ALLSTATE NEW JERSEY INSURANCE COMPANY v. SADDLE BROOK PAIN CENTER

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4963-07T34963-07T3

ALLSTATE NEW JERSEY INSURANCE

COMPANY,

Plaintiff-Appellant,

v.

SADDLE BROOK PAIN CENTER, HYPNOS

ANESTHESIA and SADDLE BROOK

SURGICENTER, INC.,

Defendants-Respondents.

__________________________________

 

Argued March 30, 2009 - Decided

Before Judges R. B. Coleman, Sabatino and Simonelli.

On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-875-08.

Andrew L. Stern argued the cause for appellant (Sullivan and Graber, attorneys; Mr. Stern, on the briefs).

James V. Hetzel argued the cause for respondents, Saddle Brook Pain Center and Hypnos Anesthesia (Kalison, McBride, Jackson & Hetzel, P.C., attorneys; Mr. Hetzel, of counsel and on the brief; Leonardo Tamburello, on the briefs).

Charles X. Gormally argued the cause for respondent, Saddle Brook Surgicenter (Brach Eichler, L.L.C., attorneys; Mr. Gormally, of counsel and on the brief; Sean A. Smith, on the briefs).

PER CURIAM

Plaintiff Allstate New Jersey Insurance Company (Allstate) appeals from the June 4, 2008 Law Division order affirming an arbitration award for personal injury protection (PIP) benefits in favor of defendants Saddle Brook Pain Center (Pain Center), Hypnos Anesthesia (Hypnos), and Saddle Brook Surgicenter, Inc. (Surgicenter). We reverse.

The facts are straightforward. Surgicenter, a free-standing ambulatory surgical center solely owned by Dr. Ronald Solitto, permits non-owner physicians to use its facility for surgical procedures. It directly bills its fee to the non-owner physician's patient or his or her insurance carrier. The fee is Surgicenter's only form of compensation. Surgicenter does not share in or receive any portion of the non-owner physician's fee for service the physician renders to his or her patient.

Dr. Salomon Halioua is a pain management and anesthesiology specialist who conducts business through Pain Center and Hypnos. He is Pain Center's sole owner, and he also owns sixty-six percent of Hypnos. From February 2005 to August of 2006, Hypnos was Surgicenter's sole provider of anesthesia services. Surgicenter did not pay Hypnos. Rather, Hypnos received compensation by directly billing a patient or his or her insurance company.

Dr. Halioua was also Surgicenter's unpaid medical director, and a member of Surgicenter's quality assurance and utilization review committee. The doctor did not own any interest in Surgicenter, and he received no compensation, financial benefit or incentive from Surgicenter for his, Pain Center's, or Hypnos' use of its facility.

On July 11, 2005, Allstate's insured, Sylvia Gonzalez (Gonzalez), was injured in a motor vehicle accident and received medical treatment from defendants. She submitted a claim to Allstate for PIP benefits, and assigned to defendants her rights to those benefits.

Prior to January 11, 2006, Gonzalez received chiropractic treatment from Kamel Kazan, D.C., and treatment from an orthopedic surgeon, David Basch, M.D. Dr. Halioua first examined Gonzalez on January 11, 2006. She reported that she had cervical pain radiating down the left upper extremity, lumbrosacral pain with radiating pain down the left lower extremity, and left shoulder pain. The doctor recommended a series of three cervical and three lumbar epidural steroid injections using epidurography assistance and with simultaneous trigger point injections. He would perform these injections at Surgicenter, with Hypnos providing the anesthesia.

Before performing any procedures, on January 19, 2006, Dr. Halioua submitted to Allstate a request for pre-certification for the six injections. On February 3, 2006, Allstate's physician advisor concluded that Gonzalez should only receive one cervical and one lumbar injection "to assess the response and length of time that the response lasts before certifying additional injections." Dr. Halioua administered the first cervical injection on February 6, 2006, and the first lumbar injection on February 13, 2006.

On February 14, 2006, Dr. Basch examined Gonzalez, at which time she reported that she only had mild relief from the cervical injection but still had "persistent neck and lower back pain," and was "still experiencing significant neck pain radiating into her shoulders and arms . . . [and] occasional radiating pains into her upper extremities, right greater than left." She also reported "numbness and tingling in her lower extremities with occasional radiating pains from her lower back . . . [and] difficulty with all activities including standing, sitting and ambulating for prolonged periods." Dr. Basch recommended that Gonzalez receive "the rest of the series of injections over the next month."

Despite receiving authorization for only one cervical and one lumbar injection, Dr. Halioua administered four more injections. On February 20, 2006, he administered a second lumbar injection, and on February 27, 2006, he administered a second cervical injection. In a report, dated February 27, 2006, the doctor noted that the injections provided Gonzalez "60-70% relief of her lumbosacral pain and lower extremity radicular symptomatology[,]" and "30-40% improvement of her cervical pain and upper extremity radicular symptomatology." However, on March 3, 2006, Gonzalez reported to Dr. Kazan that her neck and back pain had increased since his last examination, and was continuing to worsen.

Dr. Halioua administered a third lumbar injection on March 13, 2006, and a third cervical injection on March 21, 2006. In a report, dated March 21, 2006, the doctor noted that the injections provided Gonzalez "complete relief of her lower extremity radicular symptomatology and 70-80% relief of her lumbosacral pain[,]" and "60-70% relief of her cervical pain and upper extremity radicular symptomatology." Following each procedure, defendants submitted their bills to Allstate. Allstate paid for the first two procedures but denied payment for the last four.

Dr. Basch examined Gonzalez on March 21, 2006, the day of her third cervical injection. Gonzalez reported that she continued "to experience persistent neck and low back pain . . . [and] neck pain with radiating pains into her shoulders and arms." She also reported "numbness and tingling in her lower extremities, which radiates from her lumbar spine[,]" "difficulty with all activities including sitting, standing and walking[,]" and difficulty "completing her job duties." She further reported that "her pain [was] quite severe and she [felt] she [was] leading a decreased quality of life because of her pain." The doctor recommended that Gonzalez continue treatment.

Dr. Halioua examined Gonzalez on April 18, 2006, and noted that she had "complete relief of her upper extremity radicular symptomology and greater than 70% relief of her cervical axial pain[, but] continued to suffer from left shoulder pain." The doctor advised "that no further treatment was necessary regarding [Gonzalez's] neck and back pain[.]"

Dr. Basch examined Gonzalez on May 9, 2006, at which time Gonzalez reported that she "is not doing well[,]" that she had "severe pain in her neck that radiates to her left shoulder and down the left arm[,]" and that her neck felt "worse . . . and is interfering with all activities." She also reported that the lumbar injections gave her mild relief of her lower back pain, and that she still had lower back pain, which she was "trying to tolerate." Dr. Basch concluded that Gonzalez is "a candidate for anterior cervical diskectomy and fusion at C5-6[,]" and that this treatment is "medically necessary."

On May 18, 2006, Pain Center and Hypnos filed a demand for PIP arbitration. Pain Center sought $14,100 and Hypnos sought $3,600 for services rendered to Gonzalez. On October 20, 2006, Surgicenter was added to the arbitration demand. It sought $30,388.97 for services rendered to Gonzalez.

Because Dr. Basch's reports contradicted Dr. Halioua's reports, Allstate requested that Gonzalez appear for an examination under oath (EUO). Regarding an EUO, Gonzalez's automobile insurance policy provides as follows, in relevant part:

[Allstate] may require any person making claim to file with [Allstate] a sworn proof of loss. [Allstate] may also require that person to submit to statements or examinations under oath, separately and apart from others, and to sign the transcript.

. . . .

An insured person must cooperate with us in the investigation, settlement and defense of any claim or lawsuit.

Beginning on November 30, 2006, Allstate attempted to schedule Gonzalez's EUO. Seven dates were set, with each one adjourned by Gonzalez's attorney. After one of the adjournments, Allstate warned Gonzalez's attorney that his client's "unexplained failure . . . to appear for the examination under oath may jeopardize [her] right to receive coverage under the policy and may forfeit whatever other rights she might otherwise have." Allstate also warned counsel that Gonzalez's

"failure to appear and/or [his] refusal to produce [her] for an examination under oath will be deemed a material breach of the cooperation and examination under oath provisions of the policy of insurance, resulting in a complete denial of [her] claims for PIP benefits as well as any claims being brought by [her] medical providers as [her] assignees . . . [Gonzalez] will then be obligated to pay [her] own medical bills."

Despite these warnings, Gonzalez failed to appear at the last scheduled EUO without explanation.

On October 4, 2007, Allstate submitted an arbitration statement, wherein it contended, among other things, that PIP benefits should be denied for Gonzalez's failure to appear for an EUO, that Gonzalez made material misrepresentations of fact, that defendants had engaged in illegal self-referrals and kickbacks, and that defendants did not substantiate that the injections were medically necessary.

The arbitration occurred on October 25, 2007. The arbitrator issued an award on December 12, 2007, concluding that Allstate was not entitled to dismissal for Gonzalez's failure to appear at an EUO. The arbitrator reasoned that Allstate "did not request an EUO until after the PIP arbitration had been filed and some 6 months after receipt of the bills in question[,]" and because "the accident occurred more than two years ago, the services were rendered more than [one-and-one-half] years ago, and that partial payment to some of the providers had been made." The arbitrator also found in defendants' favor on all other issues, including the self-referral and kickback issues.

Allstate challenged the arbitration award in the Law Division, generally asserting legal errors in the arbitrator's determination. The trial judge affirmed the arbitrator's determination in all respects. As to the EUO, the trial judge found that the arbitrator determined that Allstate should have sought judicial intervention after its unsuccessful attempts to have Gonzalez comply with the EUO. The judge concluded that "[t]he insured in the present case apparently did not regard the failure to attend the EUO as sufficiently prejudicial to seek judicial intervention." This appeal followed.

Allstate contends that the arbitration award must be reversed because it violates public policy, and because the trial judge failed to apply the standard of review set forth in the Alternative Procedure for Dispute Resolution Act (APDRA), N.J.S.A. 2A:23A-1 to 30, and committed errors of law regarding the EUO. Allstate argues, among other things, that Gonzalez's failure to appear for an EUO violates the important public policy in favor of combating insurance fraud, curbing abuse of the no-fault system, and reducing insurance premiums.

Relying on N.J.A.F.I.U.A. v. Jallah, 256 N.J. Super. 134, 141 (App. Div. 1992), Allstate continues that it is entitled to an EUO, and that an insured's willful and continuous failure to comply with an EUO constitutes a material breach of the insurance policy warranting denial of coverage. Allstate posits that it could not seek judicial intervention to compel the EUO due to the strong public policy against "piecemeal litigation in both arbitration and Superior Court." Allstate also contends that it is against public policy to award benefits for services performed as a result of illegal self-referrals and kickbacks.

The parties do not dispute that the APDRA governs the PIP arbitration at issue here. See also N.J.S.A. 39:6A-5.1; N.J.A.C. 11:3-5.1 to -5.12; Coalition for Quality Health Care v. N.J. Dep't. of Banking & Ins., 348 N.J. Super. 272, 286 (App. Div.), certif. denied, 174 N.J. 194 (2002). Under the APDRA, an umpire's award may be set aside or modified by the Superior Court on the following grounds:

c. The award shall be vacated on the application of a party who either participated in the alternative resolution proceeding or was served with a notice of intention to have alternative resolution if the court finds that the rights of that party were prejudiced by:

(1) Corruption, fraud or misconduct in procuring the award;

(2) Partiality of an umpire appointed as a neutral;

(3) In making the award, the umpire's exceeding [his or her] power or so imperfectly executing that power that a final and definite award was not made;

(4) Failure to follow the procedures set forth in this act, unless the party applying to vacate the award continued with the proceeding with notice of the defect and without objection; or

(5) The umpire's committing prejudicial error by erroneously applying law to the issues and facts presented for alternative resolution.

[N.J.S.A. 2A:23A-13c (emphasis added).]

Moreover, the APDRA requires that the umpire's decision be founded upon "substantial evidence," N.J.S.A. 2A:23A-13b, and that the award not be the product of "prejudicial error in applying applicable law to the issues and facts presented for alternative resolution[.]" N.J.S.A. 2A:23A-13f.

Once the trial court enters an order "confirming, modifying or correcting an award, . . . [t]here shall be no further appeal or review[.]" N.J.S.A. 2A:23A-18(b). "But the statutory denial of a right to appeal to this court is based on the assumption that the trial judge will decide the case by applying the principles dictated by the Legislature." Morel v. State Farm Ins. Co., 396 N.J. Super. 472, 476 (App. Div. 2007). Also, "when parties proceed under the APDRA, there may be other limited circumstances where public policy would require appellate court review." Mt. Hope Dev. Assoc. v. Mt. Hope Waterpower, 154 N.J. 141, 152 (1998).

Further, a trial judge must apply the proper APDRA standard of review in affirming an arbitration award, and must rule on all claims. Morel, supra, 396 N.J. Super. at 475-76. When a judge fails to do so, our "supervisory role requires consideration of the appeal and reversal and remand for application of the statutory standards." Id. at 476.

Based on our careful review of the record, we conclude that the public policy in favor of combating insurance fraud, curbing abuse of the no-fault system, and reducing insurance premiums provides a basis for our review of this case, as does the trial judge's failure to apply the proper APDRA standard and legal authority in reviewing the arbitrator's decision about the EUO.

We first note that we do not agree with Allstate that it was precluded from seeking judicial intervention regarding the EUO. It may have been preferable for Allstate to seek judicial intervention under the facts of this case, and Allstate cites no authority excluding such course of action. However, neither the arbitrator, the trial judge, nor the defendants cite any authority mandating such action.

Nevertheless, there is no dispute that Gonzalez had a contractual obligation to submit to an EUO. State Farm Indem. Co. v. Warrington, 350 N.J. Super. 379, 382 (App. Div. 2002) (citing Jallah, supra, 256 N.J. Super. at 141). Also, "[s]ubject to ordinary standards of reasonableness and fairness, . . . an automobile PIP insurer is entitled to [an EUO] of a person who has received or seeks to receive PIP payments, even if it has previously terminated payments and the insured has demanded arbitration." Jallah, supra, 256 N.J. Super. at 141. As we stated in Jallah, in relevant part, "where an insured party has failed to comply with the [EUO], the liberal construction provision of the No-Fault [A]ct, N.J.S.A. 39:6A-16 et seq., prompts us to hold that the remedy of total bar of benefits recovery should be reserved for egregious breaches of that duty. . . . [W]e do not consider . . . conduct egregious, absent willful and continuous refusal to submit to examination." Id. at 142.

Here, Allstate's request for an EUO was reasonable and fair given the contradictory doctors' reports about Gonzalez's condition and questions about the medical necessity and efficacy of the injections. Allstate scheduled Gonzalez's EUO seven times, and warned of the consequences of her failure to appear without explanation. On each scheduled date, Gonzalez failed to appear without explanation. She also refused to permit Allstate to attend her deposition. There is no doubt that Gonzalez willfully and continuously failed to submit to the EUO. Her egregious breach of her contractual duty to do so warrants the denial of PIP benefits. Ibid. Defendants, as Gonzalez's assignees, are bound by her actions and cannot receive PIP benefits to which she is not entitled. See Allstate Ins. Co. v. Lopez, 325 N.J. Super. 268, 277 (App. Div. 1999).

Accordingly, the trial judge should have vacated the arbitrator's decision as to the EUO because it constitutes prejudicial error in applying the law to the issues and facts presented for alternative resolution. N.J.S.A. 2A:23A-13c(5) and f. The judge did not apply this APDRA standard of review.

Having reached this conclusion, we need not address the remaining issues concerning alleged self-referrals and kickbacks.

 
Reversed.

Amrish Patel, M.D. owns the other thirty-four percent of Hypnos.

At some point, Gonzalez also had a cervical and lumbar MRI, which apparently revealed a disc herniation at C5-6, disc bulges at C4-5 and C6-7 with bilateral radiculopathy, a disc herniation and internal disc disruption at L4-5 and L5-S1, and internal disc disruption at L3-4 with bilateral radiculopathy.

Defendants also requested pre-certification for other procedures that are not the subject of this appeal.

Gonzalez's attorney had previously advised Allstate of his representation of Gonzalez and instructed Allstate to "restrict all communications regarding this matter to [his] office." Counsel also prevented Allstate's attorney from participating in Gonzalez's deposition in a civil lawsuit she had filed regarding the accident. He also disregarded Allstate's request to provide "an agreed upon date" for the EUO.

On January 28, 2008, the arbitrator issued an order denying Allstate's request for clarification of his decision.

(continued)

(continued)

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A-4963-07T3

August 12, 2009