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Comptroller Has Authority to Audit Private Health Care Providers Who Are Paid through an Insurance Company Under Contract with the State for Health Care Provided to State Employees

The Court of Appeals, in a full-fledged opinion by Judge Rivera, determined the state comptroller had constitutional and statutory authority to audit the billing records of private health care providers (Handler and South) who receive state funds for care provided to state employees through an insurance company under contract with the state. The underlying audit concerned the health care providers' waiver of patients' co-payments which effectively reduced the cost of the care provided by 20%.  Because the state was obligated to pay only 80% of the cost of the care, the comptroller determined the health care providers who waived the copayment were effectively overpaid by the state.  The health care providers argued the comptroller did not have the power to audit them because they were paid by the insurance company, not the state:

Handler and South Island receive State insurance funds in exchange for services rendered to State insurance beneficiaries. The fact that the State relies on a third-party conduit, United [the insurance company], does not change the character of the funds. They remain State dollars directed to pay health care costs incurred by State beneficiaries and charged by Handler and South Island.  Matter of Martin H Handler MD PC v DiNapoli, 2014 NY Slip Op 03191, CtApp 5-6-14

 

Evidence of Headaches Did Not Raise an Issue of Fact Re: “Serious Injury”

The Fourth Department, over a substantial dissent, determined that the evidence of plaintiff’s headaches did not raise a question of fact about whether the headaches constituted “serious injury” within the meaning of Insurance Law 5102 (d):

…[W]e agree with defendant that the court erred in concluding that plaintiff raised an issue of fact based upon her complaints of headaches. Although plaintiff submitted excerpts from her deposition in which she testified that “basically every day I would have some type of headache,” it is well settled that “subjective complaints of pain or headaches are insufficient to establish serious injury’ ” … . Here, the record contains no objective basis for plaintiff’s headache complaints … . Moreover, plaintiff “offered no proof that [her] headaches in any way incapacitated [her] or interfered with [her] ability to work or engage in activities at home” … . Downie v McDonough, 2014 NY Slip Op 03048, 4th Dept 5-2-14

 

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Exclusion from Coverage of Claims Brought By or On Behalf of a Governmental Entity Applied to a Qui Tam Case Brought by a Private Party Pursuant to the Federal and State False Claims Acts Re: Medicare and Medicaid Over-Billing—the Private Party (“Relator”) Is Bringing the Action On Behalf of the Government, Which Is the Real Party In Interest

The First Department determined that the insurer’s motion for a declaration it was not obligated to pay for defendant’s defense in a lawsuit under the Federal False Claim Act alleging excessive Medicare and Medicaid billing.  As allowed under the Act, the suit was brought by a private party, called a “relator.”  The policy excluded coverage for any and claim “Brought by or on behalf of the Federal Trade Commission, the Federal Communications Commission, or any federal, state, local or foreign governmental entity, in such entity’s regulatory or official capacity.”  Supreme Court determined the exclusion did not apply because the suit was brought by a private party.  However, pursuant to the terms of the False Claim Act, the action brought on behalf of the government by the relator and the government is the real party in interest:

An action brought under the False Claims Act may be commenced in one of two ways. First, the federal government itself may bring a civil action against a defendant (31 USC § 3730[a]). Second, as is the case here, a private person, or “relator” may bring a qui tam action “for the person and for the United States Government,” against the defendant, “in the name of the Government” (id. at [b][1]). Under such circumstances, the government may elect to intervene, and if it recovers a judgment, the relator receives a percentage of the award (id. at [d][1]). If the government declines to intervene, as in the case here, the relator may pursue the action and may receive as much as 30 percent of any judgment rendered (see id. at [d][2]).

While relators indisputably have a stake in the outcome of False Claims Act qui tam cases that they initiate, “the Government remains the real party in interest in any such action” … . As the Second Circuit has explained:

“All of the acts that make a person liable under [the False Claims Act] focus on the use of fraud to secure payment from the government. It is the government that has been injured by the presentation of such claims; it is in the government’s name that the action must be brought; it is the government’s injury that provides the measure for the damages that are to be trebled; and it is the government that must receive the lion’s share-at least 70%-of any recovery.” Certain Underwriters at Lloyd’s London Subscribing to Policy No. QK0903325 v Huron Consulting Group, Inc., 2015 NY Slip Op 03608, 1st Dept 4-30-15

 

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Insurer Did Not Demonstrate, as a Matter of Law, the Denials of Claims Were Timely and Properly Mailed—Summary Judgment In Favor of Insurer Should Not Have Been Granted

Supreme Court granted plaintiff insurer’s motion for summary judgment, declaring that the plaintiff was not obligated to pay no-fault claims submitted by the defendant because the defendant was unable to verify the validity of the claims. The Second Department reversed, finding that the plaintiff did not demonstrate, as a matter of law, that the denials had been timely and properly mailed to the defendant. The relevant proof requirements were described:

Generally, “proof that an item was properly mailed gives rise to a rebuttable presumption that the item was received by the addressee” … . ” The presumption may be created by either proof of actual mailing or proof of a standard office practice or procedure designed to ensure that items are properly addressed and mailed'” … . However, in order for the presumption to arise, office practice must be geared so as to ensure the likelihood that a denial of claim is always properly addressed and mailed … . “Denial of receipt by the insured[ ], standing alone, is insufficient to rebut the presumption” … .

Here, the plaintiffs failed to establish, prima facie, that they timely and properly mailed the denial of claim forms to the defendant. The affidavit of Joseph M. Andre … asserted that … all items were mailed through an automated system, and explained how documents were identified. However, Andre did not state, in his affidavit, how the envelopes were addressed so as to ensure that the address was correct or whether the envelope was addressed by the automated system or by an employee. He also did not state how and when the envelopes, once sealed, weighed, and affixed with postage using the automated system, were transferred to the care and custody of the United States Postal Service or some other carrier or messenger service to be delivered. Therefore, Andre’s affidavit was insufficient to establish, as a matter of law, that the denial of claim forms were timely and properly mailed to the defendant… . Progressive Cas. Ins. Co. v Infinite Ortho Prods., Inc., 2015 NY Slip Op 03340, 2nd Dept 4-22-15

 

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Strictly Construing the Policy, Falling Through a Defective Manhole (Located in the Parking Lot) Into the Building’s Septic System Was Not Subject to the “Parking Lot” Exclusion from Coverage—The Claim Did Not Arise from the “Ownership, Maintenance or Use” of the Parking Lot, But Rather Arose from the “Operations Necessary or Incidental” to the Insured Building

The Second Department determined that the exclusion of a parking lot from a bodily injury insurance policy did not apply to the failure of a manhole cover in the parking lot.  Plaintiff’s decedent drowned in the leaching pool below the manhole. The leaching pool and manhole cover were deemed to be part of the building’s septic system.  Therefore the claim arose from operations necessary or incidental to the building, and not out of the “ownership, maintenance or use” of the parking lot:

The policy provided coverage for bodily injury “arising out of . . . [t]he ownership, maintenance or use of the premises . . . and operations necessary or incidental to those premises.” The policy excluded coverage for claims “arising out of . . . [t]he ownership, maintenance or use of [a specified parking lot] or any property located on these premises; [or] Operations . . . necessary or incidental to the ownership, maintenance or use of those premises” (hereinafter the parking lot exclusion). * * *

Exclusions to coverage must be strictly construed and read narrowly, with any ambiguity construed against the insurer … . “[T]o negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case'” … . …

Since the allegedly defective manhole cover and leaching pool into which the decedent fell were part of the building’s septic system, the decedent’s claim arose out of operations necessary or incidental to the building, and not out of the “ownership, maintenance or use” of the rear parking lot. Thus, strictly construing the parking lot exclusion and reading it narrowly, it does not apply … . Lancer Indem. Co. v JKH Realty Group, LLC, 2015 NY Slip Op 03331, 2nd Dept 4-22-15

 

Statute Which Excludes Coverage for a Suit by an Injured Spouse (Passenger) Against Her Husband (Driver) Does Not Exclude Coverage for a Cross-Claim Against Husband (Driver) by the Defendant-Driver Sued by the Injured Spouse (Passenger)

Although the Insurance Law (section 3420 (g)) excludes coverage for an action by injured wife (passenger) against her husband (driver), it does not exclude coverage for a cross-claim against the husband (driver) by the defendant-driver sued by the injured wife (passenger):

Pursuant to Insurance Law § 3420(g), “[i]n the absence of an express provision in an insured’s policy, a carrier is not required to provide insurance coverage for injuries sustained by an insured’s spouse” … . Insurance Law § 3420(g) “was enacted to prevent the possible fraud and collusion that might arise in actions wherein an injured spouse seeks to recover for injuries resulting from the negligence of an insured spouse” … . The chance of fraud and collusion, however, “is slight where a passenger-spouse is suing a third-party who brings a claim for relative contribution against a driver-spouse [as] [t]he recovery of the injured spouse is not dependent upon proving the liability of the driver-spouse” … . Thus, Insurance Law § 3420(g) does not “preclude liability insurance coverage on a third-party claim for contribution against an insured (joint tortfeasor) spouse of an injured [person]” … . Metropolitan Group Prop. v Kim, 2015 NY Slip Op 03138, 2nd Dept 4-15-15

 

Insurer Not Estopped from Disclaiming Coverage Four Years After the Claim—No Prejudice to Insured and Disclaimer Supported by Policy Exclusion

The Second Department determined summary judgment was properly granted to the insurer, despite the passage of four years between the loss of business income claim and the disclaimer.  The policy excluded coverage for business income loss related to the “enforcement of any ordinance or law regulating the construction, use, or repair of any property.”  Although the initial business interruption was caused by vandals damaging the business premises, the delay in reopening was related to the requirement that the insureds obtain a certificate of occupancy.  The lack of a certificate of occupancy was discovered when the building inspector was alerted to the damage caused by the vandalism and the insureds were told they could not reopen until a certificate of occupancy was issued. The Second Department explained that even an unreasonable delay in disclaiming coverage (four years here) will not invalidate the disclaimer unless the insured had been prejudiced.  No prejudice was demonstrated and the disclaimer was supported by the policy exclusion:

An insurer’s delay in giving notice of disclaimer of coverage, even if unreasonable, will not estop the insurer from disclaiming unless the insured has suffered prejudice from the delay … . Since the record reveals no such prejudice, nor is any such prejudice alleged by the plaintiffs, the Merchants defendants established, prima facie, that the disclaimer was effective … . In opposition, the plaintiffs failed to raise a triable issue of fact.

Moreover, the policy of insurance here clearly and unambiguously excludes coverage for losses caused directly or indirectly by the enforcement of any ordinance or law regulating the construction, use, or repair of any property. This provision excludes coverage for losses, including business income losses, caused by the enforcement of the law and, here, it was the enforcement of the Building Code by the Town’s Building Department which prevented the plaintiff from utilizing the premises to engage in their dental business without a proper certificate of occupancy … . Accordingly, the [insurer] established, prima facie, that [it] properly disclaimed, as excluded under the terms of the policy, the loss of business income claim. In opposition, the plaintiffs failed to raise a triable issue of fact. Ira Stier, DDS, P.C. v Merchants Ins. Group, 2015 NY Slip Op 03128, 2nd Dept 4-15-15

 

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Where a Client’s Claims Against an Attorney Arise from the Attorney’s Providing Legal Services Which Are Related In Part to the Attorney’s Business Enterprise, the “Business Enterprise” Coverage Exclusions In the Legal Malpractice Insurance Policy Are Triggered

The First Department, in a full-fledged opinion by Justice Gische, determined the “business enterprise” exclusions in a legal malpractice insurance policy applied. Excluded from coverage were claims arising from the operation of a business enterprise in which the insured attorney was a principal.  The client, who sued for breach of contract and legal malpractice, had loaned money to the attorney’s real estate business and the attorney had drawn up the relevant documents and personally guaranteed payment. The fact that the client’s claims arose in part from the attorney’s involvement in his business enterprise triggered the policy exclusions.  The First Department, in this declaratory judgment action, held that the legal malpractice insurer had no duty to defend:

[The attorney] was simultaneously serving two masters, … his client, and a company of which he was a principal. This is precisely the situation that the policy’s Insured Status and Business Enterprise Exclusions exclude from coverage. Since [the client’s] claims partly arise from the legal services the attorneys provided her with, but also from [the attorney’s] status or activity for his company…, they are of a hybrid nature, and are not covered, meaning that [the insurer] has no duty to defend … .Lee & Amtzis, LLP v American Guar. & Liab. Ins. Co., 2015 NY Slip Op 02919, 1st Dept 4-7-15

 

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A Stipulation Cannot Bind an Insurer to Nonexistent Coverage

In finding that a hearing was required to determine if respondent was entitled to supplemental uninsured/underinsured motorist (SUM) coverage, the Third Department noted that a stipulation, which implied the existence of such coverage, could not bind the insurer:

Supreme Court erred in concluding that the parties’ stipulation waived the issue of respondent’s entitlement to SUM coverage. Although the stipulation stated that, “[u]pon the completion of [certain] discovery set forth [in the stipulation, petitioner] agrees to proceed to arbitration,” a stipulation cannot create coverage of an individual, nor the obligation to arbitrate the issue of coverage, where the individual does not meet the relevant contractual prerequisites for coverage … . Stated differently, the stipulation cannot independently bind petitioner to supply coverage where no such coverage exists under the policy. Matter of Preferred Mut. Ins. Co. (Fisher), 2015 NY Slip Op 02837, 3rd Dept 4-2-15

 

Exclusions from Uninsured Motorist Coverage in Pennsylvania Policy Unenforceable in New York

The Second Department determined the exclusions from uninsured motorist coverage in a Pennsylvania policy violated New York public policy and the insurer was obligated to provide $300,000 of uninsured motorist coverage:

“[I]nsurance policies, like all contracts, should be enforced according to their terms unless they are prohibited by public policy, statute or rule” … . “If an attempted exclusion is not permitted by law, the insurer’s liability under the policy cannot be limited” … . Here, the exclusions contained in the uninsured motorist coverage endorsement of Progressive’s Pennsylvania policy are not permitted by New York law. “Insurance Law § 3420(f)(1) requires that every automobile insurance policy contain an uninsured motor vehicle endorsement. Neither that statute nor any regulations applicable to it mentions any exclusions” … . Since the exclusions are “without the approval or protection of the law” …, they should not be given effect … .

Since we have determined that the underlying exclusions are invalid, and the policy does not contain a term expressly limiting coverage to the statutory minimum, no such limitation will be read into the policy … . Consequently, Progressive’s policy must be read as affording uninsured motorist coverage up to its stated limit of $300,000. Braithewaite v Progressive Cas. Ins. Co., 2015 NY Slip Op 02717, 2nd Dept 4-1-15

 

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