R.E.G. Flushing Med. PC v Integon Natl. Ins Co
Annotate this CaseDecided on June 2, 2011
District Court of Nassau County, Second District
R.E.G. Flushing Medical PC A/O Hector Gomez, Plaintiff(s)
against
Integon National Ins Co D/B/A GMAC Ins Co, Defendant(s)
19937/10
Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuwirth, Esqs., 100 Garden City Plaza, Suite 500, Garden City, NY 11530, Attorney for Plaintiff
Freiburg, Peck & Kang, LLP, 49 West 37th Street, 9th Floor, New York, NY 10018
Michael A. Ciaffa, J.
DECISION AFTER TRIAL
Plaintiff, R.E.G. Flushing Medical, P.C., provided medical services and treatment to Hector Gomez following a June 2009 auto accident. The accident took place in Queens, New York. Pursuant to an assignment obtained from Mr. Gomez, plaintiff sought no-fault payments from Mr. Gomez' insurer, defendant Integon National Ins. Co. d/b/a GMAC Ins. Co. Mr. Gomez was described on plaintiff's claim forms as being a resident of Woodhaven, New York. However, his address, on defendant's records, was in North Carolina, where his vehicle was registered and insured. Defendant denied plaintiff's claims on the ground that Mr. Gomez "does not meet the definition of an eligible risk under North Carolina statute NCGS 58-2-164." This no-fault action followed.
By agreement between the parties, they asked the Court to determine the action upon documentary evidence and the legal arguments of counsel. Their attorneys stipulated at trial that plaintiff had established a prima facie case for no-fault benefits through timely submission of bills that defendant had not paid. They further stipulated to the timely issuance of denials by defendant.
The Court was thus asked to decide whether defendant could lawfully avoid paying plaintiff's no-fault claims pursuant to its denials. At the outset, the Court needs to address which state's law governs the substantive issues presented. Each claim was filed by a New York based medical provider seeking payment from a North Carolina based auto insurer. The claims were each filed on a New York State no-fault form (NF-3) documenting treatments provided within the State of New York. Although each claim was denied on a New York State no-fault denial of claim form (NF-10), each denial form cited to North Carolina law (NCGS §58-2-164) as the basis for the denial. The cited [*2]section governs "Rate evasion fraud" in North Carolina. It generally applies to circumstances involving alleged misrepresentations by an insured regarding the insured's residence address, and the places insured motor vehicles are garaged. Id.
Under applicable choice of law principles, the validity of the insurer's defense to
this action turns upon whether New York or North Carolina has a greater interest in the
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outcome of the case. Under the "grouping of contacts" approach which governs conflict of laws issues in an insurance coverage matter, see Matter of Liquidation of Midland Ins Co., 16 NY3d 536, 2011 NY Slip Op 02716 (decided April 5, 2011), the jurisdiction with the most "significant relationship to the transaction and the parties" will usually be the jurisdiction "which the parties understood was to be the principal location of the insured risk, . . . unless with respect to the particular issue, some other [jurisdiction] has a more significant relationship." Id, quoting Zurich Ins Co. v. Shearson Lehman Hutton, 84 NY2d 309, 318 (1994), quoting Restatement [Second] of Conflict of Laws §193.
All indications point to North Carolina as "the principal location of the insured risk." First and foremost, the subject auto policy was issued to Mr. Gomez in North Carolina. The policy lists his address as Wilson, North Carolina. Furthermore, on a page headed "INSURED'S STATEMENT", Mr. Gomez was asked whether the insured vehicles were "garaged at the address listed." His answer was "YES." On another page, headed "APPLICANT'S CERTIFICATION", Mr. Gomez certified that his "principal residence/place of vehicle garaging is North Carolina ten (10) or more months each year and the principal location of the vehicle is correct."
The policy goes on to include a provision covering accidents "in any state or province other than the one in which your covered auto is principally garaged." It includes "Medical Payment Coverage" providing for the payment of "reasonable expenses for necessary medical . . . services because of bodily injury . . . [s]ustained by an insured." However, a separate provision respecting "FRAUD OR MATERIAL MISREPRESENTATION" states "We do not provide coverage for any insured . . . [i]f a named insured made a material misrepresentation in the application for this policy of insurance." Another provision allows the insurer to cancel coverage under the policy if the insured became "a nonresident of North Carolina."
Finally, the policy's "Choice of Law" provision states: "This policy is issued in accordance with the laws of North Carolina and covers property or risks principally located in North Carolina. Any and all claims or disputes in any way related to this policy shall be governed by the laws of North Carolina."
In the face of these indicia, the laws of North Carolina must be applied, unless this Court finds that New York has "a more significant relationship" to the issues presented in this action. [*3]See Matter of Liquidation of Midland Ins. Co., supra; Zurich Ins. Co. v. Shearson Lehman Hutton, supra. On the latter score, the Court acknowledges that New York's interest in the issues is significant. As Justice McKeon noted in his concurring opinion in AA Acupuncture Service, P.C. v. Safeco Ins. Co. of America, 25 Misc 3d 30, 2009 NY Slip Op 29311 (App Term, 1st Dept), "the practice of
New Yorkers fraudulently registering motor vehicles in foreign states seems to be burgeoning, likely costing our state government, insurance companies and honest consumers significant sums in lost revenue and increased premiums and casting a pall
over the integrity of automobile registry systems in New York and other states."
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On balance, however, these interests do not outweigh North Carolina's in determining whether the instant claims are covered by the subject policy. Since defendant maintains that this North Carolina auto insurance policy provides no coverage for the instant claims based upon a specific section of North Carolina's statutes, the issue will be decided under applicable statutory provisions and caselaw precedents from the State of North Carolina.
The starting point for analysis is the wording of North Carolina's statute governing "Rate evasion fraud" (NCGS §58-2-164). In pertinent part, it provides: "If an applicant [for auto insurance] provides false and misleading information as to the applicant's or any named insured's status as an eligible applicant and that fraudulent information makes the applicant or any named insured appear to be an eligible applicant when that person is in fact not an eligible applicant, the insurer may do any or all of the following:
(1)Refuse to issue a policy.
(2)Cancel or refuse to renew a policy that has been issued.
(3)Deny coverage for any claim arising out of bodily injury or property damage suffered by the applicant. This subdivision does not apply to innocent third parties. (Emphasis added).
NCGS §58-2-164(g).
Two secondary issues are presented respecting the scope and meaning of these provisions. First, did Mr. Gomez provide false and misleading information to the defendant that made it appear that he was eligible for auto insurance coverage under North Carolina law? If he did, defendant contends that such misrepresentations allowed it to deny coverage for plaintiff's claims under NCGS §58-2-164. Second, can plaintiff avoid defendant's disclaimer of coverage pursuant to the "innocent third party" exception of NCGS §58-2-164(g)(3)? The issue cannot be decided without determining the meaning and intent of this exception.
The first issue turns, in large part, upon a close examination of the provisions respecting [*4]"eligible applicants" for auto insurance and the definition of "eligible risks." Under North Carolina law, an "Eligible applicant" is a person who "is an eligible risk" (NCGS §58-2-164[a][3]). For the purpose of obtaining "nonfleet private passenger motor vehicle insurance," an "Eligible risk" may involve a North Carolina resident who "owns a motor vehicle registered or principally garaged in [North Carolina]" (NCGS §58- 37-1[4][a]). However, an "Eligible risk" can also be presented by "a nonresident" who "owns a motor vehicle registered and principally garaged in [North Carolina]." Moreover, the definition of an "Eligible risk" extends to a North Carolina resident who
"has a valid driver's license" issued by the State of North Carolina. NCGS §58-37-1 (4a)(b), (d).
Based upon the evidence submitted at trial, defendant failed to prove by a preponderance of evidence that Mr. Gomez was engaged in "Rate evasion fraud" as
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defined in the North Carolina statute. Since the denials relied only on the provisions of the cited statute, this case does not present a broader issue of whether Mr. Gomez made other misrepresentations in connection with the policy application and renewals of the policy. Moreover, the evidence respecting Mr. Gomez' actual principal residence and the "principal location" of the vehicle was equivocal, at best.
Without hearing live testimony from Mr. Gomez and others, the Court is left with only a cold record, one replete with ambiguities and questions. While Mr. Gomez's statements to an investigator raised legitimate doubts respecting his claimed North Carolina residence address (which he shared with his mother), defendant never pinned him down with respect to that residence or the vehicle's principal garaged location between the date defendant first issued a policy for the vehicle (11/03) and the date of his accident (6/3/09). At most, defendant was able to show that Mr. Gomez had significant residential ties to both New York and North Carolina. When asked by defendant's investigator "where do you live?" he answered "North Carolina." He further claimed in his statement to defendant's investigator that he was staying in New York "one week, two weeks" at a time. Although he admitted that he co-owned a grocery business and had a family with two children in New York, he also claimed he would "go back, stay with my mother" in North Carolina where he did "everything" before coming "back here" to his family and children in New York. He continued to maintain a North Carolina driver's license that he kept current. The vehicle, itself, was always registered in North Carolina. Mr. Gomez also was able to show defendant a utility bill, in his name, bearing the same North Carolina address.
In short, although Mr. Gomez's conflicting representations about his residence address raised legitimate issues for investigation, defendant's defense of "rate evasion fraud" (NCGS §58-2-164) was not proven by a preponderance of the evidence submitted. To the contrary, the evidence shows that Mr. Gomez maintained significant, provable ties to the State of North [*5]Carolina, including a long standing North Carolina residence address, a North Carolina driver's license, and close family ties with his mother in North Carolina. Accordingly, defendant's evidence fails to establish that Mr. Gomez was not "an eligible applicant" under the definitions of North Carolina law. As a result, defendant remained responsible under the policy for "medical payment coverage" of "reasonable expenses for necessary medical . . . services" that were
provided to Mr. Gomez following an accident that occurred in New York State.
Turning to the second issue, the Court concludes, alternatively, that the defense of "rate evasion fraud" must be rejected on the ground that plaintiff is an "innocent third
party" within the meaning of North Carolina's "rate evasion fraud" statute. Were this issue to be decided under New York law, the Court would be compelled to follow the lead of the Appellate Term, and to hold that New York's "innocent third party" doctrine protects "only innocent third parties who are injured" by someone who is guilty of fraudulent procurement of insurance. See A.B. Med. Services PLLC v. Commercial Mut. Ins. Co., 12 Misc 3d 8 (App Term, 2006). Thus, under New York caselaw, a health care provider acts "at its peril" when it accepts an assignment of no-fault benefits, and it
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remains equally subject to a defense that the insurance policy covering the assigned claim was "fraudulently procured" by the insured. Id.
The issue, here, is very similar, but the result ends up differently when analyzed under canons of statutory construction which require a court to give meaning to each part of a statute. As the Courts in North Carolina have recognized: "every part of the law shall be given effect if this can be done by any fair and reasonable intendment." Huntington Properties, LLC v. Currituck County, 153 NC App 218, 224 (2002), quoting In re Hickerson, 253 NC 716, 721 (1952).
Reading North Carolina's "rate evasion fraud" law as a whole, the Court cannot envision any class of persons or entities who would fall into the "innocent third party" category, except for the assignees and subrogees of the insured. The statutory "innocent third party exception" comes into play only if an insurer is asked to pay a claim "arising out of bodily injury or property damage suffered by the applicant" (emphasis added). So worded, the "innocent third party" language logically extends those entities who are involved in treating "bodily injuries" or remedying "property damage" that the insured has suffered. Plaintiff, a medical provider, clearly falls into this category. Consequently, the Court sees no basis for limiting the "innocent third party" exception to "innocent third parties who are injured" by the insured. Cf. A.B. Med. Services, PLLC v. Commercial Mut. Ins. Co., supra.
Admittedly, the issue is not free from doubt, and the Court has found no North Carolina cases in point. Nor has it found any illuminating legislative history. But in the absence of [*6]contrary authority from North Carolina, the Court believes that penalizing plaintiff would be unwarranted. The plaintiff is an "innocent third party." It provided medical services to a person who was insured by the defendant. It took an assignment in good faith, expecting to be paid. If Mr. Gomez committed a fraud, plaintiff was not a
party to it. Accordingly, the Court concludes that plaintiff, as an "innocent third party",
should not be foreclosed from obtaining payment for its services solely on account of alleged "rate evasion fraud" by the insured.
For these reasons, the defense set forth in defendant's denials is rejected, upon the facts and as a matter of law. Judgment is granted to plaintiff. Submit Judgment on Notice.
SO ORDERED:
DISTRICT COURT JUDGE
Dated: June 2, 2011
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