Man Bites Dog Story

Injunction Against Arbitration of No Fault Claims

Barry Zalma

Aug 07, 2024

Transcript

BACKGROUND

State Farm is an insurer in New York. As part of New York’s No Fault insurance scheme, State Farm is required to directly provide insureds with “basic economic loss” of up to $50,000 for costs arising from motor vehicle accidents. The payment goes to the insured by default, but the benefits may be paid “upon assignment . . . to providers of health care services.” After a claim for services is submitted, the insurer verifies the claim and is entitled to receive all items necessary to verify the claim directly from the parties from whom such verification was requested. The insurer must pay or deny the claim within 30 calendar days after proof of claim is received.

Pursuant to the No Fault Insurance scheme, NYC Medical submitted a series of claims to State Farm that then conducted an investigation into those claims surveying the records of NYC Medical patients and analyzing the legitimacy of the billed services. For the purposes of verifying the claims, State Farm requested additional records from NYC Medical, which were not fully supplied. State Farm subsequently denied each claim for lacking proper proof and failing to comply with a condition of coverage. Defendant then sought recovery for the unpaid claims in over 50 separate AAA arbitrations.

State Farm sued seeking declaratory relief asserting that it does not owe NYC Medical for unpaid claims in excess of $595,000.

DISCUSSION

Irreparable harm is the single most important prerequisite for the issuance of a preliminary injunction in the absence of a showing of irreparable harm, a motion for a preliminary injunction should be denied. Irreparable harm is injury that is neither remote nor speculative, but actual and imminent and that cannot be remedied by an award of monetary damages.

In the insurance context, courts have found irreparable harm where an insurer is required to waste time defending numerous no-fault actions when those same proceedings could be resolved globally in a single, pending declaratory judgment action.

State Farm alleged that it suffered irreparable harm because the arbitrations initiated by NYC Medical against State Farm are likely to lead to inconsistent results. State Farm argues the risk of inconsistent judgment is exasperated by the limited discovery available in the relevant expedited arbitration and the resulting practical limitations on defending a claim denial.

Plaintiffs have a strong argument that such inconsistent rulings will potentially have a negative impact on their declaratory judgment claim. Indeed, the risk of inconsistent judgments, even in the arbitration context, has previously been found to constitute irreparable harm.

State Farm has demonstrated that there is a risk of inconsistent judgments amidst over 50 pending arbitrations and countless future proceedings brought by plaintiff. Therefore, the Court found that State Farm has established it faces irreparable harm absent an injunction.

State Farm demonstrated that there are serious questions as to whether State Farm owes NYC Medical for unpaid No Fault benefits due to uncertainty regarding potential non-physician ownership, services provided by independent contractors, and non-compliance with reporting requirements.

The public would be unharmed by the preliminary injunction because the dispute is limited in nature, impacting only the named private parties. Furthermore, the insureds, who are members of the public, already received services that NYC Medical claims were necessary. Therefore, the public faces no negative consequences from the preliminary injunction.

For the reasons stated above, defendant’s motion for preliminary injunction is GRANTED.

ZALMA OPINION

No fault auto insurance statutes, like the statute in New York, has become a profit center for health care providers who are intent on fraud and by providing less than competent and necessary medical services. The injunction was granted and NYC Medical must prove each of the 50 claims in the single declaratory relief action and allow State Farm the discovery necessary to prove the attempted fraud.