A.M. Med. Servs., P.C. v. Progressive Cas. Ins. Co.

• Decision Date: 17 October 2012
• Citation: 2012 N.Y. Slip Op. 06902,953 N.Y.S.2d 219,101 A.D.3d 53
• Parties: A.M. MEDICAL SERVICES, P.C., as assignee of Sergo Chadaevi, appellant, v. PROGRESSIVE CASUALTY INSURANCE COMPANY, respondent.
• Court: New York Supreme Court — Appellate Division

101 A.D.3d 53

953 N.Y.S.2d 219

2012 N.Y. Slip Op. 06902

A.M. MEDICAL SERVICES, P.C., as assignee of Sergo Chadaevi, appellant,

v.PROGRESSIVE CASUALTY INSURANCE COMPANY, respondent.

Supreme Court, Appellate Division, Second Department, New York.

Oct. 17, 2012.

Alden Banniettis, Brooklyn, N.Y. (Jeff Henle of counsel), for appellant.

McCormack & Mattei, P.C., Garden City, N.Y. (John E. McCormack and Joshua R. Youngman of counsel), for respondent.

DANIEL D. ANGIOLILLO, J.P., THOMAS A. DICKERSON, ARIEL E. BELEN, and L. PRISCILLA HALL, JJ.

ANGIOLILLO, J.P.

The plaintiff, a medical provider and a professional service corporation, commenced this action against the defendant insurance company to recover assigned no-fault benefits for medical services the plaintiff allegedly rendered to a covered person for injuries he sustained in an automobile accident. The Civil Court of the City of New York, Queens County, in a judgment affirmed by the Appellate Term, granted the defendant's motion, in effect, for summary judgment dismissing the complaint on the ground that the plaintiff,on its claim forms, identified the treating medical professionals as independent contractors. We granted the plaintiff's motion for leave to appeal from the order of the Appellate Term to address issues of apparent first impression in our Court, which frequently arise in the Civil Court and Appellate Term. First, we hold, consistent with a line of cases from the Appellate Term, that where a professional service corporation is an assignee of a person covered by a no-fault insurance policy, it is not entitled to recover first-party no-fault benefits where the treating medical professional was an independent contractor, rather than an owner or employee of the professional service corporation. Second, we hold that this defense is not exempt from the preclusion rule, which rule vitiates a denial of coverage where an insurer fails, within the statutory time limit, to issue a denial of claim on the ground on which it purports to rely. Since, here, the defendant failed to issue a timely denial of claim on the ground that the treating medical providers were independent contractors, the defendant is precluded from asserting that ground for denial of coverage as a defense in this litigation.

Factual and Procedural Background

The No–Fault Claims and Pleadings

On June 24, 2002, Sergio Chadaevi, incorrectly named herein as Sergo Chadaevi, was injured in an automobile accident. Following the accident, the plaintiff, A.M. Medical Services, P.C. (hereinafter the PC), allegedly provided medical services to Chadaevi, who assigned to the PC his right to recover first-party no-fault benefits from the responsible no-fault insurer for the cost of those services.

On July 30, 2002, the PC, as Chadaevi's assignee, submitted two claims to the defendant, Progressive Casualty Insurance Company (hereinafter the insurer), seeking no-fault insurance benefits for services provided to Chadaevi in the amounts of $205.77 and $2,290.00, respectively. On the claim forms, the PC listed its name and address under the heading “Provider's Billing Name and Address,” and stated that it was a professional service corporation owned by Ernest Horowitz, M.D. Under the heading “Treating Provider's Name,” the PC listed two medical professionals: a physical therapist, Ashraf Ab Abdel–Halim, PT, and a medical doctor, Leonid I. Livchits, M.D. On both claim forms, the notation “Ind. Contractor” was entered next to both treating providers under the heading “Business Relationship.”

It is undisputed that the insurer did not pay the bill for $205.77 and made partial payment of $732.90 on the second bill, leaving a balance allegedly due in the sum of $1,762.87. It is also undisputed that the insurer did not issue a written denial of the claim stating that the ground for the denial was that independent contractors were the treating providers, and it did not send the PC any requests for verification of the assignment or for other information.

By the filing of a summons and complaint, both dated September 19, 2002, the PC, as Chadaevi's assignee, commenced this action against the insurer in the Civil Court, Queens County, to recover the sum of $1,762.87, as well as statutory interest and an attorney's fee pursuant to Insurance Law § 5106(a). The insurer served an answer dated October 28, 2002, denying the material allegations of the complaint and asserting several affirmative defenses, including the failure to state a cause of action and the failure to comply with the no-fault provisions of the Insurance Law generally. However, the insurer did not expressly assert the affirmative defense that the treating providers were independent contractors.

The Insurer's Motion for Summary Judgment

By notice dated June 12, 2007, the insurer moved, in effect, for summary judgment dismissing the complaint on the ground that the PC had “no standing” to seek recovery of no-fault benefits since the medical services were rendered by independent contractors, and not the PC's owner or employees. In support of its motion, the insurer submitted, among other things, copies of the subject claim forms, and an informal opinion of the Office of the General Counsel (hereinafter the General Counsel) of the New York State Department of Insurance (hereinafter the Insurance Department) dated February 21, 2001, representing the position of the Insurance Department. The General Counsel opined that “[w]here the health services are performed by a provider who is an independent contractor with [a professional service corporation (“PC”) ] and is not an employee under the direct supervision of a PC owner, the PC is not authorized to bill under No–Fault as a licensed provider of those services.”

In opposition to the insurer's motion, the PC contended that the insurer had waived its “no standing” argument by failing to deny the claims on that ground or to request verification within the statutory time frame, citing Hospital for Joint Diseases v. Travelers Prop. Cas. Ins. Co., 9 N.Y.3d 312, 319–320, 849 N.Y.S.2d 473, 879 N.E.2d 1291. The PC further contended that the insurer's independent contractor defense was foreclosed by Matter of Health & Endurance Med., P.C. v. Deerbrook Ins. Co., 44 A.D.3d 857, 845 N.Y.S.2d 66 and, in any event, that the treating providers here were not, in fact, independent contractors but were employees of the PC. In support of the latter contention, the PC submitted trial transcripts in three unrelated actions to which the insurer was not a party and asserted that, in each of those actions, the Civil Court, Queens County, determined that the subject treating providers were employees of the PC, despite having been erroneously designated as independent contractors on the claim forms due to a computer error ( see A.M. Med. Servs., P.C. v. Allstate Ins. Co. [Civ.Ct., Queens County, Sept. 20, 2007, Raffaele, J., Index No. 54450/02]; A.M. Med. Servs. P.C. v. Allstate Ins. Co. [Civ.Ct., Queens County, Sept. 24, 2007, Healy, J., Index No. 85935/02]; A.M. Med. Servs. P.C. v. Allstate Ins. Co. [Civ.Ct., Queens County, Aug. 9, 2007, Mayersohn, J., Index No. 74118/02] ).

The Order and Judgment of the Civil Court

In an order dated and entered November 30, 2007, the Civil Court (Lebedeff, J.), granted the insurer's motion. The Civil Court noted that the claim forms submitted by the PC identified the treating providers as independent contractors and held, in effect, that the PC was not the licensed provider authorized to bill the insurer for payment of no-fault benefits. On January 2, 2008, upon the order dated November 30, 2007, the Civil Court entered judgment in favor of the insurer, dismissing the complaint. The PC appealed.

The Order of the Appellate Term

In an order dated December 31, 2008, the Appellate Term of the Supreme Court for the Second, Eleventh, and Thirteenth Judicial Districts (Pesce, P.J., Golia, Rios, JJ.), affirmed the judgment of the Civil Court ( see A.M. Med. Servs., P.C. v. Progressive Cas. Ins. Co., 22 Misc.3d 70, 877 N.Y.S.2d 633). The Appellate Term held that a no-fault insurer is entitled to summary judgment dismissing a complaint asserted against it by a professional corporation where the health care services were actually rendered by an independent contractor,and that Matter of Health & Endurance Med., P.C. v. Deerbrook Ins. Co., 44 A.D.3d 857, 845 N.Y.S.2d 66 did not stand for the contrary proposition ( see A.M. Med. Servs., P.C. v. Progressive Cas. Ins. Co., 22 Misc.3d at 71, 877 N.Y.S.2d 633).

The Appellate Term further held that

“ ‘where a billing provider seeks to recover no-fault benefits for services which were not rendered by it or its employees, but rather by a treating provider who is an independent contractor, it is not a “provider” of the medical services rendered within the meaning of [11 NYCRR 65–3.11(a)] and is therefore not entitled to recover “direct payment” of assigned no-fault benefits from the defendant insurer’ ” ( id. at 72, 877 N.Y.S.2d 633, quoting Rockaway Blvd. Med. P.C. v. Progressive Ins., 9 Misc.3d 52, 54, 802 N.Y.S.2d 302 [App.Term, 2d Dept., 2d & 11th Jud. Dists.] ).

The Appellate Term held that “[t]he independent contractor defense is nonprecludable,” and that “[a]n insurer is not obliged to issue a denial in order to assert the nonprecludable, independent contractor defense” ( A.M. Med. Servs., P.C. v. Progressive Cas. Ins. Co., 22 Misc.3d at 72, 877 N.Y.S.2d 633). According to the Appellate Term, the PC's assertions that the treating providers were actually its employees, and that the claim forms misidentified them as independent contractors, were “irrelevant” since the PC failed to submit bills entitling it to payment, and the insurer justifiably relied on the claim forms. Further, the Appellate Term held that the PC was not permitted, in the midst of litigation, to argue for the first time that its claim forms were incorrect, for to do so would lead to...