Under no-fault laws, automobile policies typically must cover the cost of certain medical services provided to policyholders who have been injured in covered accidents. New York’s insurance laws also permit those costs to be excluded from coverage under healthcare insurance policies. In 2008, an injured policyholder assigned her medical benefits to the providers who treated her, but those providers submitted their bills to the her healthcare insurer, and the insurer mistakenly paid them. Last month, in Aetna Health Plans v. Hanover Ins. Co., No. 12210 (N.Y. June 14, 2016), No. 12210 (N.Y. June 14, 2016), New York’s highest court ruled that the state’s no-fault regulations would not permit the insurer to recover its payments from the automobile carrier. In effect, the court’s ruling advised healthcare insurers to stay well clear of the no-fault system.

How It Works

New York’s no-fault law, Article 51 of the state’s Insurance Law, was enacted in 1973 as the “Comprehensive Motor Vehicle Insurance Reparations Act.” The regulations promulgated under the no-fault law provide that all automobile policies must include mandatory Personal Injury Protection (PIP) coverage, which includes coverage for medical expenses incurred in connection with a covered accident. 11 NYCRR § 65.1-1. The coverage requires insureds to give notice of an accident within 30 days, and to submit a proof of claim within 45 days after medical services are performed. Id. The insurer’s payment is “overdue” if it is not made within 30 days of its receipt of a proof of claim. 11 NYCRR § 65.3-8.

To expedite the process, payment may be made directly to medical providers (11 NYCRR § 65.3-11):

An insurer shall pay benefits … directly to the applicant or, … upon assignment by the applicant …, shall pay benefits directly to providers of health care services ….

What Went Wrong

In April 2008, Ms. Luz Herrera was injured in an automobile accident. She received treatment from a number of providers, to whom she assigned her applicable benefits. The providers then mistakenly submitted bills in a total amount of over $19,000 to Ms. Herrera’s employer-sponsored health plan, which was operated by Aetna, rather than to her automobile insurer, and the plan paid the bills.

In 2009, nearly a year after the services were provided, Aetna demanded reimbursement for those payments from Ms. Herrera’s no-fault auto insurer, Hanover, but Hanover did not respond. In the meantime, Ms. Herrera had filed a personal injury action against the person she contended was responsible for her injuries, and Aetna filed a lien for reimbursement of its expenses from any future recovery in that action. Consequently, in January 2010, Ms. Herrera demanded reimbursement from Hanover for the bills paid by Aetna, and, when Hanover did not comply, she exercised her right to arbitrate under the policy. But the arbitrator ruled against her, for lack of standing, on the grounds that her providers’ bills had already been paid, and the health plan’s claim would remain contingent until she actually recovered against the tortfeasor.

In the midst of this litigation, Ms. Herrera’s medical providers continued to treat her, and they continued to submit bills to Aetna, which paid an additional $23,500. Ms. Herrera ultimately executed a new assignment of all of her rights to Aetna, and Aetna filed an action against Hanover in the Bronx.

The Litigation

In the trial court, the parties cross-moved for summary judgment. Hanover, the automobile insurer, argued that Aetna had no right to pursue assigned benefits directly against a no-fault carrier, because it was not a “provider[] of health care services” under § 65.3-11 of the no-fault regulations, and because it was not otherwise in privity with Hanover or a third-party beneficiary of Ms. Herrera’s Hanover policy. Hanover also contended that it had not received the bills for Ms. Herrera’s services within the time limits imposed by the no-fault law. The court agreed, granting summary judgment to the auto insurer on these grounds, and for the additional reason that

[t]here 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.

An intermediate appellate court affirmed, and Aetna took the case to the Court of Appeals. At that level, Hanover’s position received additional support from the American Insurance Association (AIA), as amicus curiae.

Many Arguments

In the high court, Aetna conceded it could not bill directly as a healthcare “provider,” but it contended that the assignment it had received from Ms. Herrera allowed it to stand in her shoes as an “applicant.” In a majority opinion, four judges rejected that argument. The majority found that Aetna could not assert a claim in Ms. Herrera’s stead: the assignment it received was invalid, because it had been made only after Ms. Herrera had already assigned her rights to the medical providers.

But the majority also went further: it interpreted the language of § 65.3-11 to mean that the only persons to whom no-fault insurers may pay benefits directly are (i) insured “applicants” or (ii) the “providers” who receive their assignments:

[B]y 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.

The majority’s opinion appears to mean, therefore, that even if Ms. Herrera had immediately assigned her no-fault benefits to Aetna, rather than to her providers; and even if Aetna had then presented bills to Hanover within the 45-day time-frame; Aetna would still not have been entitled to direct payment from the no-fault insurer. There is simply no room, it seems, for another third-party payor in the no-fault scheme—even if that payor entered the system unwittingly.

That result was too much for the lone dissenter, Judge Fahey, who concluded that the claim Aetna was asserting actually sounded in “equitable subrogation.” Judge Fahey found that “[n]othing in the no-fault scheme precludes” such a claim:

Complex as the [no-fault] scheme may be, its mission includes consumer protection through a structure designed to limit costs and promptly resolve injury claims. Here, although [Ms.] Herrera has been harmed twice – through both the accident and the lien placed … on any recovery she may have … — [her no-fault insurer] has not been required to answer for its claims handling and coverage determination.

This argument was addressed in a lone concurrence by Judge Stein, which cited an informal opinion issued by New York’s Insurance Department (now the Department of Financial Services) in 2008. The opinion dealt with a case in which an HMO treated a member whose no-fault insurer had denied benefits, and it stated that, under those circumstances, the HMO could not pursue an equitable subrogation claim against the insurer.

The Department’s conclusion was based on the no-fault statute, which gives an “insurer”—i.e., a no-fault insurer—the right to assert a subrogation claim against a tortfeasor. N.Y. Ins. Law, § 5105(a). The Department construed the statute to mean that non-“insurer” payors (such as the HMO) had no subrogation rights. Rather, it found that an HMO could protect its interests by staying away from the no-fault system—specifically, by exercising its statutory right to exclude coverage for “any loss … for which mandatory automobile no-fault benefits are … recoverable.” 11 NYCRR § 52-16(c). Judge Stein concluded:

Essentially, … the Insurance Department has advised insurers that an HMO should refuse to pay for any treatment covered under no-fault because, under the no-fault scheme, the HMO will not be able to subrogate its recovery … .

The concurrence also addressed the equities of this apparently harsh judgment. It noted, first, that equitable subrogation claims are usually directed at the party that caused an underlying injury—an “active wrongdoer.” According to the concurrence,

equity does not dictate the outcome of who should pay for medical treatment under the no-fault scheme when the dispute is between two types of insurers ….

More importantly, Judge Stein found that Aetna’s claim did not actually arise out of the injury to its insured:

The … providers submitted their bills to the incorrect insurer, creating the false impression that Aetna’s policy covered Herrera’s treatment …. For its part, Aetna continued to pay those bills, without notifying the providers of this mistake, even after Aetna learned that they should have been submitted to Hanover. … While purporting to sue as the subrogee of Herrera, as its insured, Aetna is actually suing to recover for its own losses due to incorrect billing, rather than Herrera’s losses. That is not true subrogation.

Keep Out!

The AIA, as amicus, argued that the no-fault regulations “specifically identify the stakeholders essential to the no-fault system: the injured person, the health care provider and the no-fault insurance company.” It argued that allowing other insurers to seek payment from no-fault carriers

would vitiate the regulatory requirements that encourage the efficient and prompt processing of claims: the submission of claims by the injured party within thirty days of a covered incident, and the submission of bills by medical providers within forty-five days of the dates services were rendered. … The Superintendent of the New York Insurance Department has determined that meaningful verification of no-fault claims is necessary for the operation of the no-fault program[,] and that judgment should be respected.

None of the opinions in Aetna Health Plans cited these arguments, but the sentiments underlying them seem to have carried the day. In their own different ways, both the majority opinion and Judge Stein’s concurrence read the no-fault statutes and regulations as a closed system that would be fatally disrupted by the introduction of additional players or modes of payment. Healthcare insurers have been clearly advised to protect their own interests by steering clear.