Award of Dispute Resolution Professional

Transcription

1 In the Matter of the Arbitration between Dr. Steven Nehmer a/s/o M.C. CLAIMANT(s), Forum File No: NJ Insurance Claim File No: v. Claimant Attorney File No: NEH-NJC-S-023 Respondent Attorney File No: Accident Date: 02/01/2008 CURE Auto Insurance RESPONDENT(s). Award of Dispute Resolution Professional Dispute Resolution Professional: Joseph Tamburino Esq. I, The Dispute Resolution Professional assigned to the above matter, pursuant to the authority granted under the "Automobile Insurance Cost Reduction Act, N.J.S.A. 39:6A-5, et seq., the Administrative Code regulations, N.J.A.C. 11:3-5 et seq., and the Rules for the Arbitration of No-Fault Disputes in the State of New Jersey of The National Arbitration Forum, having considered the evidence submitted by the parties, hereby render the following Award: Hereinafter, the injured person(s) shall be referred to as: M.C. An oral hearing was waived by the parties. Hearing Information An oral hearing was conducted on: March 16, Claimant or claimant's counsel appeared in person. Respondent or respondent's counsel appeared in person. The following amendments and/or stipulations were made by the parties at the hearing: None.

2 Findings of Fact and Conclusions of Law This matter arises out of an automobile accident which occurred on 2/1/08. The demand for arbitration seeks payment in the amount of $ for various services rendered between the dates of 4/7/08 and 8/6/08. The sole issue as identified by the parties at the time of hearing was whether or not respondent s denial of coverage/benefits based upon material misrepresentation was proper. Claimant relies upon and the DRP has considered the following: Demand for arbitration with attachments. Submission of 2/2/08 with attachments. Submission of 2/19/10 with attachments. Respondent relies upon and the DRP has considered the following: Submission of 1/27/10 with attachments. Submission of 2/24/10 with attachments. Submission of 3/16/10 with attachments. In addition, both parties presented oral argument at the time of hearing. Respondent asserts that CURE has voided this policy due to material misrepresentations made by the insured during the application process. The numerous false statements mandate that she is not entitled to first party coverage under the policy. The Insurance Fraud Prevention Act is violated when a person: makes any statement to the insurance company knowing that the statement contains false and/or misleading information material to the claim (N.J.S.A. 17:33A-4(4)(a)(2)); conceals an event which affects the persons continued entitlement to insurance (N.J.S.A. 17:33A4 (4) (a) (3)) ; presents false or misleading information to an insurance company for coverage (N.J.S.A. 17:33A-4(4)(a)(4)(b)). As such, the claimant is not entitled to coverage under the policy due to her knowing misrepresentations. M.C. signed an application for insurance from CURE on June 21, 2006 and as a result of her representations a reciprocal exchange policy was issued to her effective June 29, The application requested material information from the applicant so as to ascertain her entitlement to insurance from CURE and to also calculate the rate for premiums if the applicant qualified for insurance. Under the "Driving Record" of the application, the insured represented that she had not been involved in any accidents within the preceding 60 months. Under the "Driving Record" of the application, the insured represented that none of the persons listed on the policy sections A, B, C, and D has had their license suspended. Under the "Additional Information" of the application, the insured represented that no driver's license in the household had ever been suspended or revoked. Under the "Additional Information" section of the application, the insured represented that no driver in the household had a physical/mental impairment. This policy was renewed yearly. The renewal effective June 29, 2007 listed the identical household members as her initial application. Under the "Additional Information" section of the renewal application, the insured continued to represent that no household member had a physical/mental condition or impairment. On the June 29, 2008 renewal application, the insured NJ Page 2 of 7

3 indicated that she had a physical/mental condition or impairment as a result of the instant motor vehicle accident of February 1, This renewal application also noted no household driver has had their license suspended within the preceding 36 months and that no household driver had received a moving violation within the preceding 36 months. The insured also represented during the underwriter's processing of the initial application, that she was "retired - no disability." After this accident, CURE undertook to investigate the loss as the alleged adverse vehicle fled the scene. During this investigation, it was determined that the above representations were in fact false. These misrepresentations were material as they adversely affected the underwriter's decision to issue or renew the policy in question. Based on the investigation, it was disclosed that, in reality, the insured was involved in motor vehicle accidents on August 16, 2005 and January 1, Both of these dates were within 60 months of the date she signed her application on June 21, Furthermore, household resident TC, the insured's daughter, had her license suspended on September 27, These misrepresentations are material as they adversely affected the underwriters decision making as the policy would not have been issued had the truth been known. Respondent notes that the insured submitted to two recorded statements during this investigation. During the first statement, taken on February 27, 2008, the insured advised that her license had been suspended in December, The insured failed to list this suspension on her 2008 renewal signed by her on February 1, Also, the insured was ticketed for making an improper turn on November 7, She failed to identify this ticket on her renewal application. A second recorded statement was secured on July 15, During that statement, the insured advised that she is on disability and social security and has been on same since she underwent lower back surgery in The insured has been on disability, unable to work, since There was also testimony concerning the August 16, 2005 accident which was not disclosed on the applications. When signing her original application on June 21, 2006, the insured represented that the statements in the application were true. She further agreed that any material misrepresentation will void coverage from the inception date. The insured signed similar acknowledgements on her renewal applications. investigating this matter under a reservation of rights. A notification that the policy was void for material misrepresentations was sent to the insured on September 26, Thereafter, on September 30, 2008, the insured was advised that her policy was voided from June 29, 2006 for her material misrepresentations. On April 3, 2008, June 25, 2008 and August 28, 2008, the provider was advised that this matter was pending further claims investigations. Rather than waiting for the investigation to be concluded, the provider filed this arbitration (and a separate arbitration for a different date of service) seeking payment, knowing the matter was being investigated. Now the investigation is complete. The insured made material misrepresentations during the application and renewal process rendering her reciprocal insurance contract void ab initio. Respondent argues that fraud falls into two categories: legal fraud and equitable fraud. Equitable fraud is a sufficient basis upon which to rescind a policy. New Jersey treats an insurance company's denial of a claim because of misrepresentations in an application as the rescinding of the policy. Johnson v. Metropolitan Life Ins. Co., 53 N.J. 423, 440 (1969); see also Remsden v. Dependable Ins., 71 N.J. 587, 589 (1976). Rescission of a contract is considered equitable relief. Proof of equitable fraud renders the insurance policy void ab initio, that is from its inception. See Italian Fisherman, Inc. v. Commercial Union Assurance Co., 215 N.J. Super. 278, 281 (App. Div.), cert. denied, 107 N.J. 152 (1987). NJ Page 3 of 7

4 Equitable fraud, unlike legal fraud, requires proof of: 1. a material misrepresentation of a presently existing or past fact; 2 the maker's intent that the other party rely on it; and 3. detrimental reliance by the other party. See Liebling v. Garden State Indem., 337 N.J.Super. 447, 453 (App. Div. 2001) (citing Jewish Center v. Whale, 86 N.J. 619, 624 (1981)). A party seeking rescission on the basis of equitable fraud need not prove that the statement was made with knowledge that it was false, or that the statement was made with the intent to defraud. Id. Even an innocent misrepresentation can constitute equitable fraud justifying rescission. Id. (citing Ledley v.william Penn Life Ins. Co., 138 N.J. 627, 635 (1995)). "A misrepresentation, made in connection with the procurement of insurance, is considered material if, when made, a reasonable insurer would have considered the fact relevant to its concerns and important in determining its course of action. In effect, materiality [is] judged according to a test of prospective reasonable relevancy." Longobardi v. Chubb Ins. Co., 121 N.J. 530, 542 (1990). Indeed, the New Jersey Supreme Court has made clear that "[t]he right rule of law... is one that provides insureds with an incentive to tell the truth, Id., at , dictating a test for materiality that encourages applicants to be honest. Mass. Mut. Ins. Co. v. Manzo, 122 N.J. 104, 115 (1991). Following this direction, a misrepresentation in the insurance context is viewed as material if it naturally and reasonably influence[s] the judgment of the underwriter in making the contract at all, or in estimating the degree or character of the risk, or fixing the rate of premiums. Id. In this case, respondent argues that any one of M.C.'s several material misrepresentations and omissions of information requested by CURE was significant and adversely affected the underwriter's decision whether to issue or renew the policy and how to evaluate the risk, especially in the context of a reciprocal membership insurance exchange that would not have issued or renewed the policy had the material information been disclosed. Taken individually or in combination, these misrepresentations and omissions clearly satisfy the Supreme Court's criteria for underwriting materiality and rescission. According to respondent, the irrefutable evidence in this case establishes that the insured made material misrepresentations and omissions to CURE in her application for insurance and continuing throughout the insurer/insured relationship including the renewals of her policy. These misrepresentations indisputably affected CURE's ability to assess the risk presented, and CURE would not have issued or renewed the policy if the truth had been known. Thus, these were clearly material in nature. In fact, had the misrepresented or concealed information been disclosed to CURE, the policy would not have been issued or renewed as she would not have qualified for insurance from CURE under its established underwriting criteria - criteria that were filed and approved by the Department of Banking and Insurance. Respondent further notes that claims with respect to M.C. have been subject to two prior arbitration filings, both by American Diagnostic Imaging. NJ was voluntarily withdraw on the eve of arbitration and NJ resulted in an Award authored by DRP David LaPorta, Esq. The findings of DRP LaPorta concerning the facts of the insured s material misrepresentations should not be disturbed. Based on the prior finding, this claim must be dismissed as the insured made material misrepresentations and is not entitled to benefits under the policy. NJ Page 4 of 7

5 In reply, the claimant asserts that the overriding obligation of a PIP insurer is to make payment for PIP claims without delay. N.J.S.A. 39:6A-5(g) provides that an insurer has sixty (60) days to obtain all necessary information and either pay a PIP claim or notify the claimant of its denial. The insurer can also invoke a single extension of not more than forty-five (45) days by providing the claimant with written notice of the need for additional time to investigate the claim and setting out the reasons why the additional time is needed. In the within matter, it is well beyond the 105 day time frame prescribed by the New Jersey No-Fault laws to investigate the claim. Quite simply, CURE ignored its statutory duty to investigate this claim within the time allotted by law. Respondent has failed to articulate any solid basis for denying payment to date. In fact, in correspondence dated March 31, 2009, CURE addresses the specific dates at issue herein and does not mention any investigation into fraud or misrepresentation. The first mention of misrepresentation is in correspondence from CURE s attorney dated approximately one year after the medical services at issue were provided. Claimant next argues that CURE' s delay is violative of the equitable doctrine of laches. The Doctrine of Laches is based on the maxim that equity aids the vigilant and not those who procrastinate regarding their rights. Neglect to assert a right or claim that, together with lapse of time and other circumstances, prejudices an adverse party. Neglecting to do what should or could, have been done to assert a claim or right for an unreasonable and unjustified time causing disadvantage to another. In the instant matter, claimant submits that it was unduly prejudiced not having received any payment from CURE, without valid explanation, nearly one and one-half years after the medical treatment in issue. As to the award of DRP LaPorta, claimant asserts that it cannot be dispositive in this matter. First of all, claimant, Dr. Steven Nehmer, was not a party to the prior arbitration, therefore, did not have the opportunity to counter any and all allegations of CURE. He would be deprived of his fundamental right of due process to be barred from proceeding based solely on the prior award submitted by CURE. As to this latter argument of claimant, the respondent notes that it is agreed that the claimant was not a party to said action. However, the findings of fact and conclusions of law drawn from the identical facts of this case should not be disturbed as to the material misrepresentations made by the patient. As to claimant s reliance upon N.J. S.A. 39: 6A-5(g), respondent asserts that that the statute provides that the failure to pay a bill within thirty days (or within forty-five days if an extension is requested) makes the bill overdue. There is nothing in the statute, and the claimant has provided no authority, for its incorrect assertion that the failure to pay a bill forecloses the insurer from all defenses. Respondent argues that the provision (39:6A-5(g)) is similar to N.J.A.C. 11:32-5.4(f). This argument fails as a matter of law. As DRP LaPorta correctly concluded in the prior claim involving this patient, in the matter of Kowaleski v. Allstate, 238 N.J. Super. 210, 218 (App. Div. 1990), the Court held that the Legislature did not express an intention that failing to deny a claim, making it overdue, would preclude a carrier from asserting a good faith denial of a claim. Also, as DRP LaPorta concluded, in New Jersey Citizens United Reciprocal Exchange v. Collins, 399 N.J.Super. 40 (App. Div. 2008) cert. den N.J.Lexis 911, the court reached the same result. The Court held that an overly technical application of the statute could not stand in the way of a proper declination of coverage based on misrepresentations and omissions. Id, at Thus these notice requirements cannot stand as a valid basis, under a theory of laches, or any other, to prevent a carrier from asserting a proper declination of coverage for fraud. To allow such a situation would award fraudulent conduct and encourage an insured, and/or a medical provider, to delay the carrier's investigation for 105 days and thus be entitled to coverage when the NJ Page 5 of 7

6 carrier was unable to conclude its investigation within said time frame. Clearly this would be inappropriate and not the intent of the Legislature. In addition, the claimant contends that "The first mention of misrepresentation is in correspondence from CURE's attorney dated in June, Apparently, claimant feels this creates a situation where laches can be invoked. Respondent asserts that this is also an unbelievable position being taken by the claimant with no legal support provided. Furthermore, the claimant's assertion that "The first mention of misrepresentation is in correspondence from CURE's attorney dated June 2009, approximately one year after the medical services at issue were provided." Respondent asserts that this is not accurate. Even if the assertion was accurate, it is immaterial as the case law referenced above clearly provides that the statute cannot serve as a bar to an insurer's good faith fraud claim. Furthermore, respondent argues that the claimant's assertion that they did not know of any coverage issues is simply not correct. In reality, the claimant was well aware of CURE's investigation and the fact that the policy was voided well prior to the June, 2009 letter of counsel. The claimant commenced treatment on April 7, On April 10, 2008, the claimant was notified that certain treatment was precertified, but also advised that "This notice does not guarantee payment and should not be mistaken as a determination of eligibility for coverage under the policy." Claimant was thus aware within three days of the commencement of treatment, that eligibility had not yet completed and that CURE did not guarantee payment. Claimant was thereafter advised that the "claim remains Under Investigation" in correspondence dated May 1, Thereafter, on June 3, 2008, the claimant was again advised that "This notice does not guarantee payment and should not be mistaken as a determination of eligibility for coverage under the policy." Furthermore, on the EOB approved October 1, 2008, the claimant was advised that the charges were denied as the "policy was voided to inception date of 6/26/06." Thus, respondent asserts that it is not credible to believe, as the claimant contends, that it was not on notice of the coverage issues involved concerning material misrepresentations and omissions of M.C.. The provider was advised, within three days of commencement of treatment, that eligibility had not yet been determined, that the claim remains under investigation within a month of commencement of treatment, and again that the eligibility had not been determined one month later. The billing was denied and an EOB clearly referenced that this was because the policy was voided. The claimant's demand is dated March 26, The EOB was sent after the eligibility investigation had been concluded. Almost six months prior to filing its demand for arbitration, the claimant was aware of the fact that the patient was not eligible for coverage and that the policy had been voided. I have reviewed and considered the facts, record evidence and the arguments of the parties as presented herein. I find, as did DRP LaPorta that: After reviewing the evidence and argument presented by both parties, and under the specific facts of this matter, I conclude that Respondent has proven by a preponderance of the evidence that Claimant's Demand should be dismissed based upon material misrepresentations made by M.C. In that regard, I found the arguments presented by Respondent to be more logically sound and persuasive in that Respondent's attorney set forth an excellent outline of New Jersey case law pertaining to fraud and its application when a party raises the defense of N.JA.0 11: (f). Though I do not find DRP LaPorta s findings binding in the matter sub judice, I concur in his findings that the insured did make material misrepresentations to the extent that a denial of coverage was appropriate. I see no reason or basis for disturbing his findings. This claim is denied in its entirety. NJ Page 6 of 7

7 Therefore, the DRP ORDERS: 1. Medical Expense Benefits: Denied: Disposition of Claims Submitted Medical Provider Amount Claimed Amount Awarded Payable To Dr. S. Nehmer $ $0.00 Provider and counsel. 2. Income Continuation Benefits: Not in issue. 3. Essential Services Benefits: Not in issue. 4. Death or Funeral Expense Benefits: Not in issue. 5. Interest: I find that the Claimant did not prevail. Interest is not awarded pursuant to N.J.S.A. 39:6A- 5h.: Attorney's Fees and Costs I find that the Claimant did not prevail and I award no costs and fees. THIS AWARD is rendered in full satisfaction of all claims and issues presented in the arbitration proceeding. Entered in the State of New Jersey Date: 04/23/10 NJ Page 7 of 7