Fair Price Med. Supply Corp. v. Travelers Indemnity Co.

• Decision Date: 12 June 2007
• Docket Number: 2006-02763.
• Citation: 2007 NY Slip Op 05220,42 A.D.3d 277,837 N.Y.S.2d 350
• Parties: FAIR PRICE MEDICAL SUPPLY CORP., as Assignee of CESAR NIVELO, Respondent, v. TRAVELERS INDEMNITY COMPANY, Appellant.
• Court: New York Supreme Court — Appellate Division

42 A.D.3d 277

837 N.Y.S.2d 350

2007 NY Slip Op 05220

FAIR PRICE MEDICAL SUPPLY CORP., as Assignee of CESAR NIVELO, Respondent, v. TRAVELERS INDEMNITY COMPANY, Appellant.

2006-02763.

Appellate Division of the Supreme Court of the State of New York, Second Department.

June 12, 2007.

Karen C. Dodson, New York City (Carol R. Finocchio of counsel), for appellant.

Alden Banniettis, Brooklyn (Jeff Henle of counsel), for respondent.

Thomas Torto, New York City, amicus curiae, for American Insurance Association and another.

Rivkin Radler, LLP, Uniondale (Evan H. Krinick, Cheryl F. Korman and Stuart M. Bodoff of counsel), amicus curiae, for New York Insurance Association.

OPINION OF THE COURT

PRUDENTI, P.J.

The question presented on this appeal is whether an insurance carrier is precluded from interposing a defense in an action to recover assigned first-party no-fault benefits if it fails to pay or deny the claim within 30 days, where it has reason to believe that the claim fraudulently seeks reimbursement for medical supplies that were never delivered to the insured. Because the carrier's proposed defense in this case is not based on a lack of insurance coverage, this question must be answered in the affirmative.

The insured, Cesar Nivelo, allegedly was injured in an automobile accident on May 8, 2001. In May and June 2001, pursuant to prescriptions from a physician and a chiropractor, the plaintiff, Fair Price Medical Supply Corp., allegedly furnished to Nivelo various medical supplies, including a Transcutaneous Electrical Nerve Stimulator (referred to in the record as a TENS unit), an infrared heat lamp, a massager, a thermophore (heating pad), a cervical pillow, and a lumbosacral support. Nivelo assigned to the plaintiff his right to recover the cost of the medical supplies from the defendant, Travelers Indemnity Company, Nivelo's no-fault insurance carrier. The "Assignment of Benefits" forms executed by Nivelo set forth a list of the prescribed medical supplies under the heading "Equipment Delivered," and under the subheading "I have received [the] following supplies." On September 18, 2001, and October 13, 2001, the plaintiff submitted claims for first-party no-fault benefits to the defendant, itemizing the supplies it had allegedly delivered to Nivelo and seeking reimbursement in the total sum of "$1,638.98 [sic]." The defendant requested letters of medical necessity, which the plaintiff supplied on November 6, 2001.

The defendant never paid the claims, and did not deny the claims until August 15, 2003, after the plaintiff resubmitted them. The defendant's denial of the claims was based upon a statement by Nivelo in which, according to the defendant, he "denied receiving any medical supplies" as a result of the injuries he sustained in the subject accident. The statement cited by the defendant appeared in a 10-page questionnaire supplied by the defendant, entitled "No Fault Statement," which was signed by Nivelo and dated October 4, 2001. Item number 190 on the form asked: "What medical supplies did you receive? (electric massager) (Velcro back brace) (neck brace) (Left/right knee brace) (Crutch) (cane) (Dental brace) (Mattress) (car seat) (neck pillow) (whirlpool) (heating pad) (infer-red [sic] heat lamp) (tens unit) (left/right Wrist brace) Other ____________." On the blank line at the end of the question, the word "none" was handwritten.

The plaintiff commenced this action in the Civil Court of the City of New York, Kings County, to recover the cost of the medical supplies it allegedly furnished to Nivelo, as well as attorney's fees. The defendant asserted, as one of its affirmative defenses, that the plaintiff's claims "were properly denied by Defendant based upon a statement from Cesar Nivelo that no supplies were ever furnished by Plaintiff to Mr. Nivelo." The plaintiff subsequently moved for summary judgment on the complaint. In opposition, the defendant submitted, inter alia, the "No Fault Statement" signed by Nivelo, and argued that there was a triable issue of fact as to whether the prescribed medical supplies were ever delivered to Nivelo. The Civil Court, among other things, denied the plaintiff's motion, concluding that the defendant had raised a triable issue of fact as to whether Nivelo had received the medical supplies in question, and that its untimely denial of coverage would not preclude it from raising a defense of fraud.

The plaintiff appealed, and the Appellate Term of the Supreme Court, Second and Eleventh Judicial Districts, in a 2-1 decision, reversed the order of the Civil Court insofar as appealed from, granted the plaintiff's motion for summary judgment, and remitted the matter to the Civil Court for a calculation of statutory interest and an assessment of attorney's fees. The Appellate Term majority concluded that, since the defendant's claim of fraud was not a defense based on a lack of coverage, the defendant's failure to deny or pay the plaintiff's claims in a timely fashion precluded it from asserting its defense, and the plaintiff was therefore entitled to summary judgment. The Appellate Term dissent asserted that the majority's ruling resulted in an "absurdity" and an "injustice," in that it compelled the defendant to pay an allegedly "made-up claim" which was the product of "pure fraud." In the dissent's view, the claim in this case should have been treated the same as a fraudulent claim based on a staged automobile accident, the untimely denial of which would not result in preclusion. The defendant, by permission of the Appellate Term, appeals to this Court.

When an eligible covered person, or that person's assignee, submits to an insurer a claim for first-party no-fault automobile insurance benefits, the insurer is required to either pay the claim or deny it within 30 days after the applicant supplies proof of claim (see Insurance Law § 5106 [a]; 11 NYCRR former 65.15 [g] [3]). Amounts not paid within the 30-day time frame are "overdue," and the applicant may commence an action against the insurer to recover such amounts (Insurance Law § 5106 [a]). In such an action, an insurer that has failed to either pay or deny the claim within the 30-day period may be precluded from interposing a defense (see Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274 [1997]; New York & Presbyt. Hosp. v Allstate Ins. Co., 30 AD3d 492 [2006]; Nyack Hosp. v State Farm Mut. Auto. Ins. Co., 11 AD3d 664 [2004]).

In Zappone v Home Ins. Co. (55 NY2d 131 [1982]), the Court of Appeals explained that whether a failure to timely disclaim coverage will result in preclusion depends upon the insurer's reason for not paying the claim. The insurer in that case advised the insureds, in an untimely fashion, that it would not provide coverage for the subject accident because the automobile involved in the accident was not covered under the insureds' automobile liability policy with the insurer. The Court of Appeals held that, under former Insurance Law § 167 (8) (the predecessor of Insurance Law § 3420 [d]), the insurer was not precluded from denying coverage. The Court concluded that, although preclusion is an appropriate consequence of an insurer's failure to promptly assert its right to invoke a policy exclusion and deny a claim, such a failure cannot operate to create insurance coverage where none otherwise existed. The Court explained that the requirement that an insurer promptly deny coverage "refer[s] to denial of liability predicated upon an exclusion set forth in a policy which, without the exclusion, would provide coverage for the liability in question. It does not encompass denial that the policy as written could not have covered the liability in question under any circumstances" (Zappone, 55 NY2d at 134). The requirement of a prompt disclaimer, and the attendant remedy of preclusion, were not designed "to provide an added source of indemnification which had never been contracted for and for which no premium had ever been paid" (id. at 137). Thus, where an insurer is entitled to deny a claim based on an absence of coverage, its failure to timely disclaim coverage does not preclude it from denying liability on that ground.

In Matter of Worcester Ins. Co. v Bettenhauser (95 NY2d 185 [2000]), the Court of Appeals restated the Zappone rule as follows:

"Disclaimer pursuant to [Insurance Law §] 3420 (d) is unnecessary when a claim falls outside the scope of the policy's coverage portion. Under those circumstances, the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed. By contrast, disclaimer pursuant to section 3420 (d) is necessary when denial of coverage is based on a policy exclusion without which the claim would be covered" (95 NY2d at 188-189).

In a pair of cases decided together in 1997, the Court of Appeals applied the holding of Zappone in the context of no-fault insurance. In Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co. (90 NY2d 274 [1997], supra), the insurer, after failing to timely deny the claim filed by the assignee of an automobile accident victim, sought to assert as a defense a statutory exclusion based on the victim's intoxication at the time of the accident. In Central Gen. Hosp. v Chubb Group of Ins. Cos. (90 NY2d 195 [1997] [hereinafter Chubb]), where the insurer similarly failed to timely deny a claim, the Court of Appeals addressed two defenses asserted by the insurer: (1) that the injured person's condition and hospitalization were not related to the subject accident, but instead were attributable to a work-related accident that had occurred a year earlier, and (2) that the medical treatment provided by the assignee hospital was excessive. In Presbyterian, the Court held that the insurer was precluded from interposing its defense, since its basis for denying coverage was not an absence of coverage, but an...