Selective Insurance Co. of America v. Hudson East Pain Management, A-105 September Term 2010; Supreme Court; opinion by Wefing, J.A.D., temporarily assigned; decided July 18, 2012. On certification to the Appellate Division, 416 N.J. Super. 418 (App. Div. 2010). [Sat below: Judges Parrillo, Yannotti and Espinosa in the Appellate Division; Judge Gannon in the Law Division.] DDS No. 23-1-7042 [24 pp.]

Individuals insured by Selective Insurance Company of America sought medical treatment from defendants for injuries received in automobile accidents. They assigned the personal injury protection benefits to which they were entitled under their PIP coverage to defendants who then submitted claims for payment for the services they had provided to the insureds.

After detecting what it considered to be suspicious patterns in the treatments defendants had provided and the corporate links among them, Selective requested data regarding defendants’ ownership structure, billing practices, and compliance with certain regulations, citing the provision in the insureds’ policies requiring them to cooperate with Selective in the investigation of any claim under the policy. When defendants declined to supply the information, Selective filed a complaint seeking a declaratory judgment that the failure was a breach of the duty to cooperate and a violation of the PIP discovery statute, N.J.S.A. 39:6A-13(b), rendering the providers ineligible to receive PIP reimbursement.

The trial court directed defendants to respond to Selective’s discovery requests. The Appellate Division reversed, concluding that Selective was not entitled to its requested discovery because (1) Selective’s reliance on the cooperation clause in its policies was unavailing; (2) Selective’s discovery demands sought information far beyond that authorized in N.J.S.A. 39:6A-13, which sets the framework for discovery of facts regarding PIP coverage; and (3) Selective could not seek the information through a declaratory judgment complaint, which sought no substantive relief other than discovery.

Held: A health-care provider that has received an assignment of PIP benefits from an insured is not obligated on request to furnish to the insurer broad information with respect to the provider’s ownership structure, billing practices, and regulatory compliance.

The court first considers the standard that governs its review, an issue on which the parties do not agree. It concludes that the matter calls for an interpretation of the language in an insurance policy, which is a question of law, and that review is, therefore, de novo and plenary.

The court then examines the cooperation clause in Selective’s policies. It affirms the result reached by the Appellate Division regarding the proper construction of the cooperation clause, albeit for different reasons.

The court says it is fundamental that the rights of an assignee can rise no higher than the rights of the assignor. It must follow that an assignee can have no greater duties than his assignor.

Here, an insured’s duty to cooperate with Selective referred to the duty to cooperate with the “investigation, settlement or defenses” of the underlying claim. An insured had no duty to provide information regarding the ownership structure, billing practices, or referral methods of the medical providers from whom he sought treatment. Because an insured had no such obligation, the assignment of benefits he executed could not impose that duty on the providers.

The court also finds that the Appellate Division did not err when it held that Selective’s demands contravened New Jersey’s PIP statutory scheme. It says 39:6A-13 set down clear directives with respect to discovery regarding PIP benefits. Under subsection (b), providers must furnish a written report of the “history, condition, treatment, dates and costs of such treatment” of the injured person and their records regarding such history, condition, treatment, dates and costs. Subsection (g) creates a mechanism to resolve disputes regarding discovery about the patient’s “history, condition, treatment, dates and costs of such treatment.”

The court says there is no ambiguity in the statute’s language and it must apply the statute as the Legislature wrote it. The material sought by Selective far exceeds the statutory limitations of a patient’s “history, condition, treatment, dates and cost of such treatment” and the court declines to expand that framework based on Selective’s belief that defendants may not have complied with other statutes or regulations.

The court then addresses Selective’s final argument, which rests on New Jersey’s strong public policy against insurance fraud. It notes the Insurance Fraud Prevention Act, 17:33A-1 to -30, which created the Office of the Insurance Fraud Prosecutor and the Bureau of Fraud Deterrence. That statute also imposes affirmative duties on insurers with respect to insurance fraud.

It rejects Selective’s argument that those provisions, together with statutory restrictions on the ability of providers to refer a patient to a facility in which the provider or a member of his immediate family has a significant beneficial interest, justify its request for the detailed information it sought from defendants. It says that when Selective filed its complaint, it articulated the theories under which it was proceeding: that defendants were obligated to respond to its discovery demands under the cooperation clause and the PIP discovery statute. It did not amend its complaint to add any alternative bases. Defendants were entitled to respond to the theories Selective had chosen to pursue. The Appellate Division correctly analyzed Selective’s position on the basis of those legal theories.

Nor is the court persuaded by earlier, apparently successful efforts to obtain discovery in other matters, noting that the complaints in those matters sought more than mere discovery.

The court stresses that it is not sanctioning attempts to hamper legitimate efforts to root out fraudulent conduct. Nor is it restricting insurers’ reasonable attempts to comply with their statutory obligations. It merely addresses the issue within the framework plaintiff selected.

Chief Justice Rabner and Justices LaVecchia, Albin, Hoens and Patterson join in Judge Wefing‘s opinion.

For appellants — Gordon S. Graber (Sullivan & Graber; Graber and Chryzanta K. Hentisz on the briefs). For respondents — Charles X. Gormally (Brach Eichler; Gormally and Sean A. Smith on the briefs). For amici curiae Insurance Council of New Jersey and Property Casualty Insurers Association of America — Kenneth E. Pringle (Pringle Quinn Anzano).