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NY County Supreme Court Strikes Down Carrier's Fee Schedule Defense in Light of Untimely Denial

Mercury Casualty Co. v. Encare Inc. a/a/o Robert Manley NY County Supreme Court

Supreme Court, New York County (Saliann Scarpula, J.), Index no. 102610/2011

In this declaratory judgment action, defendant Encare, Inc. moved to dismiss plaintiff Mercury Casualty Company's (Mercury) complaint and Mercury cross moves for partial summary judgment.

This action arose out of a December 27, 2007 motor vehicle accident, in which Encare's assignor Robert Manley (Manley) was injured. Mercury, an automobile insurance liability carrier, issued non-party Nelson Rodriquez an insurance policy, which included a no-fault endorsement providing coverage to all eligible injured persons in the amount of $50,000. As a no-fault injured person, Manley was entitled to receive no-fault benefits for "all necessary expenses". Encare subsequently provided Manley with medical-treatment for his injuries and submitted a bill to Mercury for its skilled nursing services and home health care services in an amount totaling $23,760.00. To date, Mercury has paid $10,504.00.

After Mercury's failure to pay all charged amounts, Encare submitted the matter to the American Arbitration Association ( AAA ) for adjudication. At a hearing, Mercury asserted that the amount paid to Encare was the usual and customary fee for a home health aide. On November 3,2010, Arbitrator Lucille S. DiGirolomo ruled in favor of Encare and ordered Mercury to pay an additional $9,306.00 for services rendered by Encare to Manley, noting that Mercury's denials of the amounts billed were not on prescribed forms, missing the dates the billing was received by the insurance carrier, and untimely.

Further, the arbitrator noted that even if the denials were proper and timely, Mercury did not substantiate its claim that the reimbursement was made in accordance with the usual and customary fee for the specific services rendered. On November 19, 2010, via letter, Mercury filed a demand for Master Arbitral review. On February 1, 2010, the Master Arbitrator upheld the lower arbitrators ruling.

Thereafter, Mercury commenced this action seeking a judgment declaring that it did not owe Encare any additional monies for services rendered by Encare to its assignor Robert Manley, except for interest due on late payments and attorneys fees. In its complaint, Mercury asserted that it paid the reasonable geographic and customary value of the services… in accordance with the Workers Compensation fee schedule.

Encare now moves to dismiss the complaint, arguing that Mercury failed to state a cause of action under CPLR 3211(a)(7) because Mercury's fee schedule defense is precluded as a matter of law. Mercury cross-moves for partial summary judgment, arguing that it paid the usual and customary amount for services rendered in full satisfaction of its obligations and that it was not precluded from asserting a fee schedule defense.

Mercury alleges that Encares charges were excessive and inconsistent with the usual and customary fees provided in the Workers Compensation fee schedule. A no fault claim must not exceed the legally permissible fee. Insurance Law 5108(c); see Goldberg v. Corcoran, 153 A.D.2d 113 (2nd Dept. 1989); see also Jamil M Abraham MD. P.C. v. Country Wide Ins. Co., 3 Misc.3d 130A (N.Y. App. Term, Sup. Ct. 2004).

To successfblly invoke a fee schedule defense for non-payment of charges, however, an insurers denial of a claim must be timely. See P. L. P. Acupuncture, P. C. v. Travelers Indem. Co., 19 Misc.3d 126A (N.Y. App. Term, lst Dept. 2008). An insurer must either pay or deny a claim for no-fault vehicle insurance benefits within thirty days from the date an applicant provides proof of a claim. SeeFair Price Medical Supply Corp. v. Travelers Indem. Co., 10 N.Y.3d 556 (2008); Mount Sinai Hosp. v. Chubb Group of Ins. Companies, 43 A.D.3d 889 (2ndD ept. 2007). An insurer that fails timely to deny is precluded from offering a defense against payment of that claim. Hosp. for Joint Diseases v. Travelers Prop. Cas. Inc. Co., 9 N.Y.3d 3 12 (2007). (My emphasis added)

A fee schedule defense does not fit into the narrow lack of coverage defense exception to the preclusion rule. See A.B. Med. Sews. PLLC v. Prudential Prop. & Cas. Ins. Co., 11 Misc.3d 137A (N.Y. App. Term, 2 d Dept. 2006); Struhl v. Progressive Cas. Ins. Co., 7 Misc.3d 138A (N.Y. App. Term, Znd Dept. 2005). A fee schedule defense, therefore, is only preserved if an insurer has complied with the thirty-day rule and issued a timely denial.

Here, the record shows that Mercury failed to issue a timely denial. Mercury does not deny that it failed timely to deny Encares claims. Instead, Mercury argues that its fee schedule defense should not be precluded because there is no First Department ruling on this specific defense. Mercury, however, has failed to demonstrate any reason for this Court to deviate from the current Appellate Term case law in New York, which provides that a fee schedule defense is precluded if an insurer's denial is untimely, As Mercury's fee schedule defense is precluded, Encares motion to dismiss the complaint is granted.

As Mercury's fee schedule defense is precluded due to a failure to comply with the thirty-day denial rule, Mercury has not asserted a valid cause of action and therefore Encares motion to dismiss is granted.

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