Florida law requires that all owners of motor vehicles registered in the state purchase Personal Injury Protection (PIP) insurance, which provides up to $10,000 in medical benefits regardless of fault. Private Passenger Auto insurers are facing a new challenge when defending these PIP claims. A Broward County Court recently entered an Order precluding an insurer from contesting the relatedness and medical necessity of treatment after payment was made at a reduced amount. MR Services I, Inc. a/a/o Tamara G. Rodriguez v. Star Casualty Insurance Company, 22 Fla. L. Weekly Supp. 856b (Fla. Broward County Ct. 2015).

Section 627.736(4)(b)(6), Florida Statutes states:

This paragraph does not preclude or limit the ability of the insurer to assert that the claim was unrelated, was not medically necessary, or was unreasonable or that the amount of the charge was in excess of that permitted under, or in violation of, subsection (5). Such assertion by the insurer may be made at any time, including after payment of the claim or after the 30-day time period for payment set forth in this paragraph.    

However, the above Court reasoned, “It is this Court’s opinion that when the legislature created 627.736(4)(b), that they did not intend for insurers to be able to retroactively deny previously paid bills, merely to defend a lawsuit on other grounds.” MR Services I, 22 Fla. L. Weekly Supp. 856b.

This application appears contrary to the express language of the statute and binding precedent interpreting Florida’s No Fault Act.

“When the language of the statute is clear and unambiguous and conveys a clear and definite meaning, there is no occasion for resorting to the rules of statutory interpretation and construction; the statute must be given its plain and obvious meaning.” Rollins v. Pizzarelli, 761 So.2d 294, 297 (Fla. 2000).

Additionally, this provision’s plain reading coincides with the overall goal of Florida’s PIP Statute. The Florida Supreme Court has held that, “Without a doubt, the purpose of the no-fault statutory scheme is to ‘provide swift and virtually automatic payment....’ ” Ivey v. Allstate Ins. Co., 774 So. 2d 679, 683 (Fla. 2000). This over-arching principle has guided the courts in their analysis of this statute since its inception.

The Florida Supreme Court reiterated this rationale in United Auto. Ins. Co. v. Rodriguez, 808 So. 2d 82, 86 (Fla. 2001). In Rodriguez, the Court found that certain provisions in the No Fault Act were intended to promote the prompt resolution of PIP claims by imposing several penalties on insurers who pay late. The Court stated, “Under the language of the Florida No-Fault Law, an insurer is subject to specific penalties once a payment becomes ‘overdue’; the penalties include ten percent interest and attorneys' fees. The insurer, however, is not forever barred from contesting the claim.” Rodriguez, 808 So. 2d at 87.

Citing Rodriguez, §627.736(4)(b), and the fact that an insurer can still contest the medical necessity of previously paid services, the Fourth District recently held that, “Until the necessity of the services and reasonableness of the charges is settled, their compensability under PIP is not established, and assignment of PIP benefits has not matured.” Northwoods Sports Medicine and Physical Rehabilitation, Inc. a/a/o Suzanne Cabrera, and Wellness Associates of Florida, Inc. a/a/o Daniel North v. State Farm Mutual Automobile Insurance Company and USAA Casualty Insurance Company,  137 So. 3d 1049, 1057 (Fla. 4th DCA 2014), reh’g denied, Jun. 4, 2014, Fla. Sup. Ct. denied review, March 14, 2015 (SC14-1355).   

Numerous courts throughout Florida have consistently followed this same reasoning. See AIU Ins. Co. v. Daidone, 760 So. 2d 1110, (Fla. 4th DCA 2000); United Auto. Ins. Co. v. Santa Fe Med. Ctr., 21 So. 3d 60, 64 (Fla. 3d DCA 2009);  United Auto. Ins. Co. v. Bermudez, 980 So. 2d 1213, 1216 (Fla. 3d DCA 2008); Partners in Health Chiropractic v. United Auto. Ins. Co., 21 So. 3d 858, 861 (Fla. 3d DCA 2009); State Farm Mut. Auto. Ins. Co. v. Hyma Med. Ctr., Inc., 22 So. 3d 699, 700 (Fla. 3d DCA 2009); United Auto. Ins. Co. v. Millennium Diagnostic Imaging Ctr., Inc., 12 So.3d 242, 246 (Fla. 3d DCA 2009).

The No Fault Act contains numerous provisions to balance the goal of prompt payment with the obvious problems inherent with such a requirement. The penalties serve to expedite the claims process by incentivizing prompt resolution of claims, while other provisions, including §627.736(4)(b)(6), provide some safeguards by allowing insurers to challenge the validity of claims later if necessary.

An insurer is only given thirty days upon receipt of a bill to pay without incurring any penalties. If the payment of the bill waived all claims regarding the relatedness or medical necessity of the treatment, the insurer would be required to do a more thorough and time-intensive investigation of each and every bill. As many insurers receive thousands of bills every day, this would slow down the entire process and circumvent the ‘swift and virtually automatic payment.’

The trial court further found that “to wait until suit is filed, and for no other reason than because suit is filed, violates the carrier’s obligation of good faith and fair dealing; to put more simply, its action amounts to bad faith.” MR Services I, 22 Fla. L. Weekly Supp. 856b.

However, when a lawsuit is filed, discovery is conducted, which can uncover facts that were not previously known. Because insurers are encouraged to pay the bill within thirty days, oftentimes they do not become aware of the viability of other defenses until discovery has run its course during litigation. An insurer’s challenge of relatedness and necessity while in suit may simply constitute a change in approach based upon available information. It would be unreasonable to expect an insurer to have as much understanding of the pertinent facts and available defenses within thirty days, as it would after obtaining relevant discovery during litigation.

Likewise, it would be unreasonable to then limit the insurer to its investigation within those thirty days. However, following the reasoning in MR Services I, courts may preclude insurers from conducting necessary discovery, such as taking the depositions of patients, witnesses, or doctors, on grounds that this type of discovery is irrelevant as payment has been deemed a waiver. This prohibition would unfairly prejudice insurers in their defense of these lawsuits and would encourage fraudulent claims and abuse.

The trial court based its assertion of bad faith on Fla. Stat. § 626.9541(i)(3)(e) and (f), which requires committing or  performing with such frequency as to indicate a general business practice any of the following…

(e) failing to affirm or deny full or partial coverage of claims, and, as to partial coverage, the dollar amount or extent of coverage, or failing to provide a written statement that the claim is being investigated, upon the written request of the insured within 30 days after the proof-of-loss statements have been completed.

(f) failing to promptly provide a reasonable explanation in writing to the insured of the basis in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.

The Court’s interpretation is problematic for insurers because it appears to broaden the exposure for bad faith. However, Florida courts have consistently held that a first-party bad faith claim does not accrue until there has been a final determination of both liability and damages in an underlying coverage claim. See Granada Ins. Co. v. Carl Ricks, et. al., 12 So. 3d 276 (Fla. 3d 2009), citing Allstate Ins. Co. v. Langston, 655 So.2d 91, 94 (Fla.1995).

Although the trial court acknowledged the existence of provision (4)(b)(6), the Court’s interpretation renders it superfluous. “Significance and effect must be given to every word, phrase, sentence, and part of the statute if possible, and words in a statute should not be construed as mere surplusage.” Larimore v. State, 2 So.3d 101, 106 (Fla. 2008).

The effects of this decision could require an insurer to choose between waiving potentially viable defenses or subjecting itself to severe penalties as a result of conducting a more thorough investigation. Either choice slows down the process and frustrates the purpose of the No Fault Act.