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Endo Surgical Center v. Allstate New Jersey Insurance Co.


December 18, 2009


On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-7160-08.

Per curiam.


Argued September 30, 2009

Before Judges Fuentes and Gilroy.

Plaintiff Endo Surgical Center, as subrogee of Marilus Rodriguez, appeals from the November 13, 2008 order denying its application for an order compelling defendant Allstate New Jersey Insurance Company*fn1 to comply with the June 30, 2008 arbitration award that directed defendant to pay plaintiff $11,400 in personal injury medical expense benefits. We affirm.

The facts are not in dispute. On April 17, 2006, Marilus Rodriguez suffered personal injuries while operating a motor vehicle owned by her mother, Tomasa Morales, and insured by defendant. The insurance policy provided personal injury protection (PIP) medical expense benefits with limits of $250,000 per person/per accident. Rodriguez's treating medical providers submitted bills totaling $623,677.51 to defendant, of which Allstate paid $250,000 in accordance with the terms of its policy.

On November 3, 4, and 5, 2006, Dr. Michael Haddad of Chiropractic Care, P.C., performed manipulations under anesthesia (MUAs) of Rodriguez's spine at plaintiff's surgical center. Rodriguez assigned her PIP claims for Dr. Haddad's services and for use of plaintiff's facility to the respective medical providers. On November 6, 2006, plaintiff submitted a statement to defendant in the amount of $37,750 for hosting the MUAs. Chiropractic Care submitted an additional statement to defendant in the amount of $9,911 for Dr. Haddad's services in performing the MUAs. Defendant denied both claims on the basis that neither was medically reasonable nor necessary.

On April 27, 2007, plaintiff filed a demand for arbitration with the National Arbitration Forum seeking to compel defendant to issue payment for use of the surgical center. Chiropractic Care also filed a demand for arbitration seeking to compel defendant to pay $9,911 for Dr. Haddad's services.

On April 9, 2008, the appointed Dispute Resolution Professional (DRP) conducted a hearing on the consolidated arbitration matters and reserved decision. On June 30, 2008, the DRP entered an arbitration award directing defendant to pay plaintiff $11,400 for Dr. Haddad's use of the surgical center in performing the MUAs. As a result, defendant obtained a $26,350 reduction from the original $37,750 demanded by plaintiff. The arbitration award also directed defendant to pay plaintiff $1,750 in attorney's fees and $229.88 in costs. On the same day, the DRP issued a separate arbitration award directing defendant to pay Chiropractic Care $6,039.98 for Dr. Haddadd's services, together with attorney's fees of $1,300, and costs of $225. As Chiropractic Care had originally demanded $9,911, the award reduced defendant's obligation by $3,871.02.

In the interim, while the arbitration proceedings were pending, defendant paid two statements of third-party medical providers relating to surgery that Rodriguez had undergone on May 21, 2007. On March 18, 2008, defendant paid Northern New Jersey Orthopedic Specialists $86,285. On June 19, 2008, defendant paid St. Clare's Hospital $140,618.35. These two payments, together with previously-paid payments, to other third-party medical providers exhausted the medical expense benefits under the policy.

On July 2, 2008, defendant informed plaintiff that the limits of PIP medical expense benefits had been exhausted, and as such, defendant could not honor the arbitration award. However, defendant paid plaintiff the award of attorney's fees and costs.

On September 18, 2008, plaintiff filed a complaint and an order to show cause seeking to compel defendant to pay the $11,400 arbitration award.*fn2 On November 13, 2008, the trial court issued an order denying plaintiff's application to compel payment of the arbitration award. In its statement of reasons attached to the order, the court explained:

Plaintiff's Order to Show Cause is denied. Defendant had a reasonable basis for not allocating a reserve for this matter. Plaintiff has submitted no law which entitles it to priority to the funds it claims it is owed. Absent such law, the [c]court must defer to the insurance carrier as to what provider should be paid first.

The [c]court finds no basis for plaintiff's contention that defendant acted in bad faith in this matter. The proceeding had commenced and only the date and amount of award remained when the policy limits were exhausted. Defendant could not have disclosed the exhaustion of the policy limits earlier than it did since the policy was not exhausted until June 19, 2008.

Plaintiff argues that as assignee of defendant's insured, it is entitled to recover PIP benefits beyond the policy limits. We disagree.

On appeal, we defer to the factual determinations of the trial court provided they are supported by sufficient, credible evidence in the record. Rova Farms Resort v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). However, our review is de novo on questions of law and of the legal consequences that flow from the established facts. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

We now turn to the issues before us. Plaintiff argues that while its demand for arbitration was pending, defendant had a duty to notify it that the insured's PIP benefits were nearly exhausted. According to plaintiff, when confronted with such a likelihood, defendant should have either escrowed the amount of benefits available, or deposited the funds into court.

Plaintiff asserts that defendant violated this alleged duty when it depleted the PIP benefits before the arbitration award was issued. We disagree.

We are satisfied the method used by defendant to pay medical benefit claims received from various medical providers is governed by the general principle that, absent bad faith, an insurer may settle with one or more claimants, notwithstanding that the settlements may exhaust the policy limits. Goughan v. Rutgers Cas. Ins. Co., 238 N.J. Super. 644, 649 (Law Div. 1989) (limiting an underinsured motorist carrier's credit against the tortfeasor's liability insurance policy to the amount that remains available to the injured party after the tortfeasor's insurer made payments to other injured victims of the accident); see also Liquori v. Allstate Ins. Co., 76 N.J. Super. 204, 212-14 (Ch. Div. 1962) (holding that a third party has no right to interfere with an insurer's settlement with other claimants where the settlements would seriously deplete or exhaust the policy limits).

In Liquori, then Judge Pashman (later appointed Associate Justice of the Supreme Court in 1972) in denying a third party's request to enjoin an insurer from settling with other third-party claimants because of the limited amount of insurance proceeds, concluded:

While an insurer may wish to collect data on all the claims before negotiating settlement of any particular one, it is certainly under no legal compulsion to do so. Whether multiple claims are to be treated one at a time or collected and evaluated together, is a choice solely within the discretion of the insurer. Characterizing such a step[-]by[-]step approach as "piecemeal" is rhetoric without legal significance. When, as is the case here, a presumptively valid and adequate award has been made to one of several claimants, the fact that the remaining claimants, or any one of them, have not been taken into the confidence of the settling parties falls far short of establishing an adequate ground for equitable relief. This is especially true where to hold otherwise would interfere with the judicially[-]favored policy of avoiding unnecessary expense and delay through settlement practice. Bona fide settlements between prospective litigants should not be restrained on the basis of speculative claims of mala fides.

[Liquori, supra, 76 N.J. Super. at 214.]

That principle is equally applicable here.

Plaintiff cites Pickett v. Lloyd's, 131 N.J. 457 (1993) in support of its argument that defendant acted in bad faith by unnecessarily delaying the proceedings. Plaintiff's reliance on Pickett is misplaced.

Plaintiff correctly cites Pickett for the general principle that an insurer owes a duty of good faith to its insured in processing a first-party claim, id. at 467, and that the insurer may be liable to its insured for consequential economic losses for the insurer's bad faith in either delaying the processing of the claim or in failing to pay benefits, id. at 481. However, an insured's right to pursue a common law action for consequential damages pursuant to Pickett is not applicable to PIP actions. Endo Surgi Ctr. v. Liberty Mut. Ins., 391 N.J. Super. 588, 592-96 (App. Div. 2007). Rather, because PIP benefits are statutory in nature, "the sole remedy for a wrongful denial of PIP benefits is an award of the interest mandated by N.J.S.A. 39:6A-5(h) and attorney's fees." Id. at 594.

What is more, even if Pickett was applicable to the present matter, we are satisfied that plaintiff's bad faith claim fails as a matter of law. Pursuant to Pickett, if a claim is "fairly debatable," bad faith is not established. Id. at 473. Under that standard, "a claimant who could not have established as a matter of law a right to summary judgment on the substantive claim would not be entitled to assert a claim for an insurer's bad-faith refusal to pay the claim." Ibid.

Here, defendant challenged the reasonableness and necessity of the medical services. Following arbitration, the DRP only awarded plaintiff $11,400 of its $37,750 claim. Clearly, the claim was "fairly debatable." Accordingly, plaintiff did not establish bad faith on defendant's part in contesting the reasonableness and necessity of the MUAs.

Plaintiff contends that defendant should be compelled to pay medical expense benefits over and above the amount of its policy limits because defendant failed to take any procedural steps "to confine its liability to the limits of its policy" by either requesting a stay of the arbitration proceeding from the National Arbitration Forum pending defendant's resolution of claims from other medical providers, or by filing a declaratory judgment action, naming all medical provider claimants, seeking direction as to how to distribute its policy limits. In support of its contention, plaintiff cites Selective Ins. Co. v. Nat'l Cont'l Ins. Co., 385 N.J. Super. 62, 69-72 (App. Div.), certif. denied, 188 N.J. 218 (2006). We determine that Selective is distinguishable from the present matter.

In Selective, Kathryn Kniesler, the operator of the motor vehicle insured by Selective, was injured when her vehicle collided with a truck insured by National. Although the truck was not required to have PIP coverage because it was a commercial vehicle, it was insured for liability insurance with a $500,000 single-limit policy. Id. at 64. On June 4, 2002, National paid Selective $21,634.60 on a subrogated property damage claim. Ibid. Following that payment, plaintiff filed a personal injury negligence action against National's insured. Id. at 65.

While that suit was pending, Selective filed an arbitration claim against National seeking to recover PIP benefits Selective had paid to its insured. On October 27, 2004, the arbitrator entered an award in favor of Selective in the amount of $77,219.84. Id. at 66. After National refused to honor the arbitration award, Selective filed an action in the Law Division seeking to confirm the award. Ibid. On December 13, 2004, National settled the personal injury claim for $450,000. In the action to confirm the arbitration award, National asserted that Selective was only entitled to recover $28,365.40, the amount remaining under the policy after settlement of the personal injury claim. The trial court agreed.

On appeal, we reversed, determining in part that Selective could recover over and above National's policy limits because National had failed to take necessary steps to confine its liability to the limits of the policy. Id. at 71-72. We noted that National could have sought a stay or deferment of the arbitration proceeding from Arbitration Forum, or could have sought judicial intervention. Id. at 72.

Here, contrary to Selective, we are not concerned with the right of a PIP carrier to seek PIP reimbursement from the tortfeasor's liability carrier pursuant to N.J.S.A. 39:6A-9.1. Nor are we concerned with a priority of payment issue where the liability PIP carrier paid another claimant after receipt of the arbitrator's award. Defendant justifiably contested plaintiff's claim, was vindicated in its action, and paid other medical providers who had rendered services to the insured prior to the arbitration award.

Plaintiff argues next that defendant improperly paid the medical providers in a random fashion contrary to the order in which the losses accrued, citing N.J.S.A. 39:6A-6. We again disagree.

The Automobile Insurance Cost Reduction Act (AICRA), N.J.S.A. 39:6A-1 to -35, provides for PIP coverage, regardless of fault. Rivera v. Morales, 373 N.J. Super. 494, 497 (App. Div. 2004). AICRA contains a collateral source provision. N.J.S.A. 39:6A-6. That statute provides in pertinent part:

The benefits provided in [N.J.S.A. 39:6A-4 and N.J.S.A. 39:6A-10] . . . shall be payable as loss accrues, upon written notice of such loss and without regard to collateral sources, except that benefits, collectible under workers' compensation insurance, employees' temporary disability benefit statutes, Medicare provided under Federal law, and benefits, in fact collected, that are provided under Federal law to active and retired military personnel shall be deducted from the benefits collectible under [N.J.S.A. 39:6A-4 and -10] . . . .

If an insurer has paid those benefits and the insured is entitled to, but has failed to apply for, workers' compensation benefits or employees' temporary disability benefits, the insurer may immediately apply to the provider of workers' compensation benefits or of employees' temporary disability benefits for a reimbursement of any benefits pursuant to [N.J.S.A. 39:6A-4 and -10] . . . it has paid.

One of the purposes of the collateral source statute is "to advance the legislative goal of reducing automobile insurance premiums." Portnoff v. NJ Mfrs. Ins., 392 N.J. Super. 377, 384 (App. Div.), certif. denied, 192 N.J. 477 (2007). A second goal of the statute is to "'prevent double recovery of benefits by accidental victims of personal injury to the extent that these benefits were mandated otherwise by law.'" Ibid. (quoting O'Boyle v. Prudential Ins. Co. of Am., 241 N.J. Super. 503, 507-08 (App. Div. 1990)). In furtherance of those goals, the collateral source statute requires an insurer to pay PIP benefits "as [the] loss accrues," N.J.S.A. 39:6A-6, "without the need or determination of fault or other time-consuming litigation." Rivera, supra, 373 N.J. Super. at 500. However, if it is later determined that the loss was covered by another source defined in the statute, the insurer is entitled to reimbursement. Ibid.

We construe the phrase "as [the] loss accrues," N.J.S.A. 39:6A-6, to require the insurer to pay PIP benefits immediately upon determination that the loss is due and owing, without consideration that the loss may also be covered by another source, subject, however, to the insurer recouping the amount paid from either the insured, if the insured received payment from another source stated in the statute, or from the other source itself. See Toppi v. Prudential Ins. Co. of Am., 153 N.J. Super. 445, 450 (Cty. D. Ct. 1977) ("To allow an insurer to unilaterally deduct temporary disability benefits which it deems will be payable to its insured violates the mandate of N.J.S.A. 39:6A-6 which requires the payment of benefits as a 'loss accrues.'"); see also, Craig & Pomeroy, New Jersey Auto Insurance Law, § 8.2 at 172-74 (2010). N.J.S.A. 39:6A-6 does not prohibit an insurer from challenging the legitimacy of a PIP claim.


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