David M. Barshay

Both the No-Fault statute (Ins. Law §5101, et seq.) and the corresponding no-fault regulations (11 NYCRR 65-1.1, et seq.) provide for basic personal injury protection (PIP) benefits of $50,000 for reimbursement of covered medical benefits, lost wages and other necessary expenses. The policy limits may be increased by the purchase of additional personal injury protection coverage (APIP), as provided by 11 N.Y.C.R.R. §65-1.3, and optional basic economic loss coverage (OBEL), as specified in Insurance Law §5102(a)(5). Owners of certain vehicles are required to maintain higher coverage. For example, owners of New York City vehicles for hire, taxis, black cars, limousines and commuter vans are required to maintain $200,000 in PIP coverage (35 RCNY §59A-12(b) and (c)).

When an insurer “has paid the full monetary limits set forth in the policy, its duties under the contract of insurance cease.” Countrywide v. Sawh, 272 A.D.2d 245 (2d Dept. 2000). As it is a coverage defense, an insurer’s contention that the coverage limits of the policy have been exhausted may be asserted despite the insurer’s failure to raise that defense in a timely denial-of-claim form. New York & Presbyt. Hosp. v. Allstate, 12 A.D.3d 579, 580 (2004).

11 NYCRR 65-3.15 of the no-fault regulations governs the order in which claims should be paid when a policy is at or near exhaustion. That section states:

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.

In Nyack Hosp. v. General Motors Acceptance, 8 N.Y.3d 294, 301 (2007), the Court of Appeals held that this provision “came into play…when the insurer received the requested [additional verification]…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.” Thus, in the context of §65-3.15, the term “claims” is limited to claims for which responses to any timely requests for additional verification (pursuant to 11 NYCRR 65-3.5) were provided to the insurer. In other words, if additional verification was requested, but not yet furnished, on a particular claim, it is not ripe, and any subsequently received claim that is fully verified (i.e., responses to verification requests have been furnished, or no additional verification was requested) should be paid ahead of that claim.

We previously reported on several decisions and the apparent split in the First and Second Departments concerning an insurer’s obligation to pay claims that were previously timely denied before the underlying insurance policy was exhausted. See No-Fault Insurance Law Wrap-Up, N.Y.L.J. June 9, 2016 and April 12, 2017). Thus, several decisions in the First Department held that an insurer was not precluded by §65-3.15 from paying other providers’ legitimate claims subsequent to the denial of the plaintiff medical provider’s claims. See, e.g., Harmonic Physical Therapy v. Praetorian Ins., 47 Misc.3d 137(A) (App. Term, 1st Dept. 2015); Allstate v. Northeast Anesthesia & Pain Mgt., 2016 NY Slip Op. 50828(U) (App. Term, 1st Dept. 2016). The Second Department reached a different conclusion in Alleviation Med. Servs. v. Allstate, 2017 NY Slip Op 27097 (App. Term 2d, 11th & 13th Jud. Dists. 2017) and held, based on a reading of §65-3.15 and Nyack Hospital, supra, that by denying the claim, the insurer implicitly declared that the claim was fully verified, and therefore, the insurer was required to pay that claim before other claims received later on.

Waiver Issue

Another issue that arises from time to time is whether an insurer can ever be deemed to have waived its policy exhaustion defense.

That issue was discussed to some extent in several court decisions, the most recent of which appeared in the case of Breeze Acupuncture v. Allstate, 58 Misc.3d 1217(A) (Civ. Ct. Bx. Cty. 2018) decided on Feb. 1, 2018. In that case, a trial was held to determine whether the plaintiff medical provider was entitled, pursuant to the No-Fault Insurance Law, to reimbursement for an unpaid medical bill. After trial, the court reduced the amount of the bill pursuant to the applicable fee schedule and awarded judgment in plaintiff’s favor for the reduced amount. A judgment was subsequently entered. The defendant insurer subsequently moved, pursuant to CPLR §5019(a), to modify the judgment by reducing it to zero on the ground that the applicable insurance policy was exhausted.

Recognizing that “when an insured [sic] establishes that it has exhausted the no-fault limits under its policy because it paid all amounts allowed under the policy to medical providers, it is generally not liable for any other amounts” and further recognizing that “even when a judgment is issued against an insurer requiring it to pay for medical expenses incurred by its insured under the no-fault provisions of its insurance policy, if the insurer has exhausted the amount for which it is liable under the policy, the judgment can generally not be enforced” the court nevertheless denied the defendant’s motion.

The basis for the denial of the motion was the court’s determination that the defendant waived the policy exhaustion defense when it was aware of the policy exhaustion at the time of trial (having exhausted the policy four years earlier) but failed to raise it during the trial. As the court noted, its decision is consistent with several other decisions. For example, Ortho Passive Motion v. Allstate, 55 Misc.3d 794 (Nass. Cty. Dict. Ct. 2017) involved an almost identical scenario in which the defendant insurer, having known of the purported policy exhaustion over three years earlier, proceeded to trial without raising the policy exhaustion defense. The court in that case likewise denied the insurer’s motion to inter alia, modify the judgment. In Mount Sinai Hosp. v. Dust Transit, 104 A.D.3d 823 (2d Dept. 2013), the plaintiff medical provider moved for and was granted summary judgment. The defendant insurer thereafter moved, pursuant to CPLR 2221, to modify the order to reduce the amount awarded based on a partial policy exhaustion. The lower court granted that motion and on appeal, the Appellate Division reversed, holding, inter alia, that the defendant failed to demonstrate reasonable justification for its failure to previously present its proof of partial policy exhaustion in opposition to the plaintiff’s summary judgment motion. See, also, Ortho Passive Motion v. Allstate, 55 Misc.3d 152(A) (App. Term 2d, 11th & 13th Jud. Dists. 2017); Westchester Med. Ctr. v. Lincoln Gen. Ins. (82 A.D.3d 1085 (2d Dept. 2011).

Thus, notwithstanding their disagreement as to the application of §65-3.15 to denied claims, both the First and the Second Departments answer yes to the question of whether an insurer can ever be deemed to have waived its policy exhaustion defense. As to the related question of at what point in litigation must an insurer raise the policy exhaustion defense before it is deemed waived, both Departments agree that where the insurer has knowledge of the policy exhaustion, it must, at the very least, raise it at trial and, possibly, in opposition to a motion for summary judgment. Cf. Hospital for Joint Diseases v. Hertz, 22 A.D.3d 724 (2d Dept. 2005) (insurer was not collaterally estopped from raising policy exhaustion in a motion to modify the judgment where the policy exhaust defense was not an issue in the underlying motion for summary judgment and the insurer did not have a full and fair opportunity to litigate that issue in the motion); St. Barnabas Hosp. v. Country Wide, 79 A.D.3d 732 (2d Dept. 2010).

With respect to arbitrations, “an arbitrator’s award directing payment in excess of the monetary limit of a no-fault insurance policy exceeds the arbitrator’s power and constitutes grounds for vacatur of the award.” Allstate  v. Northeast Anesthesia & Pain Mgt., 51 Misc.3d 149(A) (App. Term 1st Dept. 2016); Allstate v. DeMoura, 30 Misc.3d 145(A) (App. Term 1st Dept. 2011). It would appear that a policy exhaust defense in such a proceeding, if known, should, as in a court action, be raised in the insurer’s written submission, or at least at the arbitration hearing. However, the two First Department cases supra, citing Brijmohan v. State Farm, 92 N.Y.2d 821 (1998) (an uninsured motorist claim) further held that the insurer’s contention that the arbitrator’s award exceeded the policy limits “will not be waived if the party relying on it asserts it … in opposition to an application for confirmation.”

Verification Request Defense

In TAM Med. Supply Corp. v. Travelers Ins., 58 Misc.3d 161(A) (App. Term 2d, 11th & 13th Jud. Dists. 2018), the defendant insurer moved for summary judgment, arguing that the plaintiff medical provider failed to provide requested additional verification. The plaintiff opposed the motion and sought an order, pursuant to CPLR 3212(g), that for purposes of trial, plaintiff timely submitted its bills to the defendant. The lower court denied the motion, declined to make a 3212(g) finding and, instead, stated that “At trial [plaintiff] has the burden to prove its prima facie case and whether it fully complied with [defendant’s] verification requests.” On appeal, the Appellate Term affirmed the denial of the 3212(g) finding and affirmed the portion of the order stating that the plaintiff has the burden of proving its prima facie case. “However, inasmuch as it is a defendant’s burden at trial to show that it has a meritorious defense and that such a defense is not precluded,” the court reversed the portion of the order requiring the plaintiff to prove that it fully complied with the verification requests. With respect to the plaintiff’s request for a 3212(g) finding (the court “shall, if practicable, ascertain what facts are not in dispute”), the Appellate Term, like the lower court, declined to grant the request.


David M. Barshay is a member of Baker Sanders in Garden City. Steven J. Neuwirth, a member of the firm, assisted in the preparation of this article.