Court of Appeals Continues To Extend No-Fault ‘Preclusion’ Rule

July 2, 2015

A decision issued by the New York Court of Appeals early in June extends application of the court-created “preclusion” rule in no-fault insurance cases, which provides that an insurer’s failure to timely pay or deny a claim results in an insurer being precluded from interposing a defense against payment of the claim, except where the defense raised is lack of coverage. The opinion, in Viviane Etienne Medical Care v. Country-Wide Ins. Co.,1 has important practical implications for consumers, health care providers, and automobile insurance carriers in the state. By decreasing the burden of proof necessary for medical providers to establish their entitlement to summary judgment, the court has increased the likelihood of the submission of fraudulent no-fault claims to insurance companies—and it has increased the risk that insurers will be required to pay out on those fraudulent claims.

The No-Fault System

Under New York’s no-fault law,2 automobile insurance policies must provide for the payment of first-party benefits to certain persons “for loss arising out of the use or operation in this state of [a] motor vehicle.”3 These benefits are intended to reimburse a person for “basic economic loss on account of personal injury arising out of the use or operation of a motor vehicle.”4 Covered expenses include those incurred for “necessary” medical services.5 Thus, to establish entitlement to no-fault benefits for medical services, a party must demonstrate that the loss arose from an automobile accident and that the expenses incurred were medically necessary.

The no-fault regulations provide that a claimant must submit a notice of claim to the insurer as soon as reasonably practicable, but no later than 30 days after the accident.6 If the claimant receives medical services, the claimant, or his or her assignee, must submit written proof of claim for that treatment to the insurer within 45 days of the provision of services.7 This proof of claim must include “full particulars of the nature and extent of the injuries and treatment received and contemplated.”8 Upon receipt of a prescribed verification form, the insurer has 15 days to request “any additional verification required…to establish proof of claim.”9

In addition, an insurer must pay or deny a claim, in whole or in part, within 30 calendar days of receipt of the proof of claim or make a timely request for additional verification.10 An insurer’s failure to do so carries substantial consequences: A failure to pay or deny benefits within 30 days of receipt of “proof of the fact and amount of loss sustained” renders benefits “overdue,” and all overdue payments bear interest at a rate of 2 percent per month.11 Moreover, a claimant is entitled to recover attorney fees for overdue payments.12

This system recognizes the value of quick payments to people injured in auto accidents without the need to go to court, while providing insurance companies with a tool to challenge fraudulent claims by requesting verification. In reality, however, almost all injured persons assign their claims for reimbursement of their medical benefits to their medical providers, who then submit their bills to insurance carriers.

The Court of Appeals itself has added an important wrinkle to the no-fault system. In addition to the statutory penalties, in 1997, by a 4-3 vote, the court ruled that a failure to timely pay or deny a claim results in an insurer being precluded from interposing a defense against payment of the claim, except where the defense raised is lack of coverage.13 Such a rule finds no support in any statute or regulation (although all efforts to legislatively repeal the preclusion rule have proven unsuccessful). It is plain to see that the preclusion rule has transmogrified no-fault litigation over the past 18 years.

In Viviane Etienne, the court took its preclusion rule one step further, making it even easier for medical providers to litigate their no-fault claims, even if fraudulent.

Background of the Case

The Viviane Etienne case arose after Alem Cardenas allegedly was injured in an automobile accident and received treatment at Viviane Etienne Medical Care, P.C. (VEMC). Cardenas’ automobile insurance policy with Country-Wide Insurance Company contained a no-fault endorsement, and Cardenas assigned his right to receive no-fault benefits to VEMC.

To receive reimbursement for the services it said that it had rendered to Cardenas, VEMC submitted to Country-Wide eight verification of treatment forms demonstrating the services rendered or equipment provided, and the corresponding cost. Each form was signature stamped with “V Etienne MD.”

Country-Wide denied payment on one claim in the amount of $139 but did not respond to any of the other claims. No explanation was provided in the court’s opinion for the insurer’s failure to comply with the regulations. Pursuant to the statutory scheme, should the claims be found to be valid, the insurer would be responsible for 2 percent per month interest and attorney fees. The preclusion rule, however, adds the additional penalty of precluding all non-coverage defenses.

VEMC sued Country-Wide, seeking to recover the no-fault benefits, interest, and attorney fees.

Country-Wide answered and asserted as an affirmative defense that payment for VEMC’s claims was not overdue because VEMC had failed to submit “proper proof of the fact and amount of the loss” as required by the no-fault law.

VEMC moved for summary judgment, arguing that it had met its prima facie burden of showing the fact and amount of loss sustained, and that the payment of the benefits was overdue. As support, VEMC submitted the eight verification of treatment forms as proof of claim, along with seven mailing ledgers stamped by the U.S. Postal Service indicating the date the forms were mailed, and the denial of claim form. Additionally, VEMC submitted the affidavit of Roman Matatov, the president of SUM Billing Corp., a third-party billing company hired by VEMC.

Country-Wide opposed the summary judgment motion, arguing that VEMC had not met its prima facie burden as it had not put forth evidence in admissible form because all of VEMC’s exhibits were hearsay with no applicable exception. It asserted that Matatov’s affidavit did not provide sufficient foundation for the admission of the hearsay under the business records exception because the affidavit “merely state[d] the bills were mailed” but gave no other details required to meet the business records exception under CPLR 4518(a).

The trial court denied VEMC’s motion for summary judgment for failure to establish a prima facie case, and the Appellate Term for the Second, Eleventh, and Thirteenth Districts affirmed.

A divided Appellate Division, Second Department, reached a different result and granted VEMC’s motion for summary judgment with respect to all the claims that had not been timely denied by Country-Wide. The dispute reached the Court of Appeals.

The Court’s Decision

The Court of Appeals ruled that a summary judgment motion in a no-fault insurance case where the benefits are overdue only requires proof that the statutory claim forms were mailed to and received by the insurer. Therefore, the court continued, to establish entitlement to summary judgment on overdue no-fault benefits, a medical provider is required to submit proof of mailing through evidence in admissible form. That proof, the court added, may include the verification of treatment form and/or an affidavit from a person or entity with knowledge of the claim and how it was sent to the insurer, or who has relied upon the forms in the performance of its business.

Applying these principles, the court ruled that VEMC had met its prima facie summary judgment burden. It noted that VEMC had submitted the eight verification of treatment forms and Matatov’s affidavit, and that Matatov’s affidavit stated that based on his business agreement with VEMC, SUM Billing had created the verification of treatment forms in the regular course of its business and that the forms had been created soon after the services were provided by VEMC to Cardenas. Matatov’s affidavit also outlined the office practices and procedures used by SUM Billing to mail claim forms to insurers, the court said, adding that it also demonstrated that Matatov himself had mailed the forms.

The Fraud Problem

The majority decision conceded the “risk of an insurer paying out fraudulent claims,” but it did not find that to be too great a concern, stating that it was “part of the price paid for swift, uncontested resolution of no-fault claims.”

The majority opinion, however, severely underplays the problem. For one thing, as recognized in the dissenting opinion by Judge Leslie E. Stein (in which Judge Susan Phillips Read concurred), neither the statutory and regulatory no-fault rules nor the court’s cases creating the preclusion rule support the majority’s application of that rule to the burden of proof required on a summary judgment motion.

More troublesome is the fact that the majority decision has created a summary judgment mechanism in no-fault cases that obviates a health care provider’s burden to demonstrate its entitlement to benefits sought; the provider need only offer proof of billing and non-payment. No other area of the law permits summary judgment without the need to show a substantive entitlement to the relief requested. It is worth noting that the court itself has stated in a previous case that the proponent of a summary judgment motion must make a prima facie showing of “entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact.”14 That is no longer the case in no-fault insurance cases.

The no-fault law and regulations provide for penalties on insurance companies that fail to comply with the no-fault rules, but nothing in the law or regulations indicate that the Legislature intended to excuse a no-fault plaintiff from demonstrating entitlement to benefits as a penalty to the insurer. The no-fault law does not provide that, because benefits are “overdue” and the insurer may be required to pay interest and attorney fees, a plaintiff need not offer admissible evidence establishing the basic elements of a no-fault claim.

Yet, the rule adopted by the majority in the Viviane Etienne case—that only proof of billing and the absence of timely denial or payment are required to obtain reimbursement—extends the court-created preclusion doctrine to allow just that.

Judge Stein perhaps said it best in her dissenting opinion:

The practical effect of the majority’s holding…is that courts lack authority to verify that a no-fault plaintiff has established the basic facts supporting a claim prior to awarding judgment, which is a result inconsistent with our summary judgment rules and, indeed, is not one endorsed even with respect to defaulting defendants.

The majority decision, by giving such great weight to the goal of prompt payment of no-fault claims seemingly ignores another important goal of the no-fault law: to prevent the perpetration of fraud upon the court. At the least, health care providers seeking to recover assigned first-party no-fault benefits should be required to introduce evidence demonstrating the merits of their claims.

One can hope that the Legislature will take notice of this decision and will act to properly balance the system.


1. No. 75 (N.Y. June 10, 2015).

2. N.Y. Ins. Law §5101 et seq.; 11 NYCRR §65 et seq.

3. Insurance Law §5103(a)(1); see 11 NYCRR 65-1.1.

4. Insurance Law §5102(a); see Insurance Law §5102(b).

5. Insurance Law §5102(a)(1).

6. See 11 NYCRR 65-1.1, 65-2.4(b).

7. See 11 NYCRR 65-1.1, 65-2.4(c).

8. 11 NYCRR 65-1.1.

9. 11 NYCRR 65-3.5(b).

10. See Insurance Law §5106(a); 11 NYCRR 65-3.8(a)(1), (c).

11. Insurance Law §5106(a); see 11 NYCRR 65-3.8(a)(1).

12. See Insurance Law §5106(a).

13. Presbyterian Hosp. in City of N.Y. v. Maryland Cas. Co., 90 N.Y.2d 274 (1997). See, also, Fair Price Med. Supply Corp. v. Travelers Indem. Co., 10 N.Y.3d 556 (2008); Hospital for Joint Diseases v. Travelers Prop. Cas. Ins. Co., 9 N.Y.3d 312 (2007);

14. Alvarez v. Prospect Hosp., 68 N.Y.2d 320 (1986).

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Reprinted with permission from the July 2, 2015 issue of the New York Law Journal.  All rights reserved.

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