Cambridge Med., P.C. v Nationwide Prop. & Cas. Ins. Co.

[*1] Cambridge Med., P.C. v Nationwide Prop. & Cas. Ins. Co. 2008 NY Slip Op 50629(U) [19 Misc 3d 1110(A)] Decided on March 21, 2008 Civil Court Of The City Of New York, Richmond County Levine, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 21, 2008
Civil Court of the City of New York, Richmond County

Cambridge Medical, P.C., aao Richard Edwards, Plaintiff,

against

Nationwide Property and Casualty Insurance Co., Defendant.



025762/06



Counsel for Plaintiff:

Colleen Terry, Esq.

Baker, Sanders Barshay, Grossman, Fass, Muhlstock

& Neuwirth

150 Herricks Road

Mineola, NY 11501

516-741-4799

Counsel for Defendant:

Lindsay Alexander, Esq.

Epstein & McDonald

One Whitehall Street, 13th Floor

New York, NY 10004-2109

212-248-9100

Katherine A. Levine, J.

Defendant Nationwide Property and Casualty ("defendant") moves to dismiss plaintiff Cambridge Medical, P.C. A/A/O Richard Edwards ( "plaintiff") complaint for failure to comply with defendant's Demand for a Verified Bill of Particulars and Combined Demand Request pursuant to C.P.L.R § 3126. Defendant alleges that because plaintiff failed to respond to it's discovery request, defendant would be severely prejudiced at trial. In the alternative, defendant requests that the court grant summary judgment because the institution of the lawsuit is premature as plaintiff failed to comply with its verification requests.

In its verification requests, defendant's claims department asked for certain information: the certificate of incorporation, the SS4 (application of federal employer identification program), the IRS acknowledgment letter approving TIN and the completed W-9 form, the name, address, license, certification, etc. for each person connected with the treatment or testing of the assignor in the instant claim, and sale of shares of ownership. Although defendant does not so state, the aforementioned requests appear to give rise to a defense of fraudulent incorporation in violation of the truth seeking opportunity set forth in 11 N.Y.C.R.R. sec.65.3.16(a)(12).

In its Demand for a Verified Bill of Particulars, counsel for defendant seeks a plethora of documents including items which appear to be similar to those requested in the verification requests: the names, addresses and birth dates of all directors, officers, shareholders, employees and owners listed on the stock certificate for plaintiff's facility at time services were rendered (1-5).

Plaintiff asserts that it provided discovery that was proper and that defendant is not entitled to further discovery since it is merely engaging in a fishing expedition that is prohibited by State Farm Insurance Co. v. Mallela, 4 NY3d 313 (2005) and the regulations. Plaintiff also argues that under the No-Fault Law, the need for disclosure "must be substantiated by the [*2]reasons for the denial contained in the NF-10 and not simply predicated upon a plethora of unreserved affirmative defenses inserted in the answer as an afterthought." See Metropolitan Radiological Imaging v. State Farm Mutual Auto Ins. Co., 2005 Slip Op 25063 (NY Civil Ct. 2006). Finally, plaintiff asserts that the verification forms were not timely mailed and that the affidavits of mailing were inadmissible.

In Mallela, the Court of Appeals held that insurers may withhold payment for medical services provided by fraudulently licensed medical service corporations to whom patients, who are covered by no-fault insurance, have assigned their claims. Insurance Law §5102 requires no-fault carriers to reimburse patients or their medical provider assignees for "basic economic loss." In order to combat incidences of fraud, the Superintendent of Insurance promulgated 11 N.Y.C.R.R. 65-3.16(a)(12), which excludes from the definition of basic economic loss payments made to unlicensed or fraudulently licensed providers, thus rendering them ineligible for reimbursement. 4 NY3d at 320. After finding this regulation valid, the Court held that carriers "may look beyond the face of licensing documents to identify wilful and material failure to abide by state and local law." Id at 321. Addressing the defendants' contention that the insurance companies would turn this "investigatory privilege into a vehicle for delay and recalcitrance," the Court stated: "The regulatory scheme .... does not permit abuse of the truth-seeking opportunity that 11 N.Y.C.R.R. sec. 65-3.16(a)(12) authorizes. Indeed, the Superintendent's regulations themselves provide for agency oversight of carriers, and demand that carriers delay the payment of claims to pursue investigations solely for good cause. (See N.Y.C.R.R. sec 65-3.2(c). In the licensing context, carriers will be unable to show "good cause" unless they can demonstrate behavior tantamount to fraud. Technical violations will not do...We expect and the Legislature surely intended, vigorous enforcement by the Superintendent against any carrier that uses the licensing requirement regulation to withhold or obstruct reimbursement to non-fraudulently incorporated health care providers. "

4 NY3d at 322.

The issue presented by these motions is therefore whether the language contained in Mallela requiring that a defendant insurer show "good cause" by demonstrating behavior on the plaintiff's part " tantamount to fraud," applies to discovery requests and or verification requests. Mallela does not squarely address this issue.

This court follows the reasoning of Judge Sweeney in Carothers v. Insurance Companies et al, 13 Misc 3d 970 (Civil Ct., Richmond Co. 2006) and adopts that court's finding that "good cause" is not a mandatory requisite to ordering discovery. In Carothers, supra , Judge Sweeney first noted that the regulation interpreted by the Mallela court - 11 NYCRR 65-3.2

(c) - "demands that the carriers delay payment of claims to pursue investigations solely for good cause." Insurers are prohibited from demanding "verification of facts unless there are good reasons to do so" and are required to request verification of facts "as expeditiously as [*3]possible." Judge Sweeney then found that the "investigations the Court was discussing in Mallela are those conducted by insurers during the claims process in accordance with their entitlement under the regulatory scheme to seek verification of claims (11 NYCRR part 65) and not those conducted by litigants during the discovery process" 13 Misc 3d at 972.

However, Judge Sweeney then noted that the entire discussion of good cause in Mallela was non-binding dicta since the only question that the Mallela court agreed to answer upon certification was whether "a medical corporation that was fraudulently incorporated" was entitled to be reimbursed by insurers for medical services rendered by licensed medical practitioners" Id at 973 citing 4 NY3d at 320.

Article 31 of the CPLR governs discovery actions before the civil court, and its disclosure provisions simply do not condition discovery upon a showing of "good cause".[FN1] Judge Sweeney found that the guiding principle behind article 31 of the CPLR was that there should be "full disclosure of all matter material and necessary in the prosecution and defense of an action" (CPLR §3101 (a)). The words material and necessary are to be interpreted liberally and the test is "one of usefulness and reason" to assist in the preparation for trial by sharpening the issues. 13 Misc 3d at 973 citing Allen v Crowell-Collier Publ. Co., 21 NY2d 403, 406 (1968). See also, Midwood Acupuncture P.C. v. State Farm Mutual, 14 Misc 3d 131A, 836 NYS2d 486 ( App. Term, 2d Dept. 2007); Midborough Acupuncture P.C. v. State Farm Ins. Co., 13 Misc 3d 58 (App. Term, 2d Dept. 2006) (both applying the material and necessary standard).

Furthermore, since the "defense of fraudulent incorporation is a complete defense to a claim for no-fault benefits, one that is not subject to the rules of preclusion," it appears that the bar against which to measure whether a defendant has shown that its discovery requests on the issue of fraudulent incorporation are "material and necessary" is quite low. Id at 975. See Lexington Acupuncture, P.C. v. State Farm Insurance Co., 12 Misc 3d 90, 820 NYS2d 385 ( App. Term, 2d Dept. 2006); A.B. Medical Services PLLC v. Prudential Propr. & Cas. Co., 11 Misc 3d 137[A], 816 NYS2d 693 (App. Term 2d & 11th Jud. Dists. 2006). See also, Midborough Acupuncture PC v. State Farm Ins Co. Supra 13 Misc 3d at 58 (defendant's papers establish that defendant's discovery requests concerning whether plaintiff was fraudulently incorporated are material and necessary).

However, in the end, "the scope of discovery is not unlimited" and is left to the broad discretion of the trial court, which must assess the request on a case by case basis taking into consideration the "intrusiveness of the discovery device and the merits, or lack thereof, of the claim" 13 Misc 3d at 974 citing Greater NY Mutual Ins. Co. v. Lancer Ins. Co., 203 AD2d 515, 517 (2d Dept. 1994). Since the amounts in dispute in most no- fault claims are small, the court should not "hesitate to exercise its protective powers under CPLR §313(a) so as to curtail discovery where it may become an unreasonable annoyance and tend[s] to harass and overburden the other party", Conrad v. Park, 204 AD2d 1011, 1012 ( 1994), or "to prevent the proverbial [*4]fishing expedition" Id citing Auerbach v. Klein, 30 AD3d 451, 452 (2d Dept. 2006); Lattire v. Smith, 304 AD2d 534, 536 (2d Dept. 2003). To this end, Judge Sweeney found that the primary tool to be used by the court to control and supervise the scope of discovery was the protective order pursuant to CPLR §3103(a). Id at 974.

This court is not convinced that different standards should govern the verification requests made by an insurance company during its investigatory stage, as opposed to discovery requests made by counsel for an insurance company during litigation for Mallela type documents. As set forth above, the scope of verification requests was not at issue in Mallela. Application of a higher standard for verification requests does not make sense since an insurance company should be able to ascertain as expeditiously as possible whether a medical provider is fraudulently incorporated under the No- Fault Law. However, since the Court of Appeals did find that the regulations preclude insurance carriers from delaying payment of claims unless they can show "good cause," which demands a demonstration of behavior tantamount to fraud, this court must abide by the distinction.

The verification request for corporate documents does not contain any assertion that plaintiff Cambridge Medical engaged in any behavior that would cause one to suspect that it has been fraudulently incorporated. (See Exhibit C annexed to motion). As such, plaintiff need not further respond to the verification requests and this court denies the motion for summary judgment.

Defendant also fails to offer any justification for its request for Mallela type documents in its subsequent discovery requests. Its answer is void of any affirmative defense that defendant has reason to believe that the plaintiff may be fraudulently incorporated. However, in light of the broad latitude afforded to the courts in this department to grant Mallela type discovery requests, this court, upon conducting a balancing test, directs that plaintiff produce: the names, addresses and birth dates of all directors, officers, shareholders and owners listed on the stock certificate for plaintiff's facility at the times services were rendered. Pursuant to CPLR §3103 (a) , this court issues a protective order limiting discovery to the aforementioned items, as the remainder of the bill of particulars ask for information that is either within the defendant's knowledge or is unduly burdensome, irrelevant or immaterial.

For the above reasons, defendant's motions to dismiss and/or summary judgment are denied. Given this ruling, this court need not consider plaintiff's allegations with regard to the admissibility of the verification forms. It does appear, however, that the affidavit of mailing does allege personal knowledge of the mailing procedures and hence comports with the instructions set forth in Delta Diagnostic Radiology, P.C. a/a/o Lidaine Philogene v. Chubb Group of Insurance,17Misc 3d 16 (2007)..

This constitutes the decision and order of the court.

Dated: March 21, 2008___________________________

Staten Island, NYHON. KATHERINE A. LEVINE

Judge, Civil Court

Appearances

Counsel for Plaintiff:

Colleen Terry, Esq.

Baker, Sanders Barshay, Grossman, Fass, Muhlstock

& Neuwirth

150 Herricks Road

Mineola, NY 11501

516-741-4799

Counsel for Defendant:

Lindsay Alexander, Esq.

Epstein & McDonald

One Whitehall Street, 13th Floor

New York, NY 10004-2109

212-248-9100

Footnotes

Footnote 1:In a footnote Judge Sweeney noted that although a showing of good cause is not a mandatory prerequisite to discovery, good cause is a factor that "might be considered" in determining the permissible scope of discovery