicle accident, the insurer should not obtain a toll or extension of time to pay the claims of providers who are treating the injured party for the orthopedic injuries while awaiting verification of the claims for dental injuries unless there is a demonstrated relationship between the dental and orthopedic injuries.

District Court of Nassau County, First District

CV-002143-03

Werner, Zaroff, Slotnick, Stern & Ashkenazy, LLP

Attorneys for Plaintiff

360 Merrick Road

Lynbrook, New York 11563

516-568-1850

Rivkin Radler LLP

Attorneys for Defendant

926 RXR Plaza

Uniondale, New York

516-357-3000

Michael Ciaffa, J.

New York’s no-fault scheme is designed to encourage the prompt resolution of no-fault claims. Toward that end, courts have the power and duty to apply the law in a manner consistent with that broad objective.

This ten year old case places the issue in sharp focus. Over the past several years, defendant, State Farm Mutual Automobile Ins. Co., has been stymied in its efforts to obtain a final resolution of the subject claim and related matters. The death of plaintiff’s sole shareholder in 2008 has compounded the difficulty of moving the case forward. [*2]What, if anything, can a court do, when the sole owner of a PC dies, and no one has the present authority to pursue a pending claim?

As demonstrated below, the law allows two possible remedies. First, the defendant can seek dismissal under CPLR 1021, by showing that the representatives of the deceased doctor’s estate have failed to obtain de facto authority to pursue the PC’s claims within a reasonable time after the doctor’s death. Second, it can request an order retroactively denying plaintiff’s right to obtain statutory interest upon the claim (see Ins. L. 5106[a]), based upon proof of unreasonable delay (see 11 NYCRR §65-3.9[d]).

With regard to the first potential remedy, State Farm moves for an order dismissing plaintiff’s complaint pursuant to CPLR 1021, due to plaintiff’s “failure to make timely substitution for the plaintiff whose sole shareholder is deceased” (affirmation of Glen Egor, Esq. in support of defendant’s motion). Plaintiff, through its attorney, opposes the motion.

As the court file shows, this no-fault action was filed more than ten years ago, in January, 2003. Apart from the filing of an answer, the matter has not progressed. On November 7, 2008, plaintiff’s sole shareholder and owner (Robert Hard, M.D.) passed away. Nearly five years have elapsed since Dr. Hard’s death. Since then, this case and related matters have been in limbo. Despite the passage of many years, “an administrator has yet to be appointed to manage his estate” (affirmation of Hymen S. Ashkenazy, Esq., in opposition to defendant’s motion, ¶3).

In a series of previously issued motion decisions, judges in the civil parts of this Court have consistently denied motions by defendant, State Farm, seeking dismissal of plaintiff’s no-fault actions on various grounds, which have included arguments for dismissal made pursuant to CPLR 3404 (dismissal of abandoned cases), CPLR 3216 (want of prosecution), or CPLR 3126 (penalties for refusal to disclose). In at least two of those decisions, this Court concluded that defendant could seek to protect its rights by moving to dismiss under CPLR 1021 (see North Queens Medical, P.C. v State Farm Ins. Co., index nos. 2143/03 and 30310/02, orders dated January 25, 2011). Likewise, in a different case involving the plaintiff and Nationwide Insurance Co., another judge of the District Court concluded that “dismissal pursuant to CPLR 1021 is permissible” (see North Queens Medical, P.C. v Nationwide Ins. Co., index no. 10974/03, decision dated December 21, 2010 [Chaikin, J]). Defendant’s current motion accordingly seeks dismissal pursuant to the latter provision.

At the outset, the Court reiterates its opinion that CPLR 1021 can be applied to a case like this one. When the language of CPLR 1021 is read together with related provisions in article 10, it clearly provides that the “successors or representatives” of a party may move for “substitution” in cases involving a party’s death (see CPLR 1015), or upon “any transfer of interest” of a party’s rights (see CPLR 1018).

As a practical matter, in cases where a PC’s sole shareholder dies, the PC “is [*3]powerless to continue prosecuting its claims” until “someone with authority” is appointed to proceed with the litigation (see Eastern Star Acupuncture, PC v Allstate Ins. Co., 36 Misc 3d 41, 42 [App Term 2d Dept, 2012]). When such an appointment is made, it effectively constitutes a de facto substitution of an estate representative in the place of the deceased shareholder for the purpose of allowing pending cases to move toward conclusion. Consequently, this Court believes that the death of a PC’s sole shareholder may be deemed “an event requiring substitution” (CPLR 1021). While such a de facto substitution allows the action to continue in the name of the PC, it serves the same purpose as an order substituting an estate for a deceased party, or an order substituting a successor party upon a transfer of a party’s interest in a given claim.

It follows that if such a de facto substitution is not made within a reasonable time, “the action may be dismissed…” (CPLR 1021). To hold otherwise would unduly limit the Court’s ability to bring matters like this to final conclusion. Since the CPLR should be “liberally construed to secure the just, speedy and inexpensive determination of every civil judicial proceeding” (CPLR 103), the Court holds that dismissal is, indeed, an authorized remedy in cases where the representatives of a deceased doctor’s estate have failed to obtain de facto authority to pursue the PC’s claims within a reasonable time after the doctor’s death.

On the other hand, a decision to dismiss the matter on such grounds ordinarily requires a compelling showing of unreasonable and prejudicial delay. In cases involving a party’s death, the courts “have shown relative liberality” in applying the “reasonable time” provision of CPLR 1021, “presumably because of the normal delays that can arise in connection with the process of having a personal representative appointed” (see Vincent C. Alexander’s Practice Commentary to McKinney’s CPLR, at C1021:1). Nevertheless, “the time to effect proper substitution should not extend indefinitely” (id., quoting Silvagnoli v Consolidated Edison Employees Mutual Aid Society, 112 AD2d 819).

In arguing for dismissal under the latter line of cases, defendant contends that “[m]ore than a reasonable time has elapsed since the death of the plaintiff’s sole shareholder” and that “no motion for substitution has been made by any person interested in the estate of the deceased plaintiff” (affirmation of Glen Egor, Esq. in support of defendant’s motion). However, in its papers opposing dismissal under CPLR 1021, plaintiff’s attorney avers that proceedings in the Surrogate’s Court are currently ongoing, and that the Queens County Surrogate “is in the process of appointing a public administrator to oversee the estate of Dr. Hard”(affirmation of Hyman S. Ashkenazy, Esq., in opposition, ¶4).

In view of that ongoing process, and in the absence of more detailed information respecting the current status of those efforts, defendant’s request for dismissal pursuant to CPLR 1021 is DENIED, without prejudice to renewal upon further proof of unreasonable delay. While the delays at the Surrogate’s Court are regrettable, they are beyond this [*4]Court’s power to address. Moreover, based upon plaintiff’s counsel’s representation, it appears that some efforts are currently being undertaken to resolve the estate matter. Consequently, notwithstanding the five year delay since the date of Dr. Hard’s death, the Court would not be inclined to dismiss the matter at this time.

In any event, before a dismissal may be ordered under CPLR 1021, “persons interested in the decedent’s estate” must be afforded an opportunity to “show cause” why the action should not be dismissed (CPLR 1021). Defendant’s moving papers do not identify such persons, nor do they seek an order directing service of the motion upon them. For this reason as well, the motion to dismiss under CPLR 1021 is DENIED without prejudice.

Since the request for dismissal is being denied in deference to the Surrogate’s primary authority over the affairs of the Estate of Dr. Hard, the Court further concludes that all proceedings in this action should be stayed (CPLR 2201), as requested by plaintiff’s counsel, until such time as the Surrogate appoints an administrator of Dr. Hard’s estate (see e.g. North Queens Medical, P.C. v Allstate Ins. Co., index no. 07377/03, order dated December 17, 2010 [Dist Ct Nassau Co.]). In issuing such a stay, however, the Court has the authority to impose “such terms as may be just” (CPLR 2201).

Under the unusual circumstances presented, defendant persuasively argues that the Court should “stay the accrual of interest in this matter retroactively” (reply affirmation of Glen Egor, Esq.). In view of the ten year history of this matter, and in the absence of proof of diligent efforts by plaintiff’s counsel to move the matter forward, the Court believes it would be extremely unfair and prejudicial to defendant to allow plaintiff’s no-fault claim to accrue ten years’ worth of interest after the date the lawsuit was commenced. As the parties are well aware, overdue no-fault claims normally accrue statutory interest at a punitive rate of 2% per month (see East Acupuncture, PC v Allstate Ins. Co., 61 AD3d 202, 210 [2d Dept 2009]; Ins. L. 5106[a]).

As a general rule, a court is powerless to deny statutory interest to a party seeking breach of contract damages upon a claim at law. In contrast to actions “of an equitable nature” which are subject to “the court’s discretion” (CPLR 5001[a]), the same section states that interest “shall be recovered upon a sum awarded because of a breach of performance of a contract” (id.).

However, no-fault claims, while grounded in contract, are subject to special rules concerning interest upon overdue claims. Critically, the no-fault regulations include a provision that “interest shall accumulate unless the applicant unreasonably delays the…court proceeding” (see 11 NYCRR §65-3.9[d]). Medical providers pursuing assigned claims for no-fault benefits have been held subject to this proviso (East Acupuncture, PC v Allstate Ins. Co., supra). Therefore, notwithstanding the command of CPLR 5001(a), the Court is empowered to deny interest upon a no-fault claim in cases falling within the ambit of the regulation.

Lower court judges have “rarely ruled upon [the] issue” of what constitutes an [*5]“undue delay” justifying denial of no-fault interest (see Arzu v NYC Transit Authority, 35 Misc 3d 210 [Civ Ct Kings Co. 2012]). However, in the latter case, a plaintiff’s “egregious” five year delay in prosecuting a no-fault claim was found to justify a retroactive tolling of interest. As the Civil Court (Katherine A. Levine, J) explained, the applicable no-fault regulation “acts as an incentive for both insurers and claimants to act promptly” (id. at 213). Once an insurer issues a timely denial, “the incentive to act promptly switches to the applicant who … must then not unreasonably delay prosecution of the case in order to avoid the tolling of interest” (id.).

Plaintiff’s ten year delay in this case appears to be equally “egregious,” thereby warranting an order granting defendant’s request for a retroactive toll of no-fault interest in this matter.

Given plaintiff’s extreme ten year delay, granting a retroactive toll of no-fault interest is both necessary and appropriate. “[T]o do otherwise would reward … plaintiff with a windfall of punitive interest payments and would contravene the legislative goal of promptly resolving no fault claims” (Arzu v NYC Transit Authority, supra, quoting Devonshire Surgical Facility v American Transit Ins. Co., 2011 NY Slip Op 50793 [Civ Ct NY Co]).

Accordingly, as permitted by 11 NYCRR §65-3.9(d), the Court concludes, based upon plaintiff’s unreasonable delay in pursuing the matter between the date the action was commenced (January 2003) and the date of Dr. Hard’s death (November 2008), and the absence of proof of appropriate diligent and expeditious efforts to obtain an order from the Queens Surrogate which would have allowed the action to proceed after Dr. Hard’s death, any judgment in plaintiff’s favor in this matter shall carry post-commencement no-fault interest only from a date, going forward, when the requisite Surrogate’s approval is obtained, and may be subject to further tolling if there are additional unreasonable delays in the prosecution of the action.

So Ordered:

District Court Judge

Dated:September 13, 2013

[*1]

District Court of Nassau County, First District, June 18, 2013

APPEARANCES OF COUNSEL

Robert P. Macchia & Associates for defendant. Israel, Israel & Purdy for plaintiffs.

{**40 Misc 3d at 978} OPINION OF THE COURT

Fred J. Hirsh, J.

Defendant moves to strike the notice of trial and certificate of readiness for trial on the grounds discovery is not complete.{**40 Misc 3d at 979}

Background

Joseph Perez, M.D. is the owner of several medical facilities. While these facilities are located in different locations, the address for each of the medical facilities for which Dr. Perez is listed as the officer, shareholder or director with the Department of Education is 1890 New York Avenue, Huntington, New York 11746.

After receiving numerous no-fault claims from Dr. Perez facilities, Allstate Insurance Company began to investigate the operation of these facilities.

At an examination under oath conducted by Allstate in 2005, Dr. Perez testified he [*2]used management companies to pick the locations for his medical facilities, to hire and handle payroll for his support staff and to handle billing. The management companies used by Dr. Perez to provide these services are located at 1890 New York Avenue, Huntington, New York.

Allstate asserts it has repeatedly requested copies of the management agreements between Dr. Perez medical facilities and the management company. Allstate asserts it is entitled to discovery of these documents in connection with a Mallela defense. (See State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005].)

Allstate asserts the medical facilities owned by Dr. Perez also engage in a systematic pattern of overbilling. Testimony taken at examinations under oath of patients who receive treatment at Dr. Perez medical facilities indicate Dr. Perez and other doctors employed at those facilities submit bills for providing a complex examination that should take close to an hour when the examination took between 15 and 30 minutes.

Allstate further asserts Dr. Perez bills no-fault for services provided by independent contractors.

Allstate claims there is a pattern of providing similar if not identical treatment to patients who are examined by Dr. Perez or other doctors at Perez owned facilities. Allstate claims patients examined by Dr. Perez or at Perez owned facilities are regularly referred for chiropractic treatment at facilities owned by David Tubins, D.C. Allstate claims this raises issues regarding illegal fee-splitting with Dr. Tubins.

Allstate claims these circumstances lead it to believe Dr. Perez medical facilities are subject to a Mallela defense. Allstate seeks to obtain discovery in this regard and to take a deposition of Dr. Perez in regard to the possible Mallela defense.{**40 Misc 3d at 980}

Huntington Medical Plaza, P.C. is a facility owned by Dr. Perez. Huntington Regional Chiropractic, P.C. is a facility owned by Dr. Tubins.

In addition to being the named officer, shareholder and director of Huntington Medical Plaza, P.C., Dr. Perez is the named shareholder, officer and director of Brentwood Medical Plaza, P.C., Brentwood Medical Care, P.C., Patchogue Medical Plaza P.C., Patchogue Medical Services, P.C., Hempstead Medical Plaza, P.C., Hempstead Medical Care, P.C. and Stony Brook Medical Care, P.C.

Allstate has served a notice for discovery and inspection requesting Huntington Medical Plaza, P.C. produce copies of its banking records and banking resolutions, tax returns, office and equipment leases, management agreements and other corporate records it would need to establish a Mallela defense. Huntington Medical Plaza, P.C. has objected to producing this material asserting the demands are overbroad, unduly burdensome and irrelevant.

Plaintiffs assert this is nothing more than a “fishing expedition” and the discovery is unrelated to the real issues in this case that involve the denial of claims on the grounds the fees are not in accordance with the fee schedule and the medical services were not medically necessary. Plaintiffs claim a similar request for similar discovery has been rejected by the Civil Court, Queens County.

Discussion

Because Mallela involves issues that are not ordinarily in issue in actions to recover first-party no-fault benefits, a party seeking Mallela discovery must establish a reasonable basis for requesting the material. (Midborough Acupuncture, P.C. v State Farm Ins. Co., [*3]21 Misc 3d 10 [App Term, 2d Dept, 2d & 11th Jud Dists 2008].)

The use of a management company to manage the business of a medical provider is not in and of itself insufficient to establish a Mallela defense. The issue is what control does the management company have over the operation of the medical practice and to what extent is the management company realizing the financial benefits from the operation of the medical practice. The issues in determining whether a medical facility is subject to a Mallela defense are whether the fees being paid to the management for routine services excessive, is the management company renting office supplies, equipment and space to the{**40 Misc 3d at 981} medical provider for payments that are excessive, are the management company employees the sole signatories to the medical practice bank accounts, is the medical provider actually performing the medical services for which the professional corporation was formed, to what extent is the licensed professional involved in the decisions relating to the operation of the medical facility and is the licensed professional more like a salaried employee or the owner of the business. (See Matter of Andrew Carothers, M.D., P.C. v Insurance Cos. Represented by Bruno Gerbino & Soriano, LLP, 26 Misc 3d 448 [Civ Ct, Richmond County 2009].) Stated more simply, is the licensed professional involved both medically and operationally in the operation of the business or has the medical professional simply provided a license that permits persons who lack a license to operate, control and benefit from the operation of a medical facility or practice.

While this court believes the proper procedure for an insurer who believes a provider is subject to a Mallela defense is to commence a declaratory judgment seeking a determination of the provider’s eligibility to receive no-fault benefits, Mallela may be asserted as an affirmative defense to an action for no-fault benefits. (New York First Acupuncture, P.C. v State Farm Mut. Auto. Ins. Co., 25 Misc 3d 134[A], 2009 NY Slip Op 52217[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2009].)

CPLR 3101 (a) provides for full disclosure by a party to an action of “all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof.” CPLR 3101 (b) provides that privileged material is not subject to discovery.

Information is “material and relevant” for the purposes of CPLR 3101 (a) if the demanded matter, “will assist preparation for trial by sharpening the issues and reducing delay and prolixity. The test is one of usefulness and reason.” (Allen v Crowell-Collier Publ. Co., 21 NY2d 403, 406 [1968].) The demanded material must be produced if it can be used as evidence in chief, for rebuttal or for cross-examination. (Id.; Wind v Eli Lilly & Co., 164 AD2d 885 [2d Dept 1990].)

Documents that are not admissible into evidence may be obtained through discovery if the production of those documents may lead to the discovery of admissible evidence. (Matter of Southampton Taxpayers Against Reassessment v Assessor of Vil. of Southampton, 176 AD2d 795 [2d Dept 1991]; Fell v Presbyterian Hosp. in City of N.Y. at Columbia-Presbyt. Med. Ctr., 98 AD2d 624 [1st Dept 1983].){**40 Misc 3d at 982}

The party seeking production of the material has the burden of establishing that the production of the demanded material will lead to the discovery of relevant evidence while the party resisting the production of the material has the burden of establishing the material is irrelevant, privileged or confidential. (Crazytown Furniture v Brooklyn Union Gas Co., 150 AD2d 420 [2d Dept 1989]; Carp v Marcus, 116 AD2d 854 [3d Dept 1986]; Herbst v Bruhn, 106 AD2d 546 [2d Dept 1984].) [*4]

Most if not all of the documents and material demanded in regard to a Mallela defense, such as banking resolutions and statements, equipment and office leases, tax returns, management agreements, are documents that are in the exclusive possession and control of the medical provider. Most if not all of this material would be irrelevant to the action and not subject to discovery in an action to obtain payment of first-party no-fault benefits if the defendant insurer was not asserting a Mallela defense.

If the management company is actually operating Huntington Medical Plaza, P.C. and Dr. Perez is providing his license to Huntington Medical Plaza, P.C., Huntington Medical Plaza, P.C. would be subject to a Mallela defense. It would not be eligible to receive payment of no-fault benefits for this claim. However, Huntington Medical Plaza, P.C. should not have to produce and make available to the defendant corporate and financial documents that would otherwise not be subject to discovery simply because it filed no-fault claims or simply because Allstate has alleged a Mallela defense and has a suspicion Huntington might be running afoul of licensing laws.

The issue of whether the subject material is subject to discovery and whether Huntington Medical Plaza, P.C. is subject to a Mallela defense will recur until such time as a court has determined whether there is a basis for asserting such a defense.

Where the court cannot determine from the record whether the disputed documents are subject to discovery, the court should direct that the documents be produced for an in camera inspection. (Ross v Northern Westchester Hosp. Assn., 43 AD3d 1135 [2d Dept 2007]; Matter of Chebere v Johnson, 3 AD3d 365 [1st Dept 2004]; Masterwear Corp. v Bernard, 298 AD2d 249 [1st Dept 2002]; Nationwide Ins. Co. v Crisano, 286 AD2d 670 [2d Dept 2001].) From a reading of the papers, the court cannot determine whether the material demanded is subject to discovery.

Therefore, defendant’s motion is granted to the extent that Huntington Medical Plaza, P.C. shall produce for in camera{**40 Misc 3d at 983} inspection copies of all banking resolutions, signature cards and account agreements for all bank accounts maintained by Huntington for the years 2011, 2012 and 2013, copies of all consulting/management agreements for the years 2011, 2012 and 2013, copies of all billing management agreements for the years 2011, 2012 and 2013, copies of all corporate tax returns for the years 2011 and 2012, and copies of all leases for premises occupied and equipment rented for the years 2011, 2012 and 2013.

Such documents shall be produced to the chambers of the Honorable Fred J. Hirsh, District Court, Nassau County, 99 Main Street, Hempstead, New York 11550 for in camera inspection within 90 days of the date of this order. All proceedings in this action are stayed pending the production of the documents and inspection by the court.

District Court of Nassau County, First District

CV-038267-12

REPRESENTATION:

Friedman, Harfenist, Kraut & Perlstein, LLP, Attorneys for Plaintiff, 3000 Marcus Avenue, Suite 2E1, Lake Success, New York 11042, 516-355-9600; Law Offices of Robert Macchia, Attorney for Defendant, 98 Front Street, Mineola, New York 11501, 516-873-6200.

Michael A. Ciaffa, J.

The following papers have been considered by the Court

on this motion: submitted April 29, 2013

_________________________________________________________ _______________

Papers Numbered

_____________________________________________________________ ___________

Order to Show Cause, Affirmation & Exhibits Annexed………………..1 – 2

Affirmation in Opposition…………………………………………………………..3

Reply Affirmation…………………………………………………………………….. 4

In State Farm Mut. Auto Ins. Co. v Mallela, 4 NY3d 313 (2005), the Court of Appeals held that a “fraudulently incorporated” medical provider is not entitled to reimbursement under no-fault law for services rendered to no-fault claimants, and this holds true even when the services were properly rendered by a licenced medical practitioner. The Mallela decision has spawned a wide range of knotty problems for District Court and Civil Court Judges, often prolonging the resolution of routine claims for no-fault benefits and adding to court congestion. Such delays and court calendar congestion effectively undermine the legislature’s basic intent in enacting the no-fault law. See generally Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co., 9 NY3d 312, 317 (2007), quoting Matter of Medical Society v Serio, 100 NY2d 854, 860 (2003) (“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'”).

On the other hand, as recognized in Nyack Hospital v GMAC, 8 NY3d 294, 300 (2007), our state’s no-fault scheme is “designed to promote prompt payment of legitimate claims” (emphasis added) while “reducing rampant abuse.” When an insurer seeks to attack a perceived [*2]“abuse” of the no-fault system by challenging multiple claims in the context of a declaratory judgment action against a given provider, Mallela issues can be best addressed in an economical and comprehensive manner. However, an insurer’s ability to raise Mallela is not limited to such cases. As the instant case illustrates, Mallela defenses are now being raised, frequently, in the defense of otherwise simple and straightforward claims seeking payment for routine medically necessary procedures.

The principal issue presented by this motion for a protective order involves an insurer’s attempt to discover financial documents relevant to its Mallela defense through a subpoena served upon the medical provider’s bank. The subpoena seeks a large number of financial records and documents which the insurer claims are relevant, material, and necessary to its defenses to the claim. While the requested records are “relevant” in a broad sense, the insurer’s subpoena raises policy concerns which require a careful balancing of interests.

Plaintiff, Nexray Medical Imaging, P.C., commenced this no-fault action against defendant, Allstate Insurance Company, in November 2012, after defendant denied a claim seeking payment for a routine MRI that plaintiff performed in February, 2012. Although the amount of plaintiff’s claim is small ($912.00), defendant’s defenses to the claim include wide-ranging allegations that plaintiff “is engaged in the illegal and unlawful corporate practice of medicine,” that plaintiff “materially misrepresented that a licensed physician was the owner of the plaintiff’s practice,” that plaintiff was “controlled, owned, managed and supervised by persons who are not licensed or authorized to own a professional service corporation or authorized to practice medicine,” and that plaintiff “is engaged in the unlawful practice of fee splitting…” (defendant’s answer, nineteenth through twenty-third affirmative defenses).

Defendant’s answer was accompanied by equally far reaching requests for interrogatories and for discovery and inspection of documents. The propriety of those requests is not put in issue by plaintiff on this motion.Rather, plaintiff’s motion raises strenuous objection only to defendant’s attempt to subpoena certain bank records from Citibank, N.A., a non-party. They include a demand for signature cards for the account, together with “[a]ll records indicating withdrawal and deposit activity” and “copies of all checks from which money was drawn from the account, canceled checks, transaction statements, electronic fund transfers, wire transfers, account ledgers, corporate resolutions, power of attorney and all correspondence between Citibank, NA and Nexray Medical Imaging, PC between April 1, 2011 and the present.”

By order to show cause dated March 8, 2013, production of these bank records was stayed pending further Court order. Plaintiff’s motion attacks the subpoena on multiple grounds. At the outset, the Court rejects defendant’s contention that plaintiff lacks standing to contest the subpoena. CPLR 3103(a) not only permits a non-party witness to seek a protective order, “but also permits any party opposing the disclosure to make the motion.” Snedeker v. Schiff Hardin LLP, 2010 NY Slip Op 30151 (Sup Ct Nassau Co., Driscoll, J.); accord, Morano v Slattery Skanska, Inc., 18 Misc 3d 464, 472 (Sup Ct Queens Co 2007); McDaid v Semegran, 2007 NY Slip Op 51227 (Sup Ct Nassau Co); Matter of MacLeman, 2005 NY Slip Op 51675 (Surr Ct Westchester Co). The Court accordingly turns to the merits of plaintiff’s contentions.

To the extent that plaintiff argues that the subpoena is “facially defective,” the Court disagrees. The subpoena, on its face, states that the records and documents at issue “are relevant, material, and necessary to verify the depositor’s entitlement to recover no-fault benefits under [*3]Regulation 68 (11 NYCRR Part 65).” It therefore literally satisfies CPLR 3101(a)(4), by providing “notice stating the circumstances or reasons such disclosure is sought or required.”

Moreover, under current caselaw, a showing of “special circumstances” is no longer needed when discovery is sought from a non-party. See Kooper v Kooper, 74 AD3d 6, 8 (2d Dept 2010). Instead, requests for discovery from a non-party are largely governed by the same general principles that apply to requests directed to a party itself. Subject to a test of “usefulness and reason,” a party is entitled to “full disclosure” of “material and necessary” information bearing upon the controversy at hand. 74 AD3d at 10. Accordingly, the Court rejects plaintiff’s arguments that defendant’s subpoena is “facially defective” or that it is “being impermissibly used” as a pre-trial disclosure device.

These conclusions bring the Court to the most difficult issue. The Court’s rejection of the foregoing arguments does not eliminate the need for careful judicial oversight of the discovery process, in order to protect the plaintiff’s legitimate privacy interests in its bank records and financial affairs, while preserving defendant’s right to reasonable disclosure of material and relevant information and documents. See CPLR 3103, 3104.

In balancing these interests, the Court is guided, in the first instance, by rulings made by other courts. Recent Appellate Term decisions have made plain that Mallela discovery requests must be supported by “case specific allegations.” See Pomona Med. Diagnostic, PC v Adirondack Ins. Co., 2012 NY Slip Op 51165 (App Term 1st Dept); see also Midwood Acupuncture, PC v State Farm Fire & Cas. Co., 2008 NY Slip Op 52468 (App Term 2d Dept) (“the record reveals that the defendant set forth detailed and specific reasons for believing that plaintiff may be ineligible to recover no-fault benefits as a fraudulently incorporated professional service corporation”). Nor may insurers engage in “a fishing expedition” for Mallela evidence “when they cannot set forth a reliable factual basis for what amounts to, at best, mere suspicions.” Pomona Med. Diagnostic, PC v Adirondack Ins. Co., supra; accord, JKM Medical, PC v Progressive Ins. Co., index no. 43109/11, decision dated July 18, 2012 (Dist Ct Nassau Co., Ciaffa, J) (“allowing comprehensive Mallela discovery upon such mere suspicions would be abusive and palpably improper”).

Trial court decisions from Civil Court judges generally follow a similar approach. In a series of well-reasoned opinions, Judge Katherine Levine draws a distinction between cases where the insurer “has articulated a founded belief’ that plaintiff is actually controlled by a non-licenced professional,” and cases where the insurer has submitted nothing more than “unsupported conclusions” and “unsubstantiated hypotheses and suppositions.” Compare Lenox Neuropsychiatry Med., PC v State Farm Ins. Co., 2009 NY Slip Op 50178 (Civ Ct Richmond Co.), with Bay Plaza Chiropractic v State Farm Mut. Auto. Ins. Co., 2008 NY Slip Op 51925 (Civ Ct Richmond Co.).

Moreover, even in cases where some limited Mallela discovery is warranted, trial court judges have emphasized that the scope of discovery into Mallela issues “is not unlimited.” See Cambridge Medical, PC v Nationwide Prop. & Cas. Ins. Co., 2008 NY Slip Op 50629 (Civ Ct Richmond Co., Levine, J), quoting Carothers v Insurance Companies Represented by Bruno, Gerbino & Soriano, LLP, 13 Misc 3d 970, 974 (Civ Ct Richmond Co., Sweeney, J). “Since the amount in dispute in most no-fault matters is small,” a trial court “should not hesitate to exercise its protective powers” under CPLR 3103(a) to curtail “overburdening” requests or “to prevent the [*4]proverbial fishing expedition.” Cambridge Medical, PC v Nationwide Prop. & Cas. Ins. Co., supra; accord, Carothers v Insurance Companies Represented by Bruno, Gerbino & Soriano, LLP, supra (protective orders should “be freely issued to limit discovery in no-fault actions where the amount in dispute is small”).

Finally, in cases, like this one, where Mallela discovery is sought from a non-party, the rules governing non-party discovery provide additional grounds for closely scrutinizing the request. On the latter point, the Second Department’s recent decision in Kooper v Kooper, supra, provides the most appropriate framework for analysis.

As explained in Kooper, discovery requests directed to both parties and non-parties are subject to the same “threshold requirement” — “that the disclosure sought is material and necessary.'” 74 AD3d at 10. The requirement, in general, is easy to satisfy. As construed by the Court of Appeals, see Allen v. Crowell-Collier Publ. Co., 21 NY2d 403, 406 (1968), the phrase “material and necessary” simply “means nothing more or less than relevant.'” Kooper, supra, 74 AD3d at 10, quoting Connors, Practice Commentaries to McKinney’s CPLR, at C3105:5. Applying this threshold test, defendant’s request for plaintiff’s bank records clearly involves information which is “relevant” to defendant’s defenses. See generally Matter of Andrew Carothers, M.D., P.C. v. Insurance Companies Represented by Bruno Gerbino & Soriano, LLP, 26 Misc 3d 448, 452-3 (Civ Ct Richmond Co. 2009) (“That Dr Carothers did not own or control the corporation was further demonstrated by how money flowed into and out of the corporate bank accounts”). Consequently, to the extent plaintiff argues that the subpoena seeks records which are “irrelevant and immaterial” to the instant action, this argument, too, must be rejected.

Nevertheless, disclosure requests directed to non-parties implicate “considerations in addition to those governing discovery from a party.” Kooper, supra, 74 AD3d at 11. These additional considerations go to the heart of plaintiff’s objection to defendant’s subpoena, and put in sharp focus the Court’s statutory authority “to impose, in its discretion, appropriate restrictions on demands which are unduly burdensome’…[or] may cause unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person’…” Kooper, supra, quoting CPLR 3103(a).

As the Court further explained in Kooper, the Appellate Division’s decisions “have consistently adhered to the principle that more than mere relevance and materiality is necessary to warrant disclosure from a nonparty.'” 74 AD3d at 17-18, quoting Diogardi v St. John’s Riverside Hosp., 144 AD2d 333, 334-5 (2d Dept 1988). Moreover, since “a party’s inability to obtain the requested disclosure from his or her adversary or from independent sources [is] a significant factor in determining the propriety of discovery from a nonparty,” a motion to quash may properly be granted “where the party issuing the subpoena has failed to show that the disclosure sought cannot be obtained from sources other than the nonparty.” Kooper, supra, 74 AD3d at 16-17. “Circumstances necessarily vary from case to case. The supervision of discovery, the setting of reasonable terms and conditions for disclosure, and the determination of whether a particular discovery demand is appropriate, are all matters within the sound discretion of the trial court, which must balance competing interests.”74 AD3d at 17.

In the instant case, plaintiff’s moving papers show that plaintiff’s president and record owner, Dr. William Weiner, was questioned under oath in July 2012, with respect to a large number of claims for no-fault benefits claims that plaintiff had filed with the defendant. The [*5]“Schedule of Claimants” annexed to defendant’s EUO request includes the name of plaintiff’s assignor in this action (Steven Olivares). Dr. Weiner was examined at length respecting potential Mallela issues. He answered each question without hesitation and equivocation.

As part of its compliance with defendant’s EUO request, plaintiff produced more than a dozen documents, including the leases for the premises it occupied, its revolving loan and security agreement, its asset purchasing agreements, UCC financing documents, licences for its professional employees, prior leases for the premises, and W-2s/payroll records for other doctors who worked for plaintiff. Notwithstanding the foregoing, defendant followed up with a second request for production of extensive financial documentation and other records, including tax returns. However, no request was made, at that time, for the bank records that defendant now seeks to obtain through its subpoena.

Thereafter, in the context of its previously served demands for discovery from plaintiff in this action, defendant requested production of many of the very same bank records that it presently requests in its subpoena. Plaintiff objected to the request on the ground that it was “vague, overly broad, unduly burdensome and irrelevant.” In the face of this objection, defendant made no effort to seek court intervention to resolve the dispute. Instead, it served a subpoena upon Citibank, requesting the same records, plus others.

This fact, by itself, reinforces the Court’s suspicion that defendant is improperly using the subpoena in order to obtain leverage in its defense of this matter. If defendant truly believes that plaintiff is a “fraudulently incorporated” medical corporation, it can and should commence a declaratory judgment action against the plaintiff. What it cannot do, in this Court’s opinion, is to seek a financial “proctology exam” of plaintiff’s bank account in the defense of a $912.00 claim, based on mere suspicion that it may uncover evidence of a possible Mallela violation. Cf. Revson v Cinque & Cinque, PC, 221 F3d 71 (2d Cir 2000).

In any event, based upon the extensive testimony given by Dr. Weiner at his EUO, and plaintiff’s production of a panoply of documentation respecting the plaintiff’s financial arrangements with its landlord and others, the Court is not inclined to allow defendant to engage in an overbroad and palpably improper “fishing expedition” into plaintiff’s finances.

For these reasons, the Court grants a protective order in plaintiff’s favor, limiting the subpoena to the signature cards for the subject Citibank account. Insofar as Dr. Weiner’s EUO testimony may have raised additional questions respecting his actual control over plaintiff’s financial affairs, the signature cards should show whether other individuals have been allowed to write checks and make withdrawals from the account. Pending production of the signature cards, and subject to further discovery proceedings between the parties, the Court withholds judgment on whether plaintiff’s bank records may be obtained by the defendant in connection with its defenses to this action. In the event that defendant seeks additional discovery respecting the bank records, however, such requests should be directed to plaintiff, itself, and not to Citibank.

So Ordered:

[*6]

District Court Judge

Dated: June 6, 2013

cc:Friedman Harfenist Kraut & Perlstein, LLP

Law Offices of Robert Macchia

Citibank, N.A.

District Court of Nassau County, First District

CV-006644-11

Friedman, Harfenist, Kraut & Perlstein, Attorneys for Plaintiff, 3000 Marcus Avenue, Suite 2E1, Lake Success, New York 11042, 516-355-9600; Bruno, Gerbino & Soriano, LLP, Attorneys for Defendant, 445 Broad Hollow Road, Suite 220, Melville, New York 11747, 631-390-0010.

Michael A. Ciaffa, J.

The following papers have been considered by the Court

on this motion: submitted April 22, 2013

_________________________________________________________ _______________

Papers Numbered

_____________________________________________________________ ___________

Notice of Motion, Affirmation & Exhibits Annexed………………………1 – 2

Affirmation in Opposition…………………………………………………………..3

Reply Affirmation……………………………………………………………………..4

Defendant moves for an order granting it summary judgment, dismissing claims for no-fault benefits that had been timely filed by the plaintiff, Jersey Rehab PA, P.C. Three bills are at issue. Each sought payment for health services rendered by plaintiff to its assignor, claimant Owen G. Webb, after an auto accident.

The second and third bills in dispute (plaintiff’s fourth, fifth, sixth and seventh causes of action) were timely denied by defendant based upon Mr. Webb’s failure to attend an IME. In the absence of a challenge by plaintiff to defendant’s proof, the Court assumes that defendant’s evidence is sufficient to establish timely mailing of the IME notices to Mr. Webb. Compare St.Vincent’s Hosp. v GEICO, 50 AD3d 1123 (2d Dept 2008), with ARCO Med. NY, PC v NY Cent. Mut. Fire Ins. Co., 2011 NY Slip Op 50184 (App Term 2d Dept). Likewise, defendant’s proof by affidavit sufficiently establishes that Mr. Webb failed to appear for an IME, as requested.

Under well settled legal principles, a claimant’s attendance at a properly noticed and scheduled IME is a condition precedent to an insurer’s obligation to cover no-fault [*2]claims. See Stephen Fogel Psychological, P.C. v Progressive Cas. Ins. Co., 35 AD3d 720 (2d Dept 2006). Nevertheless, under the peculiar facts presented in this case, the Court holds that the defendant cannot properly claim that Mr. Webb breached a “condition precedent” to coverage when defendant, itself, breached a regulatory “condition precedent” to its right to obtain an IME of Mr. Webb.

Critically, the no-fault regulations include mandatory notice requirements governing insurer requests for both EUOs and IMEs (11 NYCRR 65-3.5[e]). The regulations expressly provide that the insurer “shall inform the applicant at the time the examination is scheduled that the applicant will be reimbursed for any loss of earnings and reasonable transportation expenses incurred in complying with the request” (id.).

In interpreting the provision in issue, the Insurance Department’s General Counsel has opined that every EUO notice “must include requisite language advising the person required to appear … of that person’s right to reimbursement for lost earnings and transportation costs … in order for such notice to be deemed effective under the regulation.” General Counsel Opinion 12-22-2006 (No.1) (emphasis added). Since the regulation draws no distinction between EUOs and IMEs (see 11 NYCRR 65-3.5[e]), the conclusion is inescapable: IME notices are subject to the very same requirements.

As plaintiff’s counsel cogently argues in her opposing papers, defendant’s IME request letters fail to comply with this mandatory directive. Although the letters include a sentence stating that “[a]ll fees relating to this appointment will be paid by your insurance carrier,” that language merely implies that the IME doctor’s fees will be paid by the insurer. By no means does this language give notice to Mr. Webb that he would be reimbursed for lost earnings and transportation expenses as required by the literal terms of the regulation.

Accordingly, the Court concludes that defendant’s IME notices cannot be deemed to have substantially complied with the notice requirements of 11 NYCRR 65-3.5(e). Furthermore, under the logic of the General Counsel’s opinion, which is entitled to deference unless “irrational or unreasonable,” see Stephen Fogel Psychological, P.C. v Progressive Cas. Ins. Co., supra, the IME letters were ineffective and insufficient to give proper notice to Mr. Webb of his right to reimbursement.

Consequently, defendant’s papers fail to establish, as a matter of law, that Mr. Webb breached a condition precedent to coverage by failing to appear for an IME. Simply stated, compliance with the above-quoted notice requirement of 11 NYCRR 65-3.5(e) is a “condition precedent” to the insurer’s right to demand an IME. If the insurer fails to give the applicant proper notice of his right to reimbursement for lost wages and transportation costs, the IME demand is defective, per se, and may not form the basis for defeating an otherwise timely and proper no fault claim by a provider.

For these reasons, plaintiff’s fourth, fifth, sixth and seventh causes of action are not subject to summary dismissal on grounds of IME default.

Finally, defendant requests summary judgment dismissing the causes of action [*3]relating to the first bill (plaintiff’s second and third causes of action) on the ground that it paid the first bill, in full. Plaintiff does not oppose this branch of the motion.

Accordingly, defendant’s motion for summary judgment is GRANTED only to the extent of dismissing plaintiff’s second and third causes of action. The motion is otherwise DENIED.

So Ordered:

District Court Judge

Dated: April 26, 2013

cc:Bruno, Gerbino & Soriano, LLP

Friedman, Harfenist, Kraut & Perlstein, LLP

District Court of Nassau County, First District

CV-019669-12

Baker Sanders LLC, Attorneys for Plaintiff, 100 Garden City Plaza, Suite 500, Garden City, New York 11530, 516-741-4799; McCormack & Mattei, P.C., 1035 Stewart Avenue, Second Floor, Garden City, New York 11530, 516-505-0600

Michael A. Ciaffa, J.

Defendant, Progressive Casualty Ins. Co. (“Progressive”), moves for summary judgment dismissing plaintiff’s no-fault complaint on grounds of res judicata and collateral estoppel. Plaintiff, Sutter Medical Care, P.C. (“Sutter Med”) opposes the motion.

The issues presented by Progressive’s motion arise in the context of a broader dispute between Progressive and Sutter Med respecting the provider’s entitlement to no-fault benefits under New York law. In January, 2012, Progressive and its related companies commenced a declaratory judgment action against Sutter Med in the Supreme Court, Nassau County (index no. 000119/12). The complaint in that case (defendant’s ex. B) alleged, inter alia, that Sutter Med had failed to satisfy conditions precedent to Progressive’s obligation to cover a series of no-fault claims by failing to appear for examinations under oath, and by failing to provide requested verification of the claims. Based upon these allegations, Progressive requested a declaration that it had “no obligation to pay” any outstanding claims for services rendered by Sutter Med to the 14 named claimants referenced in the complaint. Plaintiff’s assignor in this matter, Atisha Grant, was one of those named claimants.

Sutter Med failed to answer Progressive’s declaratory judgment complaint. By order dated April 19, 2012, the Supreme Court (Brown, J.) granted Progressive’s motion for a default judgment against Sutter Med and directed Progressive to submit a judgment for the court’s approval. Sutter Med made no effort to contest Progressive’s entitlement to such relief from the Supreme Court. Instead, in early June, 2012, it commenced a series of no-fault lawsuits against Progressive in the District Court, Nassau County, [*2]seeking payment of no-fault benefits. At least six of these lawsuits involve claims for payment for medical services that it rendered to six of the same claimants who were specifically referenced in the declaratory judgment complaint. Progressive now moves before this Court for orders dismissing each of those six cases on the ground that each lawsuit is barred by the default judgment rendered in the declaratory judgment action. This matter is one of those six cases.

The papers before the Court on the instant motion confirm that the summons and complaint in this case was filed on June 4, 2012. It includes allegations that Sutter Med rendered necessary medical services to its assignor, Atisha Grant, which are the subject of three unpaid no-fault bills. As shown in an exhibit to the complaint, the services in question were rendered between June 17 and August 31, 2011. Each of the three bills submitted to defendant Progressive arose from the same accident date (April 8, 2011) and bear the same Progressive claim number (114814153).

Defendant’s answer to the complaint was served on June 27, 2012. It includes twenty-four separately stated affirmative defenses, including defenses asserting that plaintiff failed to properly verify its claims, and failed to satisfy a condition precedent to coverage. However, the answer does not include as defenses a claim that the action is barred by res judicata or collateral estoppel.

On the same date that defendant’s answer was served (June 27, 2012), the Supreme Court’s judgment (defendant’s ex. C) was formally entered, granting judgment to Progressive “on default … as to the claims that are the subject of this within action.” The Supreme Court’s judgment went on to declare that Sutter Med “…is not entitled to reimbursement for medical services … based upon [Sutter Med’s] failure to satisfy conditions precedent to coverage or to verify [its] claims.” The default judgment also declared: “Plaintiff [Progressive] is under no obligation to pay any of the no-fault claims … for which examinations under oath and documents were requested on the grounds that the Defaulting Defendant [Sutter Med] has not complied with conditions precedent to reimbursement …”

For reasons not explained, Progressive made no effort to amend its answer, as of right (see CPLR 3025[a]), following entry of the Supreme Court’s judgment. By law, it could have served an amended answer at any time within 20 days of the date of its original answer (id). Such an amended answer could have included allegations that plaintiff’s claims were now barred under principles of res judicata and collateral estoppel. Nor did defendant move for leave to amend its answer at any time thereafter seeking permission to include such defenses to plaintiff’s lawsuit. See generally Prof. David D. Siegel’s Practice Commentaries to McKinney’s CPLR 3211, at C3211:62. Instead of doing so, defendant simply made its summary judgment motion upon copies of the instant pleadings (defendant’s ex. A), its declaratory judgment complaint in the Supreme Court (ex. B), and the default judgment entered in the declaratory judgment action (ex. C).

In opposing the instant motion for summary judgment, Sutter Med challenges [*3]Progressive’s arguments for dismissal on procedural and substantive grounds. Ordinarily, a res judicata or collateral estoppel defense is deemed waived unless raised by a CPLR 3211(a)(5) motion to dismiss or asserted in the defendant’s responsive pleading. See CPLR 3211(e). Moreover, pursuant to the requirements of CPLR 3018(b), such affirmative defenses ordinarily must be included in the defendant’s answer. Based upon these rules, plaintiff argues, with considerable force, that defendant waived its right to seek dismissal on grounds of res judicata and collateral estoppel by not making a timely motion to dismiss or including these two affirmative defenses in its answer.

The Court rejects plaintiff’s argument. Contrary to plaintiff’s contention, defendant’s failure to raise these affirmative defenses earlier is not necessarily fatal. See, e.g. Sullivan v American Airlines, Inc., 80 AD3d 600, 602 (2d Dept 2011) (an unpleaded affirmative defense “may serve as the basis for granting summary judgment in the absence of surprise or prejudice”); Sheils v County of Fulton, 14 AD3d 919 (3d Dept 2005), lv den 4 NY3d 711 (2005) (granting summary judgment to defendant on unpleaded affirmative defense that plaintiff failed to exhaust administrative remedies); Kirilescu v American Home Prods. Corp., 278 AD2d 457 (2d Dept 2000), lv den 96 NY2d 933 (2001) (granting summary judgment to defendant upon unpleaded affirmative defense based upon federal preemption); Strauss v. BMW Financial Services, 29 Misc 3d 362, 364 (Sup Ct Kings Co. 2010) (granting summary judgment to defendant on unpleaded affirmative defense of immunity). As the Court explained in Strauss: “When a defendant fails to plead an affirmative defense, but asserts said defense in connection with a motion for summary judgment, the waiver is said to have been retracted and the court can grant or deny summary judgment based on the never plead affirmative defense.” Id. “The relevant inquiry…is the prejudice or surprise associated with assertion of a never plead affirmative defense.” Id. The risk of prejudice and surprise are “ameliorated when…the plaintiff has had a full and fair opportunity to respond and oppose the defense…” Id.

In any event, even if the Court were otherwise inclined to deny summary judgment on the ground that defendant waived its res judicata and collateral estoppel defenses by not asserting them in an answer or amended answer or in a timely CPLR 3211(a)(5) motion to dismiss, defendant could easily correct its oversight by seeking leave to amend its answer pursuant to CPLR 3025[b]. See, e.g. Complete Management, Inc. v. Rubinstein, 74 AD3d 722, 723 (2d Dept 2010) (although defendants waived affirmative defense of lack of capacity to sue “by failing to raise it in their answer or in a motion to dismiss made prior to answering, … defenses waived under CPLR 3211[e] can nevertheless be interposed in an answer amended by leave of court pursuant to CPLR 3025[b] so long as the amendment does not cause the other party prejudice or surprise”) ; Giacamazzo v. Moreno, 94 AD2d 369 (1st Dept. 1983) ( trial court properly allowed defendant to amend its answer at trial to assert previously waived affirmative defense of res judicata). Prolonging the case for that reason makes no sense.In this Court’s [*4]previous unpublished rulings in cases involving similar issues, it has made plain that Progressive need not seek to formally amend its answers before moving to dismiss a pending no-fault action on grounds of res judicata. See, e.g. New Century Medical Diagnostics, P.C. v Progressive Casualty Ins. Co., index no. 026933, decision dated December 5, 2012 (Dist Ct Nassau Co., Ciaffa, J.); Healthy Physique Physical Therapy P.C. v Progressive Casualty Ins. Co., index no. 019457, decision dated November 27, 2012 (Dist Ct Nassau Co., Ciaffa, J.). This Court reiterates the rulings it made in those cases.

Consistent with the principle that the CPLR should be “liberally construed to secure the just, speedy and inexpensive determination of every civil judicial proceeding” (CPLR §104), the Court concludes that it may properly consider defendant’s motion for summary judgment upon its unplead res judicata and collateral estoppel defenses. See New Century Medical Diagnostics, P.C. v Progressive Casualty Ins. Co., supra; Healthy Physique Physical Therapy P.C. v Progressive Casualty Ins. Co., supra. Plaintiff here has been afforded a full and fair opportunity to oppose the defenses on the merits. It cannot claim that defendant’s motion comes as a surprise. It makes no claim of colorable prejudice based upon delay. The Court accordingly turns to the merits of the motion.

The basic rules are well settled. Res judicata principles broadly prohibit a party from seeking to relitigate a claim “where a judgment on the merits exists from a prior action between the same parties involving the same subject matter.” In re Hunter, 4 NY3d 260, 269 (2005). Collateral estoppel, in turn, applies more narrowly to the attempted relitigation of “identical” issues which were “necessarily … decided” in the prior action. See Kaufman v Eli Lilly and Co., 65 NY2d 449, 455 (1983).

Progressive’s moving papers amply establish the prior action and the instant action both involve identical claims by Progressive that Sutter Med failed to provide proper no-fault verification for medical services rendered to Atisha Grant, and that Sutter Med failed to satisfy a condition precedent to coverage by not appearing for a requested EUO. As plaintiff’s counsel readily acknowledges, the judgment issued in the declaratory judgment case specifies that Progressive “is under no obligation to pay any of the no-fault claims … for which examinations under oath and documents were requested …” However, counsel points to the absence of any evidence of EUO requests or denial of claim forms respecting the subject three bills in this action. In the absence of such proof, plaintiff contends that defendant cannot meet its burden of proving that the issues presented in this case were necessarily litigated in the declaratory judgment action.

The Court rejects plaintiff’s contention. The declaratory judgment action concerned the same parties and the same subject matter. The complaint in the declaratory judgment action includes verified allegations that Progressive requested EUOs for a series of specific claims, including claims for services rendered to plaintiff’s assignor, Atisha Grant, under claim number 114814513 (defendant’s ex. B, ¶ 19). According to the [*5]insurer’s verified complaint, each of the EUO and document requests were timely mailed to Sutter Med, and each of the EUO requests asked for documents from Sutter Med which it failed to provide (ex. B, ¶¶ 20, 28). Progressive further alleged that it had sufficient basis to request the EUOs and documents, but Sutter Medical Care did not respond or appear for any of the EUOs (ex. B, ¶¶ 27, 28). As a consequence, all no-fault billings for services rendered to plaintiff’s assignors, including Atisha Grant, were allegedly denied and/or delayed, as allowed by applicable no-fault regulations (ex. B, ¶ 31).

Reading the complaint by Progressive and the Supreme Court’s declaratory judgment together, the default judgment entered in the declaratory judgment action clearly precludes plaintiff from pursuing assigned claims for medical services rendered to plaintiff’s assignor, Atisha Grant, under claim number 114814513. Based upon the verified allegations in the declaratory judgment action and Sutter Med’s default in answering the complaint, the Supreme Court issued a declaration that Sutter Med is “not entitled to reimbursement for medical services” rendered to Atisha Grant, and that Progressive has “no obligation to pay” any of such claims. Sutter Med cannot dispute that res judicata principles apply equally to judgments entered on default.See, e.g.Ava Acupuncture P.C. v NY Central Mut. Fire Ins. Co., 2012 NY Slip Op 50233 (App Term 2d Dept); see also Tantillo v Giglio, 156 AD2d 664 (2d Dept 1989), discussing Blair v Bartlett, 75 NY 150 (1878). Accordingly, the Supreme Court’s declarations are binding upon the parties in this lawsuit, and provide Progressive with a complete defense to the claims made in this proceeding. See, e.g. Ava Acupuncture P.C. v NY Central Mut. Fire Ins. Co., supra; EBM Med. Health Care, P.C. v Republic Western Insurance, 2012 NY Slip Op 22300 (App Term 2d Dept).

Under the circumstances presented, Sutter Med cannot avoid the preclusive effect of the declaratory judgment upon the particular bills and claims advanced in its complaint. Contrary to plaintiff’s contention, Progressive need not submit evidence establishing that it requested EUOs and documents from Sutter Med respecting each of the three bills referenced in the instant complaint. In view of the broad declaration issued by the Supreme Court, establishing that Sutter Med breached a condition precedent to coverage of Sutter Med’s claims for services rendered to Atisha Grant, the absence of such proof is immaterial. The complaint in the instant case, like the complaint in the declaratory judgment action, specifically references and concerns medical services provided by Sutter Med to Atisha Grant under claim number 114814513. The papers before the Court are sufficient to demonstrate an identity between the claims and issues in both cases.

Therefore, the declaratory judgment issued by the Supreme Court necessarily precludes pursuit of claims by Sutter Medical Care in this action, seeking payment for medical services rendered to Atisha Grant under that very same claim number. See, e.g. Naqiy Medical P.C. v Unitrin Direct Ins. Co., index no. 050030/10, decision dated May 1, 2012 (Dist Ct Nassau Co., Ciaffa, J.). “To hold otherwise could result in a judgment in [*6]the instant action which would destroy or impair rights established by the order rendered in the declaratory judgment action.” Id, quoting Ava Acupuncture P.C. v NY Central Mut. Fire Ins. Co., supra, citing Schykill Fuel Corp. v. Nieberg Realty Corp., 250 NY 304, 306-7 (1929).

Nor does it matter that Progressive may have partially paid other claims for services rendered to Atisha Grant upon receipt of other bills which are not the subject of the claims made in this no-fault action. Although plaintiff’s opposition includes documentary proof that defendant partially paid one such claim in July 2011, the EUO defaults alleged in the declaratory judgment complaint occurred the following month, in August 2011 (see defendant’s ex. B, ¶ 19). As of that date, but not before, Sutter Medical breached the condition precedent to Progressive’s obligation to provide coverage for pending claims. Cf. Arco Med.NY, P.C. v Lancer Ins. Co., 37 Misc 3d 90, 92-3 (App Term 2d Dept 2012). Accordingly, the fact that Progressive may have paid earlier bills provides no basis for defeating the instant motion. It likewise fails to present a triable issue whether the validity of the claims made in this case were necessarily determined by the default judgment in the declaratory judgment action.

In closing, Sutter Med does not dispute that it had a full and fair opportunity to contest the allegations made in the declaratory judgment action. It failed to contest the allegations. A default judgment was entered as a result. That judgment is final and binding with respect to Progressive’s liability for paying for medical services rendered to Atisha Grant under claim number 114814513.

For these reasons, defendant’s motion is GRANTED and the complaint is DISMISSED.So Ordered:

District Court Judge

Dated: January 24, 2013

cc:McCormack & Mattei, P.C.

Baker, Sanders, LLC

[*1]

District Court of Nassau County, First District, December 12, 2012

APPEARANCES OF COUNSEL

Israel, Israel & Purdy, LLP, Great Neck, for plaintiff. Richard T. Lau & Associates, Jericho, for defendant.

{**38 Misc 3d at 751} OPINION OF THE COURT

Michael A. Ciaffa, J.

Plaintiff moves for summary judgment upon its claim for no-fault benefits, and defendant cross-moves for summary judgment dismissing the claim. For the reasons stated below, plaintiff’s motion is denied, the cross motion is granted, and the action is dismissed as premature.

The principal issue presented by the motion and cross motion concerns defendant’s failure to give notice to plaintiff’s attorneys that it was requesting verification of the claim from the plaintiff medical provider. Defendant’s proof establishes that it mailed timely verification requests directly to plaintiff, but received neither the requested material nor any response. In opposing defendant’s argument that plaintiff’s lawsuit should be dismissed as premature, plaintiff’s papers contend that defendant’s verification letters should have been sent to plaintiff’s attorneys pursuant to the no-fault regulations and that firm’s explicit written request. Although plaintiff’s contention has merit, defendant’s failure to send its verification requests to plaintiff’s attorneys, by itself, is legally inconsequential. Most importantly, plaintiff does not dispute that it received defendant’s verification letters. In the absence of a prompt objection by plaintiff to the misdirected [*2]verification letters, plaintiff is in no position to complain about defendant’s mistake. Its action, therefore, was brought prematurely, and must be dismissed.

The facts relevant to the motion and cross motion are undisputed. By letter dated October 19, 2011, plaintiff submitted a timely claim for no-fault benefits to defendant through a letter from its attorneys, Israel, Israel & Purdy, LLP (IIP). The cover letter from IIP stated, in pertinent part: “in the event you require additional verification of the claim or proof of loss, then your request for the same, including medical records, should be forwarded to us, as Attorneys, and we will in turn arrange for the transmittal to you.”

Plaintiff’s claim was received at defendant’s Ballston Spa office no later than October 21, 2011. Following receipt of the claim, defendant timely mailed a verification request to plaintiff on November 3, 2011, seeking submission of a “[l]etter of medical necessity.” For reasons not explained, defendant failed to mail a copy of the letter to IIP. Instead, copies were sent only to plaintiff’s assignor (Maria Silva) and her attorneys.

When no response was received within the following 30 days, defendant sent a second verification request to plaintiff on{**38 Misc 3d at 752} December 16, 2011. Again, defendant failed to send a copy of the letter to IIP. Again, copies were sent only to plaintiff’s assignor and her attorneys.

The court begins its analysis by assuming that no-fault insurers must ordinarily respect a provider’s decision to pursue a claim through communications from and to its lawyers. Once an insurer is advised that it should communicate directly with a provider’s attorneys, any such communications should be directed to those attorneys. Lawyers for parties are ethically bound to observe such a rule. (See Rules of Professional Conduct [22 NYCRR 1200.0] rule 4.2 [a] [“a lawyer shall not communicate . . . with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the prior consent of the other lawyer or is authorized to do so by law”].) So, too, a debt collector who knows that a consumer is represented by an attorney is “generally obligated to communicate with the consumer only through the attorney.” (See Rosario v American Collective Counseling Servs., Inc., 2001 WL 1045585, *1, 2001 US Dist LEXIS 13455, *3-4 [MD Fla 2001], citing 15 USC § 1692c [a] [2].) “In such situations, a notice to counsel satisfies the requirement that notice be sent to the consumer.” (Id., 2001 WL 1045585, *1, 2001 US Dist LEXIS 13455, *4.)

Similarly, in matters involving insurance claims, where the insurer has been apprised that a claimant has counsel, appellate court decisions hold that statutory notices to the claimant may properly be sent to “the claimant’s attorney, rather than [to] the claimant personally.” (See Excelsior Ins. Co. v Antretter Contr. Corp., 262 AD2d 124, 127 [1st Dept 1999]; see also St. Vincent’s Hosp. of Richmond v American Tr. Ins. Co., 299 AD2d 338, 339-340 [2d Dept 2002]; New York Hosp. Med. Ctr. of Queens v State Farm Mut. Auto. Ins. Co., 293 AD2d 588, 590-591 [2d Dept 2002]; New York Mut. Underwriters v O’Connor, 105 AD2d 994, 995 [3d Dept 1984].) Indeed, as the court recognized in Lenox Hill Radiology & MIA P.C. v Global Liberty Ins. (20 Misc 3d 434, 438 [Civ Ct, NY County 2008]), “sending [a] verification request to the attorneys [of the medical provider] . . . [is] notice to the principal-provider as a matter of law.” [*3]

In view of the foregoing, in cases where a no-fault claimant chooses to have its claim presented thru counsel, and designates counsel as its agent for receipt of requests for verification, a no-fault insurer should scrupulously respect a claimant or provider’s wish that all such communications be sent to its attorneys for their response. Although the processing of a no-fault claim{**38 Misc 3d at 753} is not supposed to be adversarial (see 11 NYCRR 65-3.2 [b]), practical realities require acknowledgment that attorneys oversee or are involved in each and every step of the process. When such attorneys are designated as a provider’s agent at the claims stage, an insurer ought to honor that designation in the course of processing the provider’s claim for no-fault benefits. Absent circumstances where a statute or regulation requires otherwise, the court sees no reason why an insurer should not communicate directly with counsel for the provider.

Nothing in the no-fault regulations requires a different conclusion. Under the provisions which specifically govern verification requests, an insurer seeking verification must “follow up with the party from whom the verification was requested, either by telephone call, properly documented in the file, or by mail.” (11 NYCRR 65-3.6 [b].) However, the regulation further provides: “[a]t the same time the insurer shall inform the applicant and such person’s attorney of the reason(s) why the claim is delayed by identifying in writing the missing verification and the party from whom it was requested.” (Emphasis added.)

Plaintiff’s counsel correctly maintains that her office should be deemed “the applicant’s attorney” for the purpose of receiving notice of any missing verification as required by this regulation. Pursuant to the currently prevailing case law interpretations of section 65-3.6 (b), a provider seeking payment through an assignment is deemed the “applicant.” (See Cambridge Med., P.C. v Progressive Cas. Ins. Co., 29 Misc 3d 186, 188-189 [Civ Ct, Richmond County 2010], discussing East Acupuncture, P.C. v Allstate Ins. Co., 61 AD3d 202 [2d Dept 2009], and Doshi Diagnostic Imaging Servs. v State Farm Ins. Co., 16 Misc 3d 42 [App Term, 2d Dept 2007].) Moreover, defendant cannot dispute that it was aware, from IIP’s initial claim letter, that IIP was representing plaintiff in connection with the instant claim. Indeed, IIP clearly placed the insurer on notice that the provider’s law firm was acting as its agent for the receipt of all correspondence concerning the bills at issue. (See Cambridge Med., P.C. v Progressive Cas. Ins. Co., 29 Misc 3d at 189.) Therefore, at a very minimum, defendant should have sent written notice of defendant’s follow-up verification request to both plaintiff and IIP, in accordance with section 65-3.6 (b).

Instead of doing so, defendant merely sent copies of its letters to plaintiff’s assignor and her attorney. Under the circumstances at bar, the insurer’s failure to notify IIP of the request for{**38 Misc 3d at 754} verification is inexcusable. At least with respect to the follow-up notice, that failure violated the no-fault regulations governing claim verification.

However, it does not necessarily follow that such a mistake requires a decision granting plaintiff’s motion and denying defendant’s cross motion. As a general rule, when notice is given to a person’s designated agent, that notice is typically imputed to the [*4]agent’s principal. The premise for the general rule is that the agent owes a duty to his principal to forward the notice. While this no-fault matter presents the opposite situation, where notice was given to the principal not the agent, the same general rules should apply. Just as an agent is duty bound to forward notices to his principal, the principal has an implied duty to forward notices to its agent in cases where the principal intends to have an agent act on its behalf. “Every contract of agency carries with it an implied obligation on the part of the principal to do nothing that would thwart the effectiveness of the agency.” (Sidella Export-Import Corp. v Rosen, 273 App Div 490, 492 [1st Dept 1948].) “A party cannot insist upon a condition precedent . . . when its nonperformance has been caused by himself.” (Id.)

In the instant case, the insurer established that its verification requests were timely mailed to the provider, and the provider does not dispute receiving them. Appellate court decisions make plain that “further communication, not inaction” is necessary to preserve objections to arguably improper insurer verification requests. (Westchester County Med. Ctr. v New York Cent. Mut. Fire Ins. Co., 262 AD2d 553, 555 [2d Dept 1999]; see also St. Vincent’s Hosp. v American Tr. Ins. Co., 299 AD2d at 340; New York Hosp. v State Farm Mut. Auto Ins. Co., 293 AD2d at 590-591; accord Five Boro Psychological & Licensed Master Social Work Servs., PLLC v GEICO Gen. Ins. Co., 38 Misc 3d 354 [Civ Ct, Kings County 2012]; Canarsie Chiropractic, P.C. v State Farm Mut. Auto. Ins. Co., 27 Misc 3d 1228[A], 2010 NY Slip Op 50950[U] [Civ Ct, Kings County 2010].) The same should hold true here.

Plaintiff, as an applicant for no-fault benefits seeking payment for its services, knew or should have known that it needed to provide routine verification, in the form of a letter of medical necessity, before its claim would be processed by defendant. Although it apparently received two written requests for such verification, plaintiff never reminded defendant that the notices should have gone to IIP. If plaintiff forwarded the verification{**38 Misc 3d at 755} notices to IIP, that firm did nothing, either. Both had the opportunity to act. Neither raised a timely objection to the requests. The verification was never provided. The claim remained premature. (See e.g. Alev Med. Supply, Inc. v Eveready Ins. Co., 37 Misc 3d 137[A], 2012 NY Slip Op 52184[U] [App Term, 2d Dept,2d, 11th &13th Jud Dists 2012].) Notwithstanding defendant’s failure to also send copies of the verification requests to IIP, plaintiff, not defendant, bears the primary blame for its own predicament.

In closing, under current case law precedent, medical providers have a duty to promptly respond to verification requests which are arguably improper. As appellate courts have noted in other contexts,

“[I]t would be incongruous to conclude that the insurance regulation regarding follow-up verification, or any other statute or rule, warrants a result which would, in effect, penalize an insurer who diligently attempts to obtain the information necessary to make a determination of a claim, and concomitantly, rewards a plaintiff who makes no attempt to even comply with the insurer’s requests.” (Triangle R Inc. v Praetorian Ins. Co., 30 Misc 3d 129[A], 2010 NY Slip Op 52294[U], *2 [App Term, 1st Dept 2010], quoting Infinity Health Prods., Ltd. v Eveready Ins. Co., 67 AD3d 862, 865 [2d Dept 2009].)

[*5]Consequently, the insurer’s failure to send copies of its requests to the provider’s attorneys is immaterial. The action is premature, and accordingly must be dismissed.