Shady Grove Orthopedic Associates v. Allstate

• Decision Date: 15 December 2006
• Docket Number: No. 06 CV 1842(NG)(KAM).,06 CV 1842(NG)(KAM).
• Citation: 466 F.Supp.2d 467
• Parties: SHADY GROVE ORTHOPEDIC ASSOCIATES, P.A. and Sonia E. Galvez, on behalf of themselves and all others similarly situated, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of New York

466 F.Supp.2d 467

SHADY GROVE ORTHOPEDIC ASSOCIATES, P.A. and Sonia E. Galvez, on behalf of themselves and all others similarly situated, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.

No. 06 CV 1842(NG)(KAM).

United States District Court, E.D. New York.

December 15, 2006.

COPYRIGHT MATERIAL OMITTED

John Sheehan Spadaro, Murphy Spadaro & Landon, Wilmington, DE, for Plaintiffs.

Andrew T. Hahn, Sr., James S. Yu, Seyfarth Shaw, LLP, New York, NY, for Defendant.

OPINION AND ORDER

GERSHON, District Judge.

Plaintiffs Shady Grove Orthopedic Associates, P.A. ("Shady Grove") and Sonia E. Galvez bring this class action against defendant Allstate Insurance Company ("Allstate") for Allstate's alleged failure to pay statutory interest penalties owed to New York customers on overdue no-fault benefits. Plaintiffs do not seek recovery of the benefits themselves, which they concede were eventually paid by Allstate, but rather seek payment of the statutory interest penalties allegedly withheld by Allstate in connection with the overdue payments. To that end, plaintiffs request declaratory judgment that Allstate's automobile insurance policies contain an implied representation that Allstate will address no-fault claims in a manner consistent with New York Insurance Law ("N.Y.Ins.Law") § 5106 and Part 65-3 of Title 11 of the New York Compilation of Codes, Rules and. Regulations ("N.Y.C.R.R.") and assert claims against Allstate for breach of contract, bad faith breach of contract, and violation of N.Y. Ins. Law § 5106. On behalf of a putative class, plaintiffs seek damages in excess of $5,000,000 and assert diversity jurisdiction under 28 U.S.C. § 1332(d)(2)(A). Plaintiffs acknowledge that their individual claim, for approximately $500 in damages, fails to meet the monetary requirement for diversity jurisdiction. Allstate now moves to dismiss the claims asserted against it by plaintiffs Shady Grove and Galvez. For the reasons set forth below, the motion to dismiss is granted.

FACTS

The allegations in the Complaint, described below, are taken as true for the purposes of defendant's motion to dismiss.

Allstate is an Illinois corporation that engages in the business of insurance. As part of that business, Allstate regularly sells automobile insurance within the State of New York. Since at least April 2000, Allstate has been among the most prolific underwriters of automobile insurance, including no fault-coverage, in the State of New York. At all times relevant to this case, Allstate has derived substantial revenues and profits from the sale of such insurance products in New. York.

Shady Grove is a Maryland corporation established for the practice of orthopedic medicine. On more than one occasion, Shady Grove's employees rendered medical care and physical therapy to plaintiff Sonia E. Galvez for injuries she sustained in an automobile accident that occurred on May 20, 2005. Ms. Galvez resides in Maryland, but is a named insured under an Allstate "New York Private Passenger Auto Insurance Policy" (the "Allstate policy") which was in effect at the time of the accident.

As part payment for treatment, Ms. Galvez assigned to Shady Grove certain of her rights with respect to first-party no-fault benefits under the Allstate policy. Specifically, Ms. Galvez signed two documents authorizing (i) Shady Grove to apply for benefits from Allstate, and (ii) Allstate to pay the benefits directly to Shady Grove. The first document, titled "Patient Authorization", contains the following language:

I Sonia Galvez hereby authorize Shady Grove Orthopaedic Associates, P.A., to apply for benefits on my behalf for covered services rendered by Shady Grove Orthopaedic Associates, P.A. I request payment from ____ be made directly to Shady Grove Orthopaedic Associates, P.A.

(Compl., Ex. A.). The second document, an "authorization and assignment form", provides as follows:

I also requested that the insurance company pay directly to Shady Grove Orthopaedic Associates, P.A., any PIP benefits due me on their bill for professional services rendered in connection with these injuries.

(Id.).

Pursuant to Ms. Galvez's authorization, Shady Grove tendered to Allstate claims for first-party no-fault benefits under N.Y. Ins. Law § 5106 and Part 65-3 of Title 11 of the N.Y.C.R.R., in connection with the injuries Ms. Galvez suffered as a result of the collision. Allstate failed to make payment of the benefits within the time frame prescribed by N.Y. Ins. Law § 5106(a) and Part 65-3 of Title 11 of the N.Y.C.R.R., rendering the benefits overdue and thus subject to a statutory interest penalty of two percent. To date, Allstate has failed to make payment — to either Shady Grove or Ms. Galvez — of the statutory interest that, according to plaintiffs, continues to accrue.

Plaintiffs Shady Grove and Sonia E. Galvez commenced this lawsuit on April 20, 2006, on behalf of themselves and all others similarly situated. The proposed class, as defined in the complaint, includes all persons to whom Allstate owes interest under N.Y. Ins. Law § 5106 and Part 65-3 of Title 11 of the N.Y.C.R.R. with respect to claims for first-party no-fault benefits arising since April 20,2000. Plaintiffs contend that Allstate routinely fails to pay covered claims for first-party no-fault benefits within the statutorily mandated time period and routinely ignores its obligation to pay the statutory interest owed in such cases. Additionally, plaintiffs allege that Allstate routinely and falsely claims to have never received the insured's proof of loss in the first instance,- so as to avoid violation of the statutory time restrictions.

Pursuant to those allegations, plaintiffs seek declaratory judgment and bring claims for breach of contract, bad faith breach of contract, and violations of N.Y. Ins. Law § 5106.¹ In addition, plaintiffs request that this court enter an order certifying the plaintiff class and appointing Ms. Galvez and Shady Grove's counsel to represent that class, pursuant to Rule 23 of the Federal Rules of Civil Procedure. As a class, plaintiffs seek a declaration establishing the parties' rights, duties, status or other legal relations under the affected insurance contracts. Finally, plaintiffs seek compensatory damages in the form of interest owed to Shady Grove, Galvez and all others similarly situated.

DISCUSSION

I. Standard for a Motion to Dismiss

Under Federal Rule of Civil Procedure 12(b)(6), "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); see also Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002). In considering a motion to dismiss, the court must accept as true all factual allegations set forth in the pleading and draw all reasonable inferences in favor of the plaintiff. Phelps v. Kapnolas, 308 F.3d 180, 184 (2d Cir.2002).

II. New York Law

In this diversity action, state substantive law applies. Because plaintiffs, on behalf of a putative class, assert claims based on Allstate's alleged failure to comply with New York State's Motor Vehicle No-Fault Insurance Law, a brief description of relevant New York law is appropriate.

A. New York's No-Fault Insurance Law

Under New York State's Motor Vehicle No-Fault Insurance Law² (the "no-fault statute"), automobile insurers are required to reimburse policyholders (or insureds), for certain "basic economic loss" (also known as "no-fault benefits"). See N.Y. Ins. Law § 5102(a)(1). Insureds can assign their right to payment for no-fault benefits to health care providers who, in turn, may submit claims directly to insurance companies and receive payment for the claims.

To effectuate the prompt and efficient resolution of claims under the no-fault statute, the New York State Superintendent of Insurance, in 1977, adopted regulations establishing time frames in which to submit forms and notices pertaining to such claims. See generally Medical Soc'y v. Serio, 100 N.Y.2d 854, 768 N.Y.S.2d 423, 800 N.E.2d 728 (2003). In their current form,³ the regulations require that the insured, or her assigned provider, submit proof of loss arising from medical treatment within 45 days from the, date of treatment. See N.Y.C.R.R. tit. 11 § 65-1.1(d). The insurance company, in turn, has 30 days from receipt of the claim to (i) pay the policyholder (or the medical provider if the claim was assigned) or (ii) deny the claim. See N.Y. Ins. Law § 5106(a); N.Y.C.R.R. tit. 11 § 65-3. Payments made by the insurance company after the 30-day period are deemed "overdue" and subject to a penalty of two percent interest calculated monthly. See N.Y. Ins. Law § 5106(a); N.Y.C.R.R. tit. 11 §§ 65-3.8(a)(1), 65-3.9(a). The 30-day period can be extended under certain circumstances if the insurer timely requests verification of the medical services for which reimbursement is sought. See N.Y.C.R.R. tit. 11 § 65-3.5. In that situation, payment must be made within 30 days after the information is supplied to the insurer. See N.Y. Ins. Law § 5106(a). In sum, the no-fault statute was enacted to provide prompt payments of uncontested medical bills.

B. New York's Limitation on Class Actions

Section 901(b) of the New York Civil Practice Law and Rules ("C.P.L.R.") bars the use of the class action mechanism to collect a statutory penalty unless class relief is specifically authorized in the underlying statute. Specifically, § 901(b) provides:

Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.

Id. This subdivision was "designed to discourage massive class actions for statutory...