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PAYMENT OF FRAUDULENT CLAIMS
By: CRAIG J. BRUNO, ESQ., & MICHAEL A. CALLINAN, ESQ.

FOR THE DEFENSE

PAYMENT OF FRAUDULENT CLAIMS

BY:
CRAIG J. BRUNO, ESQ., & MICHAEL A. CALLINAN, ESQ.


The insurance industry’s ability to adequately defend against no-fault insurance fraud has been dramatically under-cut by a recent decision issued by the Appellate Term of the Supreme Court for the 2nd and 11th Judicial Districts. The majority decision issued by Justices Pesce and Rios in Fair Price Medical Supply Corp. v. Travelers Indemnity Company, 2005 N.Y. Slip Op. 25343 (N.Y. App. Term 2nd and 11th J.D. August 11, 2005) holds a no-fault insurance carrier strictly liable for issuing a payment or denial for services allegedly rendered to a patient within 30 days of receipt of said bill as mandated by the no-fault Regulation and upheld by the Court of Appeals in Presbyterian Hospital in the City of New York v. Maryland Casualty Company, 90 N.Y.2d 274 (N.Y. 1997) even if the insurance carrier has proof that the subject billing is for services that were never rendered.

The decision, which flies in the face of common sense, provides unscrupulous individuals a new avenue to commit insurance fraud. The decision, according to the majority, is based upon a strict reading of the language of the no-fault regulation and the Presbyterian decision.

Prior to the Fair Price decision, no-fault insurers would often investigate claims of suspect no-fault billing fraud by conducting examinations under oath of those individuals who allegedly received the suspect treatment. In more severe incidences of suspected no-fault billing, the no-fault carrier could request that the treating physician appear for an examination under oath in order to resolve any questions pertaining to the suspect billing. The only down side to conducting examinations under oath with regard to suspect billing is that they often take weeks to schedule and then even more time to conduct. By the time the examination under oath is conducted, well more than 30-days have passed from when the carrier initially received the suspect bill.

With the information obtained during the course of the examinations under oath, a determination could be made regarding the genuineness of the suspect billing. If the information elicited indicated that the billing was fraudulent in nature, the carrier could then be free to deny same, regardless of when the bill was received by the carrier. After all, logic dictates that fraud is fraud, regardless of when it is discovered and no one should be forced to pay a fraudulent claim, even if the “person” is an insurance company.

The no-fault carriers’ ability to use an examination under oath to investigate areas of suspect no-fault fraud was one of the key elements of the revised no-fault Regulation that was implemented by the Department of Insurance, which covers claims made under polices issued or renewed after April 2, 2002. The validity of the revised Regulation implemented by the DOI, and the authority of the Superintendent of Insurance to do so, was unanimously upheld by the Court of Appeals, In the Matter of Medical Society of the State of New York v. Serio, 100 N.Y.2d 854 (N.Y. 2003).

By utilizing the ability to conduct an examination under oath when a suspect claim is apparent, a no-fault carrier is able to determine if the treatment being billed for was actually rendered to the patient as alleged. In recent years, the no-fault carriers’ use of the examination under oath has become a powerful tool in combating suspected instances of individuals “staging” or “causing” motor vehicle “accidents” for the purposes of submitting fraudulent insurance claims. In combating instances of fraudulent “accidents”, case law has been developed that states that the 30-day pay or deny rule does not apply. See Central General Hospital v. Chubb Group of Insurance Companies, 90 N.Y.2d 195 (N.Y. 1997), Allstate Insurance Company v. Massre, 14 A.D.3d 610 (N.Y. App. Div. 2nd Dept. 2005), State Farm Mutual Automobile Insurance Company v. Laguerre, 305 A.D.2d 490 (N.Y. App. Div. 2nd Dept. 2003), Government Employees Ins. Co. v. Shaulshaya, 302 A.D.2d 522, 756 N.Y.S.2d 79 (N.Y. App. Div. 2nd Dept. 2003), Metro Medical Diagnostics, P.C., v. Eagle Insurance Company, 293 A.D.2d 751 (N.Y. App. Div. 2nd Dept. 2002), Progressive Northwestern Ins. Co. v. Van Dina, 282 A.D.2d 680, 724 N.Y.S.2d 431 (N.Y. App. Div. 2nd Dept. 2001) and National Grange Mutual Insurance Company v. Vitebshaya, 1 Misc. 3d 774, 766 N.Y.S.2d 320 (N.Y. Sup. Ct. 2003). Further, the courts have gone as far to say that a no-fault carrier need not even issue a denial for a fraudulent “accident” based upon the fact that the underlying “accident” was not a covered event under the policy of insurance. See generally, Valley Psychological, P.C. v. Liberty Mutual Insurance Company, 760 N.Y. Supp.2d 627 (Albany City Ct. 2002) (holding that an insurer is not precluded from asserting a defense based upon lack of coverage even if the insurer did not issue a denial of claim form or issued a denial late.)

The core element of the cases that override the strict 30-day pay or deny rule stems from the “issue of coverage” exception set forth by the Court of Appeals in Central General. See Central General, 90 N.Y.2d at 199.

Upon receipt of a suspect bill for services allegedly rendered, a no-fault insurer would request that a party appear for an examination under oath. As with the investigations into suspect “accidents”, the examinations under oath taken in an investigation into suspect no-fault billing would generally take place more than 30-days after the no-fault carrier received the suspect bill.

The carriers’ efforts in investigating no-fault billing fraud by conducting examinations under oath of the involved parties often revealed that the providers were billing for services that were not actually rendered to the patient. If the outcome of the investigation revealed the presence of billing fraud, the no-fault carriers would rely upon the “issue of coverage” exception carved out by the Court of Appeals in Central General and deny the fraudulent bill.

However, the decision in Fair Price apparently limits the carriers’ ability to do just that. Based upon the Court’s holding, even if a treating physician appeared at an examination under oath and testified that he billed for services not rendered, the carrier must still honor his claim for said billing because the subject bill may not have been denied within 30-days of receipt of same. Not only is this illogical, as dictated by Justice Golia in a stinging dissent in Fair Price, but “[b]oth the Court of Appeals and common sense dictate that there can be no insurance coverage if there was no accident or policy covering the car involved. The same must hold true if there was no treatment or medical equipment provided at all.” As Justice Golia points out: “To follow the majority’s holding would be to invite a medical supplier to inundate an insurer with ‘bogus’ claims in hopes that the insurer will fail to deny one within the 30-day limit . . . certainly an absurdity and most assuredly an injustice.”

Even though the Court of Appeals held in Central General and most recently in State Farm Mutual Automobile Insurance Company v. Mallela, 4 N.Y.3d 313 (N.Y. 2005) that an insurer should not pay no-fault claims that do not arise from a covered event or from a duly licensed medical provider, it is, under the Appellate Term’s logic and rationale, necessary to pay for claims for treatment that never took place. It is impossible to rectify the diversity of the decisions.

According to the majority in Fair Price, payment of fraudulent claims is mandated by the no-fault Regulation and prior case law. Unfortunately, the Fair Price decision is the law in the 2nd and 11th Judicial Districts until it is challenged upon appeal, as it most certainly should. But in the interim, the logic of the Appellate Term dictates that it is now necessary to pay knowingly fraudulent claims.

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