Central General Hospital v. Chubb Group, 90 N.Y.2d 195 (1997)

Under New York’s no-fault insurance law, an insurer’s failure to timely deny a claim precludes it from raising defenses related to whether the medical treatment was causally related to the accident, but not defenses related to whether the treatment was medically necessary or a lack of coverage.

Summary

Central General Hospital sued Chubb Group to recover payment for medical services rendered to an insured under a no-fault insurance policy. Chubb Group argued that the treatment was not causally related to the underlying accident and was excessive. The New York Court of Appeals held that Chubb Group’s failure to timely deny the claim only precluded it from arguing the lack of causal relationship but not from arguing that the medical treatment was excessive because it implicates a question of coverage under the statute.

Facts

Central General Hospital provided medical services to an individual insured under a no-fault automobile insurance policy issued by Chubb Group. Central General Hospital submitted a claim to Chubb Group for payment of these services. Chubb Group did not timely deny the claim within the statutorily prescribed timeframe. Chubb Group then refused to pay, asserting that the medical treatment was (1) not causally related to the underlying accident, and (2) excessive.

Procedural History

Central General Hospital sued Chubb Group to recover payment. The trial court ruled in favor of Central General Hospital, precluding Chubb Group from raising any defenses due to its failure to timely deny the claim. The Appellate Division affirmed. The New York Court of Appeals reversed in part, holding that the defense of excessive treatment could still be raised.

Issue(s)

Whether an insurer’s failure to timely deny a no-fault claim precludes the insurer from raising defenses that the medical treatment (1) was not causally related to the accident, and (2) was excessive.

Holding

1. No, because the failure to timely deny a no-fault claim precludes the insurer from raising defenses that are unrelated to coverage under the policy. 2. No, because the defense that the treatment was excessive implicates the question of whether the expenses were “necessary” under the statute, and is therefore a coverage issue.

Court’s Reasoning

The Court reasoned that the preclusion rule for untimely denials is not absolute and does not prevent an insurer from raising defenses related to coverage. The Court distinguished between defenses related to whether coverage ever existed and defenses related to whether the treatment was actually provided or causally related to the accident. The Court reasoned that the defense of lack of medical necessity (excessiveness) is intrinsic to the determination of whether the treatment falls within the scope of “basic economic loss” covered by the no-fault statute. The Court stated: “Medical expenses are not included as an item of ‘basic economic loss’ under no-fault unless they are ‘necessary expenses’ (Insurance Law § 5102 [a] [1]). To that extent, the question whether the medical expenses in this case were excessive or necessary presents merely a question of coverage.” Therefore, an insurer could raise the defense of excessiveness even after failing to timely deny the claim. The concurring opinion argued that the preclusion remedy itself was inappropriate and not intended by the legislature.