Maimonides Medical Center
Maimonides Medical Center (Wiki)

Scrutinizing a law that requires insurance companies to pay claims in a timely manner, a Brooklyn appellate court has determined the law gives claimants an implied right to file suit against their insurer.

The Prompt Pay Law “does impose specific duties upon insurers and creates rights in patients and health care providers, and thus militates in favor of the recognition of an implied private right of action to enforce such rights,” Justice Leonard Austin (See Profile) of the Appellate Division, Second Department wrote for a unanimous panel in a matter of first impression, Maimonides Medical Center v. First United American Life Insurance Company, 2012-03138.

Justices Reinaldo Rivera (See Profile), Mark Dillon (See Profile) and Thomas Dickerson (See Profile) joined Austin in the decision, which affirmed a lower court’s denial of a dismissal bid but applied a different interpretation of the law.

Between the May 21 arguments and Wednesday’s rulings, the parties—Maimonides Medical Center and First United American Life Insurance Company—entered a confidential settlement. The Second Department knew about the accord but still opted to rule on the case.

The ruling centers on the wording of the 1997 Prompt Pay Law. Under its terms, insurers have 30 days to pay undisputed claims submitted electronically and 45 days to pay after receiving the undisputed claim by other means.

If the claim is disputed, insurers have 30 days to pay any undisputed portion and notify the policyholder, covered individual or health care provider why the insurer considers itself not liable. The law also allows insurers to seek more information to determine possible liability.

When insurers fail to follow the law, a violation mandates payment of the full claim amount, plus 12 percent interest per annum in settlement.

From 2007 to 2011, Maimonides cared for six patients who had supplemental Medicare insurance coverage policies through First United. The hospital billed the insurance company for more than $19 million and received just over $4 million.

The hospital then sued for the remainder, claiming violations of the Prompt Pay Law, breach of contract and unjust enrichment.

First United moved to dismiss the six causes of action, asserting there was no express or implied private right of action. Instead, enforcement rested solely with the New York State Department of Insurance, now part of the state’s Department of Financial Services.

The hospital insisted it had an implied right, arguing that the law was designed to protect health care providers like itself, and a private right furthered the law’s goal of ensuring claims were paid on time.

In February 2012, Brooklyn Supreme Court Justice Carolyn Demarest (See Profile) denied First United’s motion, writing there was an “express legislative intent” to offer a private right of action. She pointed to Insurance Law §3224-a(c)(1), a provision on enforcement and penalties saying insurers “shall be obligated” to pay the provider or patient the full claim plus interest if a violation occurs.

The Second Department affirmed Demarest, but said the right was implied and not expressly stated.

In his decision, Austin noted a 1995 Second Department case, Henry v. Isaac, 214 AD2d 188, which found an implied private right of action for an adult-care facility resident under Social Services Law Article 7, which governs residential care programs.

The Department of Social Services had broad enforcement authority under the law, such as power to investigate, mete out civil penalties and revoke or suspend licenses.

But the Henry court said the statute was “not simply remedial” via its enforcement mechanism; it also “afford[ed] the residents various rights and impose[d] an affirmative duty on the operators of adult care facilities to provide specified services and care.”

The Henry court said the law protected a specific class of individuals, and a facility’s obligations directly affected those individuals. But the Department of Social Services’ remedies did not sufficiently address the harm a resident could face, it noted.

Therefore, the Henry court said a private right of action “would augment the existing enforcement devices and enhance a legislative scheme which, in part, imposes affirmative duties for the protection of those very individuals.”

Turning back to the instant case, Austin said the Prompt Pay Law “similarly” was more than remedial and gave providers and patients certain rights while imposing affirmative duties on insurers. Such a view was supported by the law’s legislative history too, he said.

For example, in his approval memorandum, Gov. George Pataki said the law would “provide protection to both patients and health care providers in connection with the timely payment of claims.” Moreover, Austin noted the insurance industry had fought in vain for a veto and “recognized that private causes of action might be implied.”

The New York Health Plan Association, the insurance industry trade association, sided with First United and argued for reversal.

Though the amicus argued, among other things, that claimants could get relief by pressing a complaint with the Financial Services Department, Austin said the record did not support that argument.

He noted First United’s acknowledgement in arguments before Demarest that fines paid to the agency’s superintendent did not get distributed to providers.

On appeal, First United pointed to a 2008 Manhattan Supreme Court case, Group Health, Inc. v Kofinas, 2008 NY Slip Op 32251(U), which said a provider could not assert a private cause of action against an insurer for alleged Prompt Pay Law violations.

Austin, however, said the ruling was now bad law and added that a 2012 Eastern District ruling had also used Demarest’s ruling to find an implied right.

Austin also was not swayed by the insurer’s point that over the years, there have been various failed efforts to amend the law to establish an express private right of action.

“Unsuccessful attempts to codify an express private right of action do not establish that the Legislature intended to prohibit private actions,” he said.

Edward Kornreich, Roger Cohen, and Yafang Deng of Proskauer Rose represented Maimonides.

In an interview, Kornriech called the ruling “well reasoned” and “correct.”

“The problem with the position that the defendant was taking here is that their view would make compliance with the Prompt Pay Law largely optional,” he said.

He called Austin’s decision “a critical decision to making sure the Prompt Pay Law is meaningful and insurance companies will abide by it—because if they don’t, they know they will be sued.”

Ellen Dunn and Peter Ligh of Southerland Asbill & Brennan represented First United.

Harold Iselin and Cynthia Neidl of Greenberg Traurig in Albany represented the New York Health Plan Association as amicus.