Aetna Health Plans v. Hanover Insurance Company, 2016 NY SLIP OP 04658

The issue presented in this appeal is whether a health insurer who pays for medical treatment that should have been covered by the insured’s no-fault automobile insurance carrier, may maintain a reimbursement claim against the no-fault insurer, in this case Hanover, within the framework of the No fault Law.  The Court of Appeals said no.

The injured received medical treatment from various medical providers and submitted bills to Aetna, her health insurer instead of Hanover, the No Fault insurer.  Aetna paid the bills and then sought reimbursement from Hanover.  Hanover ignored these demands.   Aetna filed a lien for reimbursement against the injured’s personal injury case.   The injured then filed for arbitration pursuant to her policy with Hanover, claiming that she was entitled to the No Fault benefits because Aetna maintained a lien against her for reimbursement and Hanover, who was responsible for the bills, had neither paid nor denied coverage for the bills submitted. The arbitrator denied the claim reasoning that the documents submitted by Herrera — copies of the medical bills paid by Aetna — were not bills and even if they were bills, the injured lacked standing to make the claim because Aetna had paid them. The lower arbitrator determined that, while Aetna had a lien against the personal injury case, until that lien was satisfied, the injured lacked standing to pursue her claim. A Master Arbitrator affirmed.

Thereafter, the injured resubmitted all of the medical bills to Hanover and informed it that she had assigned her rights against Hanover to Aetna.  Aetna commenced this action against Hanover, seeking reimbursement.   The Supreme Court on a cross motion to dismiss, concluded that because Aetna was not a “health care provider” under the no-fault statute, it was not entitled to direct payment of no-fault benefits. It further held that Aetna was not in privity of contract with Hanover and had not shown that it was an intended third-party beneficiary of Hanover’s contract with injured.

The court also determined that Aetna could not recover in subrogation because “there was no authority permitting a health insurer to bring a subrogation action against a no-fault insurer for sums the health insurer was contractually obligated to pay its insured.” The Appellate Division affirmed (116 AD3d 538 [1st Dept 2014]). The court determined that Aetna “is not a ‘health care provider’ under [11 NYCRR 65-3.11 (a)], but rather a heath care insurer” that Hanover had no legal obligation to directly reimburse. It concluded that the provisions of Insurance Law §§ 5105 and 5106 (d) provide for “a limited window of arbitration between no-fault insurers” that “does not pertain to a health insurer such as Aetna”

The Court of Appeals stated as follows:

The Comprehensive Motor Vehicle Insurance Reparations Act (see L 1973, ch 13), governs payments to reimburse a person for basic economic loss for personal injury arising out of the use or operation of a motor vehicle, irrespective of fault. Article 51 is commonly known as the No-Fault Law. The purpose of the NoFault Law was to promote “prompt resolution of injury claims, limiting cost to consumers and alleviating unnecessary burdens on the courts” (Pommells v Perez, 4 NY3d 566, 571 [2005] [citations omitted]). Under no-fault, an insured who has been in a motor vehicle accident can claim first party benefits from her motor vehicle insurer of up to $50,000 to cover “basic economic loss” as defined in Insurance Law § 5102 (a) (4). In the event of “serious injury” as defined in the statute, a person may initiate suit against the car owner or driver for damages caused by the accident (Insurance Law § 5104 [a]). The applicable regulation, 11 NYCRR 65.3.11 (a) provides, in relevant part, that “an insurer shall pay benefits for any loss, other than death benefits, directly to the applicant or, . . . upon assignment by the applicant . . .shall pay benefits directly to providers of health care services. . .” (emphasis added). Aetna concedes that as a health insurer it is not a “provider of health care services” as contemplated by the language of this regulation (see Health Insurance Plan of Greater New York v Allstate Insurance Co., 2007 N.Y.Slip Op 33925[U] [Sup Ct, NY County 2007]; see also Gen. Counsel Opinion 1-28-2008). – 6 – – 7 – No. 97 Aetna argues, however, that it stands in Herrera’s shoes because Herrera assigned her no-fault rights to it. This argument fails for two reasons. First, since Herrera’s health care providers were able to bill and recoup payment from Aetna, an assignment by Herrera of her no-fault rights had already been made, leaving her with no rights to assign to Aetna. Second, by its very language, the no-fault regulation permits only the insured — or providers of health care services by an assignment from the insured — to receive direct no-fault benefits. Because Aetna does not fall under the term “health care provider,” Herrera could not assign her rights to it.

This will have a huge impact behind the scenes where carriers, despite this ruling, would routinely reimburse each other for claims paid erroneously.  I suspect that is why Aetna or the TPA on behalf of Aetna kept paying the bills, knowing at some point it would likely get reimbursed, as it probably always had in the past.  The Concurring and Dissenting opinions are interesting, especially Judge Stein’s opinion which also leaves the door open to the medical providers being left holding the bag and on the hook.  Judge Stein addresses Aetna’s equitable subrogation claim as follows:

In my view, Supreme Court properly dismissed the complaint because Aetna’s claims are inconsistent with, and would improperly supplant, the tightly-regulated and comprehensive no-fault statutory scheme crafted by the legislature, and because the principles of equitable subrogation do not apply under the circumstances presented here. I, therefore, concur with the majority’s conclusion that the Appellate Division’s order should be affirmed.  As the majority aptly explains, the no-fault insurance statutes and regulations provide a comprehensive framework for the resolution and payment of no-fault benefits in connection with covered injuries. Those statutes and regulations provide no basis for a health maintenance organization (HMO) to recover from a no-fault insurer. Thus, under circumstances in which an HMO attempts to recover from a no-fault insurer for payments made on behalf of their mutual insured, the doctrine of equitable subrogation does not apply. 

Judge Stein further stated:

In that regard, we emphasize that Aetna may seek recovery from the medical providers that improperly billed Aetna for treatment that should have been covered by Hanover. Contracts between Aetna and the treatment providers — which are not in the record before us — may even spell out the right to, and procedures for, such clawbacks. The medical providers could then submit their bills to Hanover for payment under Herrera’s no-fault policy.  The availability to Aetna of this legal remedy renders inappropriate the expansion of equitable subrogation into the complex and comprehensive no-fault scheme. Finally, providing an equitable remedy could create additional burdens on the courts — which is contrary to one of the purposes of the NoFault Law (see Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co., 9 NY3d 312, 317 [2007]) — and would complicate and add confusion to that statutory and regulatory scheme. Accordingly, the lower courts properly concluded that Aetna’s complaint should be dismissed.

Aetna should have denied the bills however, its interesting that Hanover was able to avoid any liability when it ignored written demands for payment from Aetna.  Yet, the medical provider who kept getting paid and was likely never notified by Aetna that this was a no fault claim should be subject to a claw back?

Subrogation was rightfully a big concern for the Court, especially by Judge Stein who comes from an insurance background and wrote the dissent.  He stated:

Based on those facts plaintiff commenced this action seeking damages in the amount of medical expenses that it had paid on Herrera’s behalf in defendant’s stead. In my view, the claims asserted in the complaint speak to what effectively is a single cause of action sounding in equitable subrogation. I also believe that, on this record, plaintiff should be permitted to pursue that subrogation cause of action. Subrogation, of course, “is the principle by which an insurer, having paid losses of its insured, is placed in the position of its insured so that it may recover from the third party legally responsible for the loss” (Winkelmann v Excelsior Ins. Co., 85 NY2d 577, 581 [1995]; see generally 16 Couch on Ins. § 225:5 [3d ed]).1 Said another way, “[s]ubrogation allocates responsibility for the loss to the person who in equity and good conscience ought to pay it, in the interest of avoiding absolution of a wrongdoer from liability simply because the insured had the foresight to procure insurance coverage” (North Star Reins. Corp., 82 NY2d at 294; see Millennium Holdings LLC v Glidden Co., __ NY3d __, 2016 NY Slip Op 03543, *5-6 [May 5, 2016] [same]).

He further stated:

Nothing in the no-fault scheme precludes plaintiff from pursuing this action. Trouble with respect to a remedy does not equate to trouble with respect to the merits of a cause of action. Recovery with respect to plaintiff’s cause of action — which, as noted, in my view sounds in equitable subrogation — would be indirect. That is, plaintiff, likely barred from receiving direct payments from defendant by the no-fault regulations (see 11 NYCRR 65-3.11 [a]), theoretically would seek reimbursement through the medical providers to be reimbursed by defendant pursuant to the responsibilities defendant may have under the policy of automobile insurance through which it covers Herrera (see 11 NYCRR 65-1.1 [d] [including the requirement that the insurer “will pay first-party benefits to reimburse for basic economic loss sustained by an eligible injured person on account of (qualifying) personal injuries,” subject to the insured’s satisfaction of policy conditions]).

And still further:

It is beyond dispute that the no-fault scheme was not intended to impose upon an injured person such as Herrera either the significant additional burden of the lien in question or the toll associated with discharging that claim and seeking to hold defendant to its coverage obligations. That the scheme is comprised of a thicket of rules and regulations does not mean that the inequitable result here should stand.

Its a long decision but worth the read.

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