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The Retroactive Denial
By: Michael A. Callinan, Esq.

FOR THE DEFENSE

THE RETROACTIVE DENIAL

BY: MICHAEL A. CALLINAN, ESQ.

Until the case of Millennium Medical Diagnostic, P.C. v. Liberty Mutual Insurance Company, 2001 Slip Op. 40654U, (N.Y. App. Term. 2nd and 11th J.D. Dec. 6, 2001), affirmed 306 A.D.2d 388 (N.Y. App. Div. 2nd Dept. 2003) was decided by the Supreme Court, Appellate Term, a No-Fault insurer was entitled to retroactively deny payment of any pending No-Fault expenses if the Eligible Injured Party (EIP) failed to appear for an independent medical examination (IME).

In the “Pre-Millennium Era”, if an EIP failed to appear for an IME, the No-Fault insurer was able to deny payment of any pending claims for services rendered back to the date of the accident. Under this rationale, if an EIP was involved in an accident in August and failed to appear for IMEs in December, a No-Fault insurer was entitled to deny any pending claims that may have resulted from any treatment rendered to the EIP in the September through December period; hence the term “Retroactive Denial” is applied to this methodology.

This rationale went unabated for several years until the Appellate Term rendered the Millennium decision. The Millennium Court properly phrased the issue before the court as “whether plaintiff is entitled to recover for medical services provided prior to the plaintiff’s assignor’s failure to appear for four scheduled independent medical examinations requested” by the No-Fault insurer. In rendering a decision against the No-Fault insurer, the Court took a narrow reading of the purpose of the No-Fault insurance law as stated by the Court of Appeals in Walton v. Lumbermens Mut. Cas. Co., 88 N.Y.2d 211 (N.Y. 1996) as being a vehicle “to remove the vast majority of claims arising from vehicular accidents from the sphere of common-law tort litigation, and to establish a quick, sure and efficient system for obtaining compensation for economic loss suffered as a result of such accidents.” Id. at 214.

The Court then held that “the assignor’s failure to appear for independent medical examinations should not, in and of itself, be a bar to plaintiff’s recovery for services rendered prior to his failure to appear.” Millennium, 2001 Slip Op. 40654U at *3. Just like that, the “Retroactive Denial” resulting from an EIP’s failure to appear for an IME existed no more.

The decision rendered by the Millennium Court immediately opened the door to a whole new avenue of No-Fault insurance fraud. Unscrupulous medical providers could arrange for unnecessary medical treatment to be performed on EIPs or submit billing for treatment that was never rendered and not worry about getting paid since payment was all but guaranteed under the Millennium holding. Since the alleged medical services would have been “performed” long before the No-Fault insurer scheduled an IME of the EIP, there was no way for an insurer to determine if the services rendered were necessary or legitimate.



For the next two years, No-Fault plaintiff’s attorneys demanded that No-Fault insurers settle any claims involving the “Retroactive Denial”, citing the Millennium decision. Should the insurer refuse to settle the claim, plaintiff medical provider would then immediately move for summary judgment and cite Millennium as their supporting contention for judgment as a matter of law.

Even with the Millennium decision apparently directly against them, some No-Fault insurers continued to utilize the “Retroactive Denial” due to the fraudulent nature of many of the bills submitted by medical providers.

In the recent decision of Corona Queens Medical, P.C., Assignee of Walter Rangel v. General Assurance Company, New York Civ. Ct. Kings County, Index Number 87060/2002 (decided March 25, 2004) a No-Fault insurer’s persistence with the “Retroactive Denial” paid-off when the Honorable Ellen M. Spodeck, J.C.C., held that an insurer may issue a denial of claim form based upon the failure of an assignor to appear at IMEs if certain elements can be demonstrated. Judge Spodeck, in denying plaintiff’s motion for summary judgment, held that there is a triable issue of fact as to whether an insurer’s request for an IME was reasonable under the circumstances. If the request for an IME was reasonable, then a question of fact exists as to whether applicant or applicant’s attorney is responsible for the delay or inability to schedule the examination. If it is determined that it was the fault of the applicant or applicant’s attorney that the reasonably requested IME did not take place, then “the applicant has breached a condition precedent to coverage under the insurance contract and no action shall lie against the insurer for recovery of benefits.” Id. at 4.

Judge Spodeck also set forth the rationale of how her decision is in conformity with the Millennium holding. The Millennium court held that the assignor’s failure to appear for independent medical examinations should not, in and of itself, be a bar to plaintiff’s recovery for services rendered prior to his failure to appear. The “in and of itself” was the key to fitting inside the Millennium holding, since it did not necessarily bar insurers from retroactively denying benefits after an EIP failed to appear for an IME if certain other factors were met.

In the decision, Judge Spodeck held that if the court was to accept a medical provider’s interpretation of Millennium, it would eliminate any incentive for an assignor to comply with an insurer’s reasonable request for IMEs.

The health care provider would benefit from an assignor’s willful failure to attend the IMEs by having gotten paid for services which the insurer may have later determined, through IMEs, not to have been medically unnecessary and for which it would have been able to issue a timely denial based on lack of medical necessity. If the court were to follow plaintiff’s rationale, it would severely impede defendant’s rights under the insurance contract to protect itself from fraud and excessive charges.

While it can be interpreted that the burden is on the No-Fault insurer to establish the reasonableness of the request for the IME, Judge Spodeck does not give any guidance on which party should bear the burden of showing whose fault it was that the IME did not take place. It appears that, as long as the insurer’s request for an IME was reasonable and the insurer can demonstrate that the IME request letters were mailed to the EIP at the address provided by the EIP, a “Retroactive Denial” would be upheld by the court.

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