No-Fault Policy Exhaustion & the Priority of Payment Reg. - Overview of Recent AAA Arbitration Decisions

In the complex landscape of New York's no-fault insurance system, two critical components come into play for reimbursement: policy exhaustion and the priority of payment regulation.

• Policy exhaustion refers to the point at which an insured individual's no-fault insurance policy reaches its maximum limit at which time an insurer is no longer required to make payments to providers of medical services.

• The priority of payment regulation establishes the order in which various bills submitted are processed and paid.

These two concepts are essential to understanding how insurance claims are processed and settled in the state of New York.

Non-payment due to Policy exahustion is factored into No-Fault providers’ default rates and is a unique financial consdieration affecting providers of health services to No-Fault patients. Recent AAA decisions provide insight on the policy exahustion defense and the burden of proof for both providers and payors.

Policy Exhaustion Defense

Insurance companies subject to a No-Fault arbitration may claim the policy exahustion defense as a defense against their obligation to pay the bill in question. When an insurer “has paid the full monetary limits set forth in the policy, its duties under the contract of insurance cease.” Countrywide Ins. Co. v. Sawh, 272 A.D.2d 245 (1st Dept. 2000).

The defense is so significant that a carrier is not precluded from introducing new evidence when a provider tries to confirm an award or from raising it for the first time in court even if the carrier failed to raise it during arbitration.

The defense, however, is not absolute which was confirmed in two recent arbitration decisions which presented the “very rare situation where a [Carrier] must now pay Applicant’s claim despite it having proved that benefits exhausted”:

OrthoMotion Rehab DME Inc., and Liberty Mutual Insurance Co., AAA Case No. 172212686597 (9/11/23)

In this arbitration award Liberty Mutual either partially paid a portion of the bills or did not pay them at all, citing the need for additional verification. The insurance company also contends that the policy was exhausted as of March 24, 2023.

The arbitrator makes several key findings and conclusions:

1. Timeliness of Payment or Denial: An insurer must pay or deny a No-Fault benefits claim within thirty (30) calendar days after receiving proof of claim which may be extended by the carrier requesting additional verification from the provider. However, if the provider fails to respond to the verification request, the carrier must issue a second verification request within 10 days after the initial 30-day period or the claim will be considered overdue.

2. Policy Exhaustion: Mere exahustion of benefits is insufficient to claim the policy exhaustion defense, a carrier must also demonstrate that the payments that led to the depletion of policy benefits were made in compliance. Bills that have not been timely denied do not automatically lose their place on the priorty of payment line.

3. Priority of Payment: The order in which claims are paid is determined by the priority of payment regulation. The insurer must demonstrate that it paid other claims with higher priority before the disputed claim became due. The insurer's payment log did not include the dates it received claims, making it challenging to prove that other claims had priority.

4. Usual and Customary Charges: Liberty Mutual claimed it was not required to pay for applicant’s services because the amount billed was in execess of the fee schedule - however, Liberty had the burden to provide proof of what the cost of acquisiton was to the DME provider or proof as to what the usual and customary charge to the public was. The DME provider is not required to prove its costs. The insurer failed to provide proof of either the acquisition cost or the usual and customary price, making its argument for reduced payment insufficient.

Grovensor Supply Corp., and Geico Insurance Co., AAA Case No. 172212411409 (9/5/23)

In this arbitration award, the applicant sought reimbursement for medical charges for which Geico argued that the policy was exhausted.

The arbitrator made a key conclusion regarding respondent’s burden of proof:

1. Burden of Proof: Geico claimed it never received the bill until after receiving the applicant's AR-1 but failed to provide any affimative evidence to support its claim as was required. The applicant’s proof of mailing (PS Form 3877) was sufficient to establish that Geico received the bill and failed to properly handle it. As such, Geico’s policy exahustion defense was defeated.

These recent decisions highlight the importance for carriers to have proper documentation to claim policy exahustion because the defense is not absolute. And, Providers who fail to recieve an answer on their bills and are subsequently denied due to policy exhaustion should not be deterred from pursuing arbitration for proper reimbursement.