INSURER’S FRAUDULENT INCORPORATION DEFENSE TO ITS REFUSAL TO PAY NO-FAULT BENEFITS TO A CORPORATION RUN BY NON-PHYSICIANS WAS PROPERLY PRESENTED TO THE JURY, DEPOSITION TESTIMONY IN WHICH NON-PARTIES INVOKED THE FIFTH AMENDMENT SHOULD NOT HAVE BEEN READ TO THE JURY.

The Second Department, in a full-fledged opinion by Justice Duffy, determined defendant insurance company was entitled to the fraudulent incorporation defense in support of its refusal to pay no-fault benefits to plaintiff corporation for MRI’s administered by plaintiff corporation. The Business Corporation Law required that plaintiff corporation be run by physicians. There was substantial evidence the corporation was being run by two non-physicians with a physician as a cover. The Second Department found that the jury instructions explaining the criteria for the fraudulent incorporation defense were proper. The Second Department noted that the deposition testimony in which the two non-physician operators of plaintiff corporation refused to answer questions (invoking the Fifth Amendment) should not have been read to the jury because they were non-party witnesses. However, the error was deemed harmless. With respect to the fraudulent incorporation defense, the court wrote:

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… [T]he jury charge, read as a whole, adequately conveyed the correct legal principles on “fraudulent incorporation” … . The instructions asked the jury to consider whether, under the totality of the circumstances, the plaintiff was operating as a proper professional medical corporation in compliance with state regulations or whether, in order to obtain money that insurers were otherwise entitled to deny, the plaintiff was organized under the facially valid cover of [a physician] but was, in actuality, operated and controlled by [two non-physicians] to funnel profits to themselves. Carothers v Progressive Ins. Co., 2017 NY Slip Op 02614. 2nd Dept 4-5-17

INSURANCE LAW (INSURER’S FRAUDULENT INCORPORATION DEFENSE TO ITS REFUSAL TO PAY NO-FAULT BENEFITS TO A CORPORATION RUN BY NON-PHYSICIANS WAS PROPERLY PRESENTED TO THE JURY)/CORPORATION LAW (INSURER’S FRAUDULENT INCORPORATION DEFENSE TO ITS REFUSAL TO PAY NO-FAULT BENEFITS TO A CORPORATION RUN BY NON-PHYSICIANS WAS PROPERLY PRESENTED TO THE JURY)/EVIDENCE (DEPOSITION TESTIMONY IN WHICH NON-PARTIES INVOKED THE FIFTH AMENDMENT SHOULD NOT HAVE BEEN READ TO THE JURY)/FRAUDULENT INCORPORATION DEFENSE  (INSURER’S FRAUDULENT INCORPORATION DEFENSE TO ITS REFUSAL TO PAY NO-FAULT BENEFITS TO A CORPORATION RUN BY NON-PHYSICIANS WAS PROPERLY PRESENTED TO THE JURY)