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Posted: May 10, 2014

New York Insurance Law Does Not Require Arbitration Of Insurer’s Claim To Recover Payments On Fraudulent Claims

On May 6, 2014, the Second Circuit issued a decision in Allstate Insurance Co. v. Mun, Docket No. 13-1424-CV, holding that while the New York Insurance Law gives a medical provider the right to demand arbitration of a refusal to pay a claim, that right does not extend to a claim by an insurer to recover from the provider already-made payments.

In Allstate Insurance, the plaintiff sued the defendants in the EDNY to recover payments the plaintiff had made to the defendants on no-fault insurance claims that, the plaintiff alleged, were fraudulent. The defendants moved to compel arbitration of the plaintiff’s claims. The EDNY denied the motion, holding “that medical providers have a right to arbitrate as-yet unpaid claims, but not claims that were timely paid.” The Second Circuit affirmed, explaining:

Section 5106 of the New York Insurance Law provides, in relevant part:

(a) Payments of first party benefits and additional first party benefits shall be made as the loss is incurred. Such benefits are overdue if not paid within thirty days after the claimant supplies proof of the fact and amount of loss sustained. . . .
(b) Every insurer shall provide a claimant with the option of submitting any dispute involving the insurer’s liability to pay first party benefits, or additional first party benefits, the amount thereof or any other matter which may arise pursuant to subsection (a) of this section to arbitration pursuant to simplified procedures to be promulgated or approved by the superintendent. Such simplified procedures shall include an expedited eligibility hearing option, when required, to designate the insurer for first party benefits . . . .

N.Y. Ins. Law § 5106(a)‐(b) (emphases added). . . .

Defendants rely on citations to the FAA; but the real question is: do Allstate’s policies, which implement requirements imposed by New York law and which must be construed to satisfy those requirements, grant Defendants the right to arbitrate Allstate’s fraud claims?

The arbitration provision in the Allstate policies appears quite broad. It contemplates arbitration if the claimant and insurance company do not agree regarding any matter relating to the claim. But it is not as broad as it may seem. An arbitrable dispute is one between the insurance company and a person making a claim for first-party benefits. Defendants are no longer making a claim. They made a claim; they made many claims. And those claims were promptly paid by Allstate. Allstate’s fraud suit therefore does not raise a dispute between it and a person making a claim for first-party benefits. The arbitration provision does not apply.

(Internal quotations and citations omitted).

This decision illustrates that notwithstanding case-law favoring arbitration and the rights of health care providers vis-à-vis insurers, at the end of the day, it is the law and applicable contracts that define the scope of the right to demand arbitration.

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