LMK Psychological Services v. State Farm Mut. Auto. Ins. Co. , 12 N.Y.3d 217 (2009)

In New York no-fault insurance cases, attorney’s fees are calculated based on the aggregate amount awarded for each insured’s claim, not per individual bill, and the tolling of interest applies once a denial is issued, regardless of whether the denial was timely.

Summary

LMK Psychological Services, medical providers, sued State Farm for denying no-fault insurance claims. The lower courts awarded attorney’s fees on a per-bill basis and calculated interest without applying the tolling provision. The Court of Appeals reversed, holding that attorney’s fees should be calculated based on the aggregate amount of each insured’s claim, consistent with the Superintendent’s interpretation. The Court also held that the tolling provision applies once a denial is issued, even if untimely, to encourage prompt resolution of disputes.

Facts

Two medical providers, LMK Psychological Services and another, treated automobile accident victims insured by State Farm. State Farm denied the no-fault insurance claims assigned to the providers by the insureds. The providers sued State Farm, alleging failure to pay or deny multiple bills within 30 days as required by law.

Procedural History

The Supreme Court granted summary judgment to the providers, awarding attorney’s fees on each bill and interest without applying the tolling provision. The Appellate Division affirmed, holding that the attorney’s fees were properly awarded on a per-bill basis and that State Farm was not entitled to the tolling provision because it did not issue timely denials. The Court of Appeals granted leave to appeal and reversed the Appellate Division’s order.

Issue(s)

1. Whether attorney’s fees in no-fault insurance cases should be calculated on a per-bill basis or on the aggregate amount of payment required to be reimbursed for each insured’s claim.
2. Whether the tolling provision for interest accrual applies when an insurance company fails to issue a proper and timely denial of a claim.

Holding

1. No, because the Superintendent of Insurance’s interpretation that attorney’s fees are calculated based on the aggregate amount awarded for each insured’s claim is reasonable and entitled to deference.
2. Yes, because the purpose of the “Fair claims settlement” provision is to encourage claimants to resolve disputes quickly, and this purpose is best served by tolling interest once a denial is issued, even if untimely.

Court’s Reasoning

The Court of Appeals deferred to the Superintendent of Insurance’s interpretation of Insurance Law § 5106 and related regulations. The Superintendent issued an opinion letter stating that attorney’s fees should be calculated based on the aggregate amount of payment required to be reimbursed based upon the amount awarded for each bill which had been submitted and denied. The court stated, “[The Superintendent’s] interpretation, if not irrational or unreasonable, will be upheld in deference to his special competence and expertise with respect to the insurance industry, unless it runs counter to the clear wording of a statutory provision.”

The Court found that the Superintendent’s interpretation of 11 NYCRR 65-3.9(c) regarding the tolling provision was also entitled to deference. The Superintendent interpreted this provision to mandate that the accrual of interest is tolled, regardless of whether the particular denial at issue was timely. The Court reasoned that this interpretation encourages claimants to swiftly resolve any dispute concerning their entitlement to no-fault benefits. As the Court explained, the underlying purpose of Section 5106 is to encourage “Fair claims settlement.” Even if a denial is untimely, “a claimant should still be encouraged to act to resolve the dispute quickly.”