MEDICAL SOCY. v. Serio

• Decision Date: 21 October 2003
• Citation: 768 N.Y.S.2d 423,800 N.E.2d 728,100 N.Y.2d 854
• Parties: In the Matter of MEDICAL SOCIETY OF THE STATE OF NEW YORK et al., Appellants, v. GREGORY SERIO, as Superintendent of Insurance of the State of New York, et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

100 N.Y.2d 854

800 N.E.2d 728

768 N.Y.S.2d 423

In the Matter of MEDICAL SOCIETY OF THE STATE OF NEW YORK et al., Appellants, v. GREGORY SERIO, as Superintendent of Insurance of the State of New York, et al., Respondents.

Court of Appeals of the State of New York.

Argued September 10, 2003.

Decided October 21, 2003.

Gleason, Dunn, Walsh & O'Shea, Albany (Thomas F. Gleason of counsel), and Suzanne Y. Mattei, New York City, for appellants.

Eliot Spitzer, Attorney General, New York City (Robert H. Easton, Caitlin J. Halligan and Michael S. Belohlavek of counsel), for respondents.

Joseph Henig, Bellmore, for The New York and Presbyterian Hospital, amicus curiae. Anderson Kill & Olick, P.C., New York City (Eugene R. Anderson and William G. Passannante of counsel), and Amy Bach, Mill Valley, California, for United Policyholders, amicus curiae.

LeBoeuf, Lamb, Greene & MacRae, L.L.P., New York City (G. Richard Dodge, Jr., of counsel), for New York Insurance Association, Inc. and others, amici curiae.

Judges SMITH, CIPARICK, ROSENBLATT, GRAFFEO and READ concur.

OPINION OF THE COURT

Chief Judge KAYE.

This appeal tests the authority of the Superintendent of Insurance to promulgate certain new regulations respecting no-fault automobile insurance benefits, primarily those reducing the time frames for claiming and proving entitlement to such benefits. Petitioners challenge the regulations on a variety of statutory and constitutional grounds. We hold that promulgation of the challenged regulations was within the lawful authority of the Superintendent; that their adoption was undertaken in substantial compliance with the State Administrative Procedure Act; and that their specific provisions are fully consistent with the Insurance Law.

I.

In 1973, the Legislature enacted the Comprehensive Automobile Insurance Reparations Act (see L 1973, ch 13), which supplanted common-law tort actions for most victims of automobile accidents with a system of no-fault insurance. Under the no-fault system, payments of benefits "shall be made as the loss is incurred" (Insurance Law § 5106 [a]). The primary aims of this new system were 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 (see Governor's Mem approving L 1973, ch 13, 1973 McKinney's Session Laws of NY, at 2335).

For 30 years, the Superintendent has promulgated regulations implementing the No-Fault Law, presently codified in article 51 of the Insurance Law.

In 1977, the Superintendent first adopted regulations establishing time frames in which to submit forms and notices pertaining to no-fault claims. Those regulations, adopted as Regulation 68 and codified at 11 NYCRR part 65, required an accident victim to submit a notice of claim to the insurer within 90 days of the accident (11 NYCRR 65.11 [m] [2]; 65.12). Proof of medical expenses for which compensation was sought was required within 180 days of the treatment received; proof of work losses as soon as reasonably practicable; and proof of other necessary expenses within 90 days after services were rendered (11 NYCRR 65.11 [m] [3]; 65.12). Late filings were permitted only when it could be shown that compliance with the deadlines was "impossible" due to specific circumstances beyond the claimant's control (11 NYCRR 65.11 [m] [2], [3]; 65.12).

Between 1992 and 2001, reports of suspected automobile insurance fraud increased by 275%, the bulk of the increase occurring in no-fault insurance fraud. Reports of no-fault fraud rose from 489 cases in 1992 to 9,191 in 2000, a rise of more than 1700%. No-fault fraud accounted for three quarters of the 16,902 reports of automobile-related fraud received by the Insurance Department's Frauds Bureau in 2000, and more than 55% of the 22,247 reports involving all types of insurance fraud. In 1999, the Superintendent established a No-Fault Unit within the Frauds Bureau to focus specifically on no-fault fraud and abuse. By one estimate, the combined effect of no-fault insurance fraud has been an increase of over $100 per year in annual insurance premium costs for the average New York motorist.

According to the Superintendent and certain amici curiae, the most common example of the manner in which such fraud was perpetrated consisted of exploiting the time lag between the alleged loss and the deadline for submitting proof of the loss, coupled with the reality that insurers are given only 30 days to review and investigate claims before paying them without risk of penalties for denying or delaying a claim (see Insurance Law § 5106 [a]; 11 NYCRR 65-3.8). Specifically, ringleaders (often associated with organized crime) would purchase minimum automobile insurance, perhaps under a fraudulent name, on wrecked or salvaged vehicles, and recruit others to fill up the vehicles and participate in staged accidents (typically sideswipes or fender benders). These purported victims were then steered to corrupt medical clinics, called "medical mills," where they feigned aches, pains and soft tissue injuries. The medical mills would then generate stacks of medical bills for each passenger, detailing treatments and tests that were unnecessary or never performed.

Around 90 days after the staged accident, the insurer would be notified of the claim, but not of the large number of bills to follow. When the insurer investigated, only a wrecked vehicle remained. Later, just before expiration of the 180-day period for submitting proof of loss, the medical mills would submit stacks of false bills generated over six months, often reaching the statutory no-fault cap of $50,000 for each passenger.¹ By the time the insurer received the bills and attempted to investigate, the passenger would be pronounced cured, thus frustrating the insurer's ability to perform its own independent medical examination in a timely fashion and forcing the insurer to choose between undertaking largely ineffective investigations and paying questionable claims. Once the bills were received, the insurer had only 30 days to pay the bills or deny the claims without risk of penalty (see Insurance Law § 5106 [a]).

In 1999, in an effort to combat this widespread abuse, the Superintendent proposed an amended Regulation 68. Among the most significant changes was a reduction in the time frames applicable to the filing of notices and proofs of claim—a consequence of the Superintendent's determination that much of the abuse was associated with the lengthy time frames within which claims could be presented to insurers. The Superintendent also concluded that the shorter time frames would better effectuate the legislative purpose of providing prompt compensation "as the loss is incurred" (Insurance Law § 5106 [a]). Petitioners successfully challenged these regulations for failure to substantially comply with the State Administrative Procedure Act (see Matter of Medical Socy. of State of N.Y. v Levin, 185 Misc 2d 536

[Sup Ct, NY County 2000], affd 280 AD2d 309 [1st Dept 2001] [Medical Society I]). While the appeal was pending, the Superintendent re-initiated the rulemaking process and promulgated revised Regulation 68 (repealing and replacing 11 NYCRR part 65)—the subject of the present proceeding.²

Like the regulations invalidated in Medical Society I, the revised regulations, now in effect, reduce the time limit for filing a notice of claim from 90 to 30 days (11 NYCRR 65-1.1, 65-2.4 [b]). They also reduce the time in which to submit proof of loss due to medical treatment from 180 to 45 days, and proof of work loss from as soon as reasonably practicable to 90 days (11 NYCRR 65-1.1, 65-2.4 [c]). At the same time, the new regulations relax the standard for accepting late filings, replacing the previous rule that late filings were permitted only when written proof showed that compliance with a deadline was "impossible" (11 NYCRR 65.11 [m] [2], [3]; 65.12), with a standard excusing a missed deadline when there is a "clear and reasonable justification" for the delay (11 NYCRR 65-2.4 [b], [c]; 65-1.1).

The revised regulations further specify that claims may never be denied as untimely when the reason for the delay is the failure of an employer or other third party to provide information necessary to establish proof of claim for lost wages (11 NYCRR 65-3.5 [m]). In addition, insurers are directed to establish standards for review of their determinations that notices or proofs of claim have been filed late (11 NYCRR 65-3.5 [l]). These standards are subject to Insurance Department review and must, at a minimum, include appropriate consideration for situations where the claimant has difficulty ascertaining the insurer's identity or inadvertently submits a claim to the incorrect insurer. Moreover, insurers are mandated to establish procedures, based on objective criteria, to ensure due consideration of denial of claims based upon late filings, including supervisory review of all such determinations. These standards, as well, are subject to the Superintendent's review. Finally, the regulations provide that insurers must clearly notify each claimant of the new notice requirements and the opportunity to submit a justification for any late notice (11 NYCRR 65-3.4 [c] [1]).

Shortly before the revised regulations were scheduled to take effect, petitioners, by order to show cause, brought this proceeding seeking a declaration of invalidity pursuant to CPLR 3001 and annulment of the regulations pursuant to CPLR article 78. Supreme Court declared that promulgation of the revised regulations did not constitute improper legislative policymaking or an improper delegation of rulemaking authority and dismissed the petition insofar as it sought article 78 relief. The court concluded that the Superintendent had acted within the scope of his authority and jurisdiction, and that respondents had promulgated the...