Thaler v. Stern

• Decision Date: 16 October 1964
• Citation: 44 Misc.2d 278,253 N.Y.S.2d 622
• Parties: Application of Seymour R. THALER, Petitioner, v. Henry Root STERN, Jr., Superintendent of Insurance of the State of New York, and Associated Hospital Service of New York, Respondents, for an Order pursuant to Article 78 of the Civil Practice Law and Rules.
• Court: New York Supreme Court

Page 622

253 N.Y.S.2d 622

44 Misc.2d 278

Application of Seymour R. THALER, Petitioner, v. Henry Root STERN, Jr., Superintendent of Insurance of the State of New York, and Associated Hospital Service of New York, Respondents, for an Order pursuant to Article 78 of the Civil Practice Law and Rules.

Supreme Court, Special Term, New York County, Part I.

Oct. 16, 1964.

Richard A. Brown, New York City, for petitioner.

Louis J. Lefkowitz, Atty. Gen., by Samuel A. Hirshowitz and Joel Lewittes, New York City, for respondent Superintendent of Insurance.

Breed, Abbott & Morgan, by Charles H. Tuttle, William C. Breed, Jr., William W. Colville and H. William Van Wagenen, Jr., New York City, for respondent Associated Hospital Service of New York.

Curran, Mahoney, Felix & Stim, by Menahem Stim, New York City, for Ass. of Private Hospitals, Inc., amicus curiae.

Poletti, Freidin, Prashker & Gartner, by Jesse Freidin, New York City, for Greater New York Hospital Assn., Inc., amicus curiae.

Herman A. Gray and Edward C. Maguire, New York City, for New York State AFL-CIO, amicus curiae.

Harold, Luca, persky & Mozer, by Robert J Mozer, New York City, for District Council 37, American Federation of State, County and Municipal Employees, AFL-CIO, amicus curiae.

Delson & Gordon, by Ralph P. Katz, New York City, for United Federation to Teachers, Local No. 2, amicus curiae.

GERALD P. CULKIN, Justice.

This is a proceeding brought pursuant to article 78 of the Civil Practice Law and Rules to review and annul a determination of the Superintendent of Insurance of the State of New York (Superintendent), approving an increase in subscriber premium rates of the Associated Hospital Service of New York (AHS), a non-profit hospital service corporation organized and existing under the provision of article 9-C of the Insurance Law. Respondents, Superintendent and AHS have answered and here move for dismissal of the petition as insufficient in law and AHS further moves for summary judgment. Petitioner asserts that factual issues are raised and seeks a trial thereof, pursuant to CPLR § 7804(h).

Initially, respondents challenge the petitioner's standing to bring these proceedings, charging that he has not suffered an invasion of any legally protected individual right by the grant of the subscriber rate increase, so as to entitle him to seek judicial review thereof. Indeed, the Superintendent believes himself to be the 'sole guardian of the public interest,' in regard to approving or disapproving requests for rate increases by AHS, suggesting that his actions are virtually unreviewable. We deem the cases cited by respondent in support of this proposition to be inapposite to the case at bar. Petitioner does not allege that he is vindicating any right of the public at large, but rather his individual rights as a premium-paying subscriber of AHS. As such he is directly and individually affected by any increase in AHS subscriber rates. In view of legislative pronouncements in respect of judicial reviewability of acts of the Superintendent (see e. g., Insurance Law, §§ 34, 257), the court rejects the suggestion that his determination in this matter is non-reviewable.

Nor can it seriously be questioned that this court has the power to order a trial of factual issues found to exist upon such a proceeding as here. While such a trial is not here deemed appropriate, the court is in agreement with petitioner's assertion that one such triable 'issue' might well be a determination of the objective adequacy of complex financial reporting data and procedures upon which an administrative determination is founded.

A great many affidavits, exhibits and briefs have been submitted to the court for consideration upon these motions. While former restrictive practice dictated that only the petition was to be considered upon a motion addressed to the legal sufficiency of that pleading, the increased liberality of the CPLR regarding such motions generally (CPLR § 3211 [a]), and the conjoining of a motion for summary judgment, have inclined the court to consider all the papers submitted herein. Having acceded to the parties' own efforts to broaden the scope of this judicial inquiry, the court finds, in papers dehors the pleadings, sufficient to cure a rather glaring defect in the petition, namely, its failure to supply a source or basis for allegations made merely on information and belief. The court has also entertained affidavits and amicus curiae briefs from representatives of a number of organizations interested in and affected by these proceedings. Joining the petitioner in attacking the Superintendent's determination are the New York State AFL-CIO and the United Federation of Teachers, whose members constitute a substantial number of subscribers. Conversely, a number of hospital groups have submitted exhibits and affidavits in refutation of certain blanket charges levelled at the hospital community of the Greater Metropolitan Area by the petitioner in the course of these proceedings, which charges have received considerable publicity in the local press. These charges variously include allegations of 'chiseling, cheating, waste or theft' on the part of AHS member hospitals; a 'cozy and oft-times clandestine relationship' between member hospitals and AHS and 'unjust enrichment, short of indictable conduct'. Responding to these charges are the following groups: The Greater New York Hospital Assn., Inc., representing 99 voluntary, non-profit hospitals and homes, 25 municipal hospitals and 10 community organizations; and the Association of Private Hospitals, Inc., representing 29 of the 39 proprietary hospitals in New York City. Lastly, a number of administrative officials of voluntary, non-profit hospitals have submitted individual affidavits as part of respondents' moving papers.

These charges of conscious wrongdoing, while serious and deserving of a fuller exposition, have but an indirect bearing on this proceeding, and will not be pursued herein. Were a sufficient showing of such wrongdoing made to the Superintendent, as would have reasonably required him to undertake an investigation to determine the effect on subscriber rates, then his failure to so act might well put in doubt the reasonableness of any determination. An examination of the record of the hearings held, however, leads the court to conclude that no sufficient showing of wrongdoing was made to justify such action. Moreover, for reasons stated below, the court finds that in the unique situation here presented, not even clear proof of these charges would require overturning the particular determination here challenged. In this latter regard, the court is mindful that various District Attorneys and other investigative bodies have, at petitioner's urging, undertaken an extensive investigation of these charges. Surely appropriate judicial proceedings will follow upon these investigations, if warranted. One area of this issue is worthy of mention. Petitioner's own papers demonstrate that these charges are aimed at the community of proprietary (profit-making) hospitals and not at our voluntary, non-profit institutions. Without making any prejudgment concerning the existence of or extent of wrongdoing on the part of private hospitals, the court finds it regrettable indeed that countless charitable institutions, selflessly serving our community, have been needlessly tarred with the same brush of blanket accusation.

The only questions which may be raised in a review proceeding under article 78 of the CPLR are enumerated in CPLR § 7803. Of these, only two are conceivably applicable herein: 1) whether the Superintendent failed to perform a duty enjoined upon him by law, and/or 2) whether the Superintendent's determination was made in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion.

The duties specifically imposed upon the Superintendent in respect of AHS, as here applicable, are set out in the following statutory provisions: Insurance Law, § 28(2)(a), which directs him to examine into the affairs of AHS at least once every three years; Insurance Law, § 254(2), which provides that all rates of payments to hospitals made by AHS be approved as to reasonableness by the Superintendent, prior to payment (the duty of determining the adequacy of these rates is charged to the Commissioner of Social Welfare); Insurance Law, § 255(2), which provides that AHS shall not enter into any contract with a subscriber unless and until it files a full rate schedule with the Superintendent and obtains his approval thereof. There is the further provision that the Superintendent may refuse such approval if he finds that such rates are 'excessive, inadequate or unfairly discriminatory'; Insurance Law § 256(4) authorizes the Superintendent to approve a reduction of AHS' Reserve Fund down to 75% of the amount set by statute (even lower reductions are authorized in the event of epidemic or other catastrophe). Such reduction, however, must be restored within a period of three years; Insurance Law § 255(2) also mandates that any rate approved by the Superintendent must make provision for such increases as are necessary to meet the above requirement for restoration of reserves.

Early this year, AHS made an emergency application for reduction of its statutory reserves and at the same time sought approval of a comprehensive new plan (the Current Cost Proposal) which would have significantly altered (and substantially increased) its subscriber premium rates. After due consideration of the financial picture of AHS, which showed, inter alia, an operating loss of over $13 million for the first three months of 1964, the Superintendent granted approval of a 25% emergency reduction in required reserves, 'being satisfied that failure to do so would have left the Plan in a condition wherein it would be deemed to be insolvent on or about March 31, 1964 and...