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March 22, 2007



Larry Rogak graciously forwarded me his analysis regarding Nyack:


Nyack Hosp. v General Motors Acceptance Corp., 2007 NY Slip Op 02439
(Decided on March 22, 2007) (Court of Appeals)

This is one of those rare decisions which interprets the priority-of-
payment provisions in the no-fault regulations.

The issue on this appeal was whether an insurer which is waiting for
replies to verification requests on a pending no-fault claim that, in
conjunction with all the other claims against the no-fault policy,
causes the aggregate of those claims to exceed $50,000, is prohibited
by the priority-of-payment regulation (11 NYCRR 65-3.15) from paying
already verified claims in the meantime.

The conclusion which the Court reached was that a no-fault insurer
may, indeed, pay already-verified claims while waiting for
verification -- even if that means that the pending claim, once
verified, can't be paid (or can be paid only partially) because the
$50,000 limit will have been used up.

In this particular case, from July 15, 2003 to August 6, 2003,
plaintiff Nyack Hospital treated Allen Zadwyas for multiple
significant traumatic injuries that he suffered in an automobile
accident. The patient was a covered person under an automobile
insurance policy issued by defendants General Motors Acceptance
Corporation and GMAC Insurance Company Online, Inc. (collectively,
the insurer). The policy included the mandatory no-fault endorsement,
providing coverage for basic economic loss up to $50,000 per
person/per accident, with additional coverage for optional basic
economic loss (OBEL) of $25,000 per person [FN1].

The hospital, as the patient's assignee, completed and sent the
insurer the proper forms [FN2] for claiming no-fault benefits for
medical services rendered to the patient during his hospital stay.
The insurer received these forms on August 20, 2003; the hospital's
claim totaled $74,489.28. Sixteen business days later,[FN3] on
September 12, 2003, the insurer asked the hospital to supply the
patient's complete inpatient hospital records. According to the
insurer's claims adjuster, this "additional verification" was
necessary "[i]n order to determine whether the bill should be paid or
denied and to properly assess the medical necessity of the services
rendered" (see 11 NYCRR 65-3.5[b], which provides that "subsequent to
the receipt of one or more of the completed verification forms [here,
the NYS Form NF-5 and the UBF-1], any additional verification
required by the insurer to establish proof of claim shall be
requested within 15 business days of receipt of the prescribed
verification forms".

While awaiting the hospital's response, the insurer paid claims for
the patient's lost earnings, and claims from other health service
providers. The insurer received the additional verification from the
hospital on October 20, 2003. According to the insurer, it had by
then made payments on other claims totaling $29,811.12,[FN4] so that
only $20,188.88 of the $50,000 basic economic loss coverage remained.

On November 11, 2003, the insurer sent the patient an OBEL-election
form (see 11 NYCRR 65-3.7[b], which directs an insurer to mail this
form to an OBEL-eligible person within 15 calendar days after the
insurer has received claims aggregating $30,000 in basic economic

On November 21, 2003, the insurer notified the hospital that action
on its claim was being delayed pending its receipt of this form. The
insurer relied on 11 NYCRR 65-3.8(a)(2), which mandates an insurer
to "defer payment of OBEL benefits for claims submitted by or on
behalf of the [OBEL-eligible person] until an OBEL option has been
elected", and requires the insurer to "pay or deny such claims under
OBEL coverage within 30 calendar days" after an election is made. On
November 24, 2003, the insurer received the completed OBEL-election
form. The patient chose to have lost earnings paid from the OBEL

"The insurer asserts that only $19,325.67 of the $50,000 basic
economic loss coverage remained as of November 24, 2003 when it
received the patient's completed OBEL-election form. On December 9,
2003, the insurer issued the hospital two checks totaling this
amount. On that same date, the insurer also notified the hospital by
letter that personal injury protection and medical benefits under the
policy had been exhausted by these payments."

"The hospital commenced this action in December 2003, alleging that
the insurer had not paid or denied its $74,489.28 claim within 30
days as required by Insurance Law § 5106(a) and 11 NYCRR 65-3.8(a)
(1), and seeking this amount plus statutory interest and attorneys'
fees. After the hospital moved for summary judgment, the insurer
cross-moved for summary judgment dismissing the complaint, contending
that the December 9, 2003 payments were timely, and that it was not
required to pay sums in excess of policy limits. In reply, the
hospital argued that the insurer violated a no-fault regulation
governing priority of payment when it paid health service providers
who submitted their claims after August 20, 2003 before paying the
hospital's claim. The regulation relied on by the hospital states
that 'when claims aggregate to more than $50,000, payments for basic
economic loss shall be made to the applicant and/or an assignee in
the order in which each service was rendered or each expense was
incurred, provided claims therefor were made to the insurer prior to
the exhaustion of the $50,000. If the insurer pays the $50,000 before
receiving claims for services rendered prior in time to those which
were paid, the insurer will not be liable to pay such late claims. If
the insurer receives claims of a number of providers of services, at
the same time, the payments shall be made in the order of rendition
of services.'" (see 11 NYCRR 65-3.15).

"On August 16, 2004, Supreme Court denied the hospital's motion and
granted the insurer's cross motion to dismiss the complaint. On
December 27, 2005, the Appellate Division affirmed, holding
that 'under the circumstances presented, the insurer did not violate
11 NYCRR 65-3.15, as the [hospital's] initial claim was premature
when submitted [on August 20, 2003], and was not complete until the
insurer received additional verification of the claim [on October 20,
2003]'. In addition, the court determined that the applicable
limitation period for the insurer to pay or deny the hospital's claim
did not start to run until November 24, 2003, when the insurer
received the patient's completed OBEL-election form. Accordingly, the
Appellate Division concluded that the insurer's payment of $19,325.67
(the balance of the $50,000 basic economic loss coverage as of
November 24, 2003) to the hospital on December 9, 2003 was correct as
to the amount due and timely. The hospital* [Editor's note: this is
an error; the Court probably meant to write "insurer"] was 'not
required to pay the remaining hospital bill balance of $55,163.61, as
the policy limits had been exhausted by the [insurer's $19,325.67]
payment to [the hospital]'."

"The hospital argues that once it submitted the requisite forms to
make a claim that caused aggregate claims to exceed $50,000, the
insurer had a duty under 11 NYCRR 65-3.15, the priority-of-payment
regulation, 'to keep the money that was due [the hospital] in reserve
(up to the policy limits)' of $50,000. In particular, the hospital
contends that $35,198.09 in policy proceeds remained unpaid and
available on August 20, 2003, and that the insurer should have
delayed paying no-fault claims subsequently received from other
health service providers, pending the hospital's response to the
insurer's request for additional verification. Thus, the hospital
seeks to recover the moneys 'available under the . . . basic economic
[loss] policy as of August 20, 2003, less any sums paid to [the
hospital] or paid out prior to August 20, 2003.'"

"The no-fault regulations provide that 'no-fault benefits are overdue
if not paid within 30 calendar days after the insurer receives proof
of claim, which shall include verification of all of the relevant
information requested pursuant to section 65-3.5'" (11 NYCRR 65-3.8[a]
[1]). With exceptions not relevant to this appeal, an insurer may not
deny a claim 'prior to its receipt of verification of all of the
relevant information requested pursuant to section 65-3.5' (11 NYCRR
65-3.8[b][3]). Section 65-3.5(b), in turn, authorizes the insurer to
request 'any additional verification required . . . to establish
proof of claim . . . within 15 business days of receipt of the
prescribed verification forms.' This language contemplates that an
insurer must pay or deny only a verified claim — that is, a claim
that has been verified to the extent compliance with section 65-3.5
dictates in the particular case — within 30 calendar days of receipt;
and, conversely, is not obligated to pay any claim until it has been
so verified."

"To adopt the priority-of-payment regime advocated by the hospital,
we would have to interpret 'claims' in section 65-3.15 to encompass
claims that have not been verified in accordance with section 65-3.5.
This approach runs counter to the no-fault regulatory scheme, which
is designed to promote prompt payment of legitimate claims. For
example, under the hospital's theory, the insurer in this case could
not have paid any verified claims submitted after August 20, 2003 by
other health service providers or the patient even though the
regulations clearly required the insurer to pay these claims within
30 calendar days after receipt. Further, under the hospital's theory,
once a health service provider submits a bare-bones claim causing
policy limits to be exceeded and thereby blocks other payments, it
would have significantly less incentive to supply the information
necessary to substantiate its claim in a timely fashion."

"As we pointed out in Matter of Medical Socy. of State of N.Y. v
Serio (100 NY2d 854, 867 [2003]), the Superintendent of Insurance, in
adopting revised Regulation 68 (repealing and replacing the prior 11
NYCRR part 65), determined that these regulations were 'the most
effective means of advancing the legislative intent of providing
prompt payment of [no-fault] benefits as the loss is incurred, while
reducing rampant abuse.' To read section 65-3.15 in isolation and
apart from the rest of the revised no-fault program — which sets
tight deadlines for submittal and payment and stresses the justifying
of claims — would frustrate this legislative intent."

"Next, the insurer requested the additional verification from the
hospital 16 business days after receipt of the claim rather than
within 15 business days, as required by 11 NYCRR 65-3.5(b). Section
65-3.8(j), however, specifies that '[f]or the purposes of counting
the 30 calendar days after proof of claim, wherein the claim becomes
overdue . . . with the exception of section 65-3.6 of this Subpart
[65-3], any deviation from the rules set out in this section shall
reduce the 30 calendar days allowed.' Accordingly, the insurer was
required to pay or deny the hospital's claim no later than 29 days
[FN6] after October 20, 2003, when the additional verification was
received, or by November 18, 2003. This deadline was not extended by
the patient's OBEL-eligibility: section 65-3.8(a)(2) of title 11 only
directs the insurer to defer payment of no-fault benefits from the
$25,000 OBEL coverage until an OBEL option has been elected; it does
not command the insurer to defer payment of no-fault benefits from
the $50,000 basic economic loss coverage as well."

"In sum, the priority-of-payment regulation came into play on October
20, 2003 when the insurer received the requested inpatient hospital
records, which established verified claims aggregating more than
$50,000. At that point, the insurer should have paid the hospital
ahead of any other unpaid verified claims for services rendered or
expenses incurred later than the services billed by the hospital, up
to the policy's limits. The insurer was required to pay these moneys
to the hospital no later than November 18, 2003."

"Accordingly, the order of the Appellate Division should be modified,
without costs, by denying defendants' motion for summary judgment and
remitting to Supreme Court for further proceedings in accordance with
this opinion and, as so modified, affirmed.

Footnote 1:"Basic economic loss" is defined to include up to $50,000
per person for certain health service and other reasonable and
necessary expenses as well as lost earnings (see Insurance Law § 5102
[a], [b]). "Basic economic loss" also includes "an additional option
to purchase, for an additional premium, an additional [$25,000] of
coverage which the insured . . . may specify will be applied to loss
of earnings from work and/or psychiatric, physical or occupational
therapy and rehabilitation after the initial [$50,000] of basic
economic loss has been exhausted" (Insurance Law § 5102[a][5]).

Footnote 2:The hospital sent a completed hospital facility form (NYS
Form NF-5) and a uniform billing form (UBF-1) (see 11 NYCRR 65-3.5
[g], which requires an insurer to accept these forms in lieu of the
prescribed application for motor vehicle no-fault benefits [NYS Form
NF-2] and verification of hospital treatment [NYS Form NF-4]).

Footnote 3:Three weekends, including the three-day Labor Day weekend,
elapsed between August 20, 2003 and September 12, 2003.

Footnote 4:The payment log and the claims adjuster's affidavit,
however, seem to indicate that while the insurer had received 17
claims totaling $29,811.12 by October 20, 2003, it had only paid 15
of those claims as of that date. The remaining two claims appear to
have been paid in November 2003 for services rendered or expenses
incurred after the patient's stay at the hospital.

Footnote 5:The OBEL election form asks an OBEL-eligible person to
designate OBEL benefits to one of four categories of basic economic
loss: (1) basic economic loss including health service expenses, loss
of earnings from work, and other reasonable and necessary expenses;
or (2) loss of earnings from work, less statutory offsets; or (3)
psychiatric, physical or occupational therapy and rehabilitation; or
(4) a combination of options (2) and (3) (see 11 NYCRR part 65 [app
13, NYS Form NF-13]). We note that the insurer mailed the OBEL
election form to the patient 22 calendar days after the date (October
20, 2003) on which the insurer asserts its obligation to do so was
triggered, rather than within 15 calendar days as required by 11
NYCRR 65-3.7(b). The tardiness of this mailing does not affect the
outcome of the appeal.

Footnote 6: Section 65-3.8(j) refers to time frames specified "in
this section" (emphasis added), which would seem to limit its ambit
to deadlines in section 65-3.8. If this were the Superintendent's
intent, however, the explicit exception in section 65-3.8(j) for time
frames set forth in section 65-3.6 would be unnecessary. In addition,
the example illustrating how section 65-3.8(j) works is keyed into
the five-business-day deadline in section 65-3.4(b). We note that the
provisions corresponding to sections 65-3.8(j) and 65-3.5(b) in
former part 65 (former 11 NYCRR 65.15[g][10] and 65.15[d][2]
respectively) were included in the same section.

Comment: Okay, what happened here? It seems to me that GMAC did
almost everything right. The one thing they apparently did wrong was
to delay payment to the hospital after the hospital responded to the
verification request for inpatient records, based on GMAC's waiting
for the patient to send back the completed OBEL election form. The
amount of no-fault benefits available was thereby reduced by the
amount of OBEL benefits paid to the patient. This was a mistake.
Once the hospital complied with the verification request, it was
entitled to be paid ahead of the OBEL claim (which in this case would
have used up the remaining PIP benefits and left the patient with
nothing on the OBEL claim).

That was a small victory for the hospital. The hospital's main
assertion, however, was rejected. That assertion was that once it
submitted its unverified claim, all prior verified claims should be
delayed and payment held in abeyance pending final verification of
its own claim. This would be a violation of the priority of payment
rules. And the Court of Appeals reasserts the sound reasoning behind
this: it provides incentive to claimants to get their verification
responses to the insurer as fast as possible.

So this case gets sent back down to Supreme Court, Nassau County,
where both sides will invariably argue contradictory interpretations
of this ruling (which, really, should have done the math and provided
the answers). But what should happen in Supreme Court is that the
hospital should be held entitled to the amount of the OBEL payment
that was made to the patient, and GMAC should then be entitled to go
after the patient for reimbursement of that OBEL payment as an
overpayment (good luck on that one!).

As long as I'm playing out the string here, I might as well add that
GMAC probably should not win if it sues the patient for the
OBEL "overpayment." Why? Because it wasn't really an overpayment.
The patient was entitled to it. It's only an "overpayment" because
the net effect was that GMAC paid more than its basic PIP policy
limit. But other cases have clearly held that there are
circumstances under which a no-fault insurer will have to pay more
than the policy limit. And this, in my view, is one of them.

Larry Rogak


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