No Fault Flux: Is Central General Hospital v. Chubb Still Good Law?

Ever since the seminal decisions by the New York Court of Appeals in 1997 in Presbyterian Hospital in the City of New York v. Maryland Casualty Company2 and Central General Hospital v. Chubb Group of Insurance Companies,3 the contours of no-fault law have been relatively clear: With the “exceptional exception”4 of a narrow category of defenses classified as “lack of coverage defenses,” all other potential defenses to a no-fault claim, including that of lack of medical necessity, had to be asserted by a no-fault insurer in a timely denial of claim, to wit, within 30 days after the insurer’s receipt of the bill.5 Should the insurer fail to pay or deny the claim within 30 days or send a timely request for verification, it would be precluded from defending the claim.

As articulated by the Court of Appeals in Fair Price Medical Supply v. Travelers Indemnity Company,6 the fundamental inquiry in determining whether a specific defense is subject to the sanction of preclusion or exempt therefrom under Chubb is whether “there was an actual accident and actual injuries.”7 If the answer to the latter question was in the affirmative, any defense to the claim would be subject to preclusion if not asserted by the insurer in a timely denial. However, a defense predicated on the grounds that the accident was an intentional event8 or that the alleged injuries did not arise out of the subject accident or were not causally related to the accident9 would be non-precludable and, thus, exempt from the 30- day rule.

While the lower courts have expanded the category of non-precludable defenses beyond the rigid definition set forth in Fair Price,10 the New York Court of Appeals, to the chagrin of no-fault insurers, has severely restricted the number of defenses that are exempt from preclusion. For example, in Hospital for Joint Diseases v. Travelers Property Casualty Company,11 the Court of Appeals held that an insurer’s defense that there was defect in the assignment of benefits and that, therefore, the provider did not have standing to sue, was subject to preclusion. And in Fair Price, supra, the Court of Appeals held that an insurer’s defense that the assignor never received the supplies or services in dispute, otherwise known as the defense of provider fraud, had to be asserted in a timely denial. Based upon Chubb and its progeny (“the Chubb doctrine”), only defenses based upon lack of coverage in the first instance, whether because there was not a real accident or because the claimed injuries did not arise out of the subject accident,12 would be exempt from the 30- day rule. All other defenses, including that the treatment was medically excessive or not medically necessary or a defense premised upon a policy or statutory exclusion, were required to be asserted in a timely denial.

Also included in this latter category of defenses that were subject to preclusion under the Chubb doctrine were defenses based upon a breach of a condition precedent to coverage, to wit, the failure of the eligible injured person or the assignor to appear for duly scheduled Independent Medical Examinations (“IME no-show defense”) or the failure of either the assignor or the assignee medical provider to appear for duly scheduled Examinations Under Oath (“EUO no-show defense). As specifically noted by the Court in Chubb: “The denial of liability based upon a lack of coverage within the insurance agreement, as framed in part by the litigation strategy and nature of the instant dispute, is distinguishable from disclaimer attempts based upon breach of a policy condition.” Moreover, in those cases where a nofault insurer asserts a defense premised upon a breach of a condition precedent to coverage, it is usually undisputed that there was “an actual accident and actual injuries.”13 Additionally, while the courts have held that a no-fault insurer could lawfully deny a claim retroactive to the date of loss due to either an IME no-show14 or a EUO no-show,15 under the Chubb doctrine the no-fault insurer’s denial still had to be timely.16

However, two very recent decisions by the Appellate Divisions in the First and Second Departments, Unitrin Advantage Insurance Company v. Bayshore Physical Therapy, PLLC17 and Nyack Hospital v. Allstate Insurance Company,18 have called into question the continuing validity of the Chubb doctrine.

UNITRIN

In Unitrin, the Appellate Division, First Department held that the failure of the assignor to appear for Independent Medical Examinations was a lack of coverage defense that was not precluded by an untimely denial. As stated by the Court in Unitrin:

“The failure to appear for IMEs requested by the insurer “when, and as often as, it may reasonably require… is a breach of a condition precedent to coverage under the No-Fault policy, and therefore fits squarely within the exception to the preclusion doctrine, as set forth in Central General Hosp. v. Chubb Group of Ins. Cos…. Accordingly, when the {medical providers’) assignors failed to appear for the requested IME’s, {the insurer} had the right to deny all claims retroactively to the date loss, regardless of whether the denials were timely issued.”

One paragraph later in its opinion in Unitrin, the First Department, again citing Chubb, noted as follows: “A denial premised on a breach of a condition precedent to coverage voids the policy ab initio and, in such a case, the insurer cannot be precluded from asserting a defense premised on no coverage.”

What is immediately striking about the First Department’s opinion in Unitrin is that the latter court cited Chubb in support of its holding. However, it is readily apparent that the holding in Unitrin is contrary to the decision of the Court of Appeals in Chubb. In Chubb, the Court of Appeals, citing its seminal decision in Zappone v. Home Insurance Company,19 specifically stated that a defense premised upon a breach of a condition precedent to coverage was not a lack of coverage defense exempt from preclusion.

Due to the fact that the decision of the First Department in Unitrin cannot be reconciled with Chubb, it would be expected that the Court of Appeals would be eager to take Unitrin on appeal and use it as an opportunity to revisit its decision in Chubb. However, to the surprise of no-fault practitioners for both medical providers and no-fault insurers, on June 28, 2011, the Court of Appeals denied the medical provider’s motion for leave to appeal in Unitrin.20

By declining to grant the medical provider’s motion for leave to appeal in Unitrin, the Court of Appeals has left open for debate the vital question as to whether a defense based upon a breach of a condition precedent to coverage is a lack of coverage defense or a defense subject to preclusion. This has created needless uncertainty and confusion among both the bench and bar.

NYACK HOSPITAL

In Nyack Hospital v. Allstate Insurance Company,21 the Appellate Division, Second Department, also citing Chubb, held that where a claimant for no-fault benefits intentionally caused an accident in an attempt to commit suicide, the insurer had to issue a timely denial of claim. As noted by the Court in Nyack: “The defendant acknowledged that it failed to timely deny the claim, but contended that it raised a triable issue of fact by submitting evidence indicating that {claimant} intentionally caused her injury in an attempt to commit suicide. However, the failure to establish timely denial of the claim results in the preclusion of the defense that {claimant’s} allegedly intentional act was the cause of the accident and subject to exclusion under the insurance contract. (see Central Gen Hosp. v. Chubb Group of Ins. Cos…”).

However, it is obvious that the Second Department’s decision in Nyack Hospital is antithetical to Chubb. Under the Chubb doctrine, an insurer’s defense that an accident was an intentional event is clearly a lack of coverage defense not required to be asserted by the insurer in a timely denial of claim.22

CONCLUSION

Since the Appellate Divisions in both the First and Second Departments have issued recent decisions that appear to directly conflict with Chubb, it is evident that that further clarification and guidance is needed from the Court of Appeals regarding the continued viability and breadth of the Chubb doctrine. There have been significant changes in no-fault law, including major amendments to the governing regulations, particularly in regard to EUOs,23 since Chubb was decided in 1997. As a result of these changes, it may be time for the Court of Appeals to revisit its decision in Chubb.

As discussed in this article, the question as to whether a breach of a condition precedent to coverage is a lack of coverage defense that is exempt from preclusion is of vital importance to no-fault insurer’s and medical provider’s alike. Yet, given the chance in Unitrin to directly intervene and resolve this issue, the Court of Appeals was conspicuously silent. By failing to act, it is fair to say that the Court of Appeals has left a significant portion of no-fault law in a “state of flux.”

 

ENDNOTES

2 90 N.Y.2d 274, 660 N.Y.S.2d 536 (1997).

3 90 N.Y.2d 195, 659 N.Y.S.2d 246 (1997).

4 Central General Hospital v. Chubb Group of Insurance Companies, 90 N.Y.2d at 199, 659 N.Y.S.2d at 248.

5 As noted by the Court in Presbyterian Hospital: “No-fault reform was enacted to provide prompt, uncontested, first-party benefits. That is the price to be paid to eliminate common-law contested lawsuits… The trade-off of no-fault reform still allows carriers to contest ill founded, illegitimate and fraudulent claim, but within a strict, short-leashed contestable period and process designed to avoid prejudice and redtape dilatory tactics.” 90 N.Y.2d at 285,

6 10 N.Y.3d 556, 860 N.Y.S.2d 471 (2008).

7 10 N.Y.2d at 565, 860 N.Y.S.2d at 475.

8 Westchester Medical Center v. Travelers Insurance Company, 309 A.D.2d 927, 765 N.Y.S.2d 901 (2nd Dept. 2003): Metro Medical Diagnostics v. Eagle Insurance Company, 293 A.D.2d 751, 794 N.Y.S.2d 284 (2nd Dept. 2002); Oleg Barshay, D.C., P.C. v. State Farm Ins. Company, 2006 N.Y. Slip Op. 26496 (App. Term Second Dept. 2006).

9 Central General Hospital v. Chubb Group of Insurance Companies, 90 N.Y.2d 195, 659 N.Y.S.2d 246 (1997); Primary Psychiatric Health, P.C. v. State Farm Mutual Auto Ins. Co., 2007 N.Y. Slip Op. 50583(U) (N.Y. Civ. Ct. Kings Co. 2007). 10 For example, see Midwood Acupuncture PC v. State Farm Mutual Automobile Ins. Co., 2007 N.Y. Slip Op. 50052(U) (App. Term 2nd and 11th Jud. Dists. 2007)(holding that a defense that a provider is fraudulently incorporated survives preclusion); Rockaway Boulevard Medical v. Progressive Insurance, 2005 N.Y. Slip Op. 25278 (App. Term 2nd Dept. 2005)(holding that a defense that a provider is an independent contractor and not entitled to payment pursuant to 11 NYCRR Section 65-3.11(a) is not subject to preclusion).

11 9 N.Y.3d 312, 849 N.Y.S.2d 536 (2007)

12 The PIP Endorsement, set forth in 11 NYCRR Section 65-1.1 provides as follows: “The company will pay firstparty benefits to reimburse for basic economic loss sustained by an eligible injured person on account of personal injuries caused by an accident arising out of the use of a motor vehicle…. 13 Fair Price Medical Supply Corp. v. Travelers Indemnity Company, supra.

14 Celtic Medical Care, PC v. New York Central Mutual Fire Insurance Company, 2007 N.Y. Slip Op. 25057 (App, Term 2nd Dept. 2007)

15 Corona Heights Medical, P.C. v. Lancer Insurance Company, 2011 N.Y. Slip Op. 51293(U) (App. Term 2nd, 11th and 13th Jud. Dists. 2011); W&Z Acupuncture, P.C. v. Amex Asurance Company, 2009 N.Y. Slip Op. 51732(U) (App Term 2nd, 11th and 13th Jud. Dists. 2009); Dover Acupuncture v. State Farm Mutual Automobile Ins. Co., 2010 N.Y. Slip Op. 51605(U) (App. Term 1st Dept. 2010).

16 Stephen Fogel Psychological, P.C. v. Progressive Casualty Insurance Company, 35 A.D.3d 720, 827 N.Y.S.2d 217 ( 2nd Dept. 2006); Westchester Medical Center v. Lincoln General Insurance Company, 60 A.D.3d 1045, 877 N.Y.S.2d 340 (2nd Dept. 2009); Inwood Hill Medical, P.C. v. General Assurance Company, 2005 N.Y. Slip Op. 25437 (App. Term 1st Dept. 2005).

17 82 A.D.3d 559, 918 N.Y.S.2d 472 (1st Dept. 2011)

18 84 A.D.3d 1331, 923 N.Y.S.2d 890 (2nd Dept. 2011).

19 55 N.Y.2d 131, 447 N.Y.S.2d 911 (1982). 20 Unitrin Advantage Insurance Company v. Bayshore Physical Therapy, PLLC, 2011 N.Y. Slip Op. 76777 (2011), 21 84 A.D.3d 1331, 923 N.Y.S.2d 890 (2nd Dept. 2011).

22 See Westchester Medical Center v. Travelers Insurance Company, 309 A.D.2d 927, 765 N.Y.S.2d 901 (2nd Dept. 2003); Metro Medical Diagnostics v. Eagle Insurance Company, 293 A.D.2d 751, 794 N.Y.S.2d 284 (2nd Dept. 2002). 23 See Emergency Amendment to Regulation 68C adopted on April 5, 2002; Eagle Surgical Supply, Inc. v. Progressive Casualty Insurance Co., 2008 N.Y. Slip Op.28342 (App. Term 2nd, 11th and 13th Jud. Dists. 2008).