Opinion
Index No. EF20211000
03-07-2023
Jeffrey Thrall, Plaintiff, v. State Farm Mutual Automobile Insurance Company, DDA Management Services LLC d/b/a D & D Associates, Louis David Nunez, MD, Defendants.
Attorney for Plaintiff Jeffrey Thrall: Raymond J. Zuppa, Esq. The Zuppa Firm PLLC Attorneys for Defendant State Farm Mutual Automobile Insurance Company: Michael A Troisi, Esq. Michael P. Versichelli, Esq. Frank P. Izzo, Esq. Rivkin Radler, LLP Attorneys for Defendant DDA Management Services, LLC d/b/a D & D Associates: Andrew I. Hamelsky, Esq. Jenifer A. Scarcella, Esq. Zaara B. Nazir, Esq. Stradley Ronon Stevens & Young, LLP Attorneys for Defendant Louis David Nunez, MD: Jesse B. Baldwin, Esq. Kara M. Addelman, Esq. Addelman Cross & Baldwin, PC
Unpublished Opinion
Attorney for Plaintiff Jeffrey Thrall:
Raymond J. Zuppa, Esq.
The Zuppa Firm PLLC
Attorneys for Defendant State Farm Mutual Automobile Insurance Company:
Michael A Troisi, Esq.
Michael P. Versichelli, Esq.
Frank P. Izzo, Esq.
Rivkin Radler, LLP
Attorneys for Defendant DDA Management Services, LLC d/b/a D & D Associates:
Andrew I. Hamelsky, Esq.
Jenifer A. Scarcella, Esq.
Zaara B. Nazir, Esq.
Stradley Ronon Stevens & Young, LLP
Attorneys for Defendant Louis David Nunez, MD:
Jesse B. Baldwin, Esq.
Kara M. Addelman, Esq.
Addelman Cross & Baldwin, PC
Richard A. Kupferman, J.
The plaintiff Jeffrey Thrall alleges that he was involved in an automobile accident in December 2013 and sustained serious personal injuries, and that prior to the accident he had purchased an automobile insurance policy from the defendant State Farm Mutual Automobile Insurance Company ("State Farm"). The policy provided for Personal Injury Protection ("PIP") coverage for no-fault benefits in the amount of $125,000 and Supplementary Uninsured/Underinsured Motorist Bodily Injury ("SUM") coverage in the amount of $100,000.
State Farm allegedly breached the policy by denying these insurance benefits based on the results of a medical examination ("IME") conducted in May 2016 by the defendant Louis David Nunez, MD. Mr. Thrall alleges that the IME was cursory and incomplete; that the results were pre-determined; and that the IME report contains false statements and opinions. Mr. Thrall also alleges that Dr. Nunez caused him injuries by violently wrenching his leg during the examination.
According to Mr. Thrall, the denial of benefits was part of a larger conspiracy on the public to defraud accident victims, including him, by denying insurance coverage, in a scheme that limits claim payouts and increases profits for State Farm. In addition to State Farm and Dr. Nunez, the fraud allegations are also asserted against the defendant DDA Management Services LLC d/b/a D & D Associates ("DDA"), the entity that scheduled and arranged the IMEs performed on Mr. Thrall. In return for their roles in the above conspiracy, DDA and Dr. Nunez were allegedly paid substantial amounts of money by State Farm.
Mr. Thrall alleges that this conspiracy prevented him from receiving necessary medical treatment, including surgery, physical therapy, aqua therapy, and diagnostic procedures. This allegedly resulted in a severe degeneration of his physical condition, financial ruin, the loss of enjoyment of much of his life, and debt.
In this action, Mr. Thrall seeks to recover monetary damages and obtain declaratory relief. In his amended complaint, he asserts the following nine causes of action: (1) breach of SUM contract against State Farm; (2) bad faith breach of SUM contract against State Farm; (3) breach of PIP contract against State Farm; (4) bad faith breach of PIP contract against State Farm; (5) common law fraud against State Farm, DDA and Dr. Nunez; (6) violation of General Business Law § 349 against State Farm; (7) a judgment pursuant to CPLR 3001 against State Farm, declaring that its claims-handling process is unlawful; (8) a judgment pursuant to CPLR 3001 against State Farm and DDA, declaring that their procurement and provision of IMEs violates Public Health Law Article 45; and (9) a judgment pursuant to CPLR 3001, declaring that the no-fault regulations pertaining to IMEs are unconstitutional.
State Farm seeks to dismiss the second, fourth, fifth, sixth, seventh, eighth, and ninth causes of action in the amended complaint, pursuant to CPLR 3211(a)(7), and to strike paragraphs 57, 63 through 72, 165 through 175, and 210 through 211 of the amended complaint as irrelevant, scandalous and prejudicial, pursuant to CPLR 3024(b). State Farm also seeks to dismiss Mr. Thrall's claims for consequential and punitive damages.
DDA and Dr. Nunez similarly seek to dismiss the claims asserted against them in the amended complaint, pursuant to CPLR 3211(a)(7). In addition, Mr. Thrall seeks summary judgment in his favor on his ninth cause of action, pursuant to CPLR 3212.
Dr. Nunez also sought to dismiss any malpractice or negligence claims asserted against him, pursuant to CPLR 3211(a)(5), based on the statute of limitations. However, this issue was rendered moot after Mr. Thrall's counsel confirmed that Mr. Thrall is not seeking to assert any malpractice or negligence claims in this action against Dr. Nunez.
To date, none of the defendants have served an answer. The motions were also made prior to any discovery.
ANALYSIS
"On a motion to dismiss pursuant to CPLR 3211 (a) (7) for failure to state a claim, [the courts] must afford the complaint a liberal construction, accept the facts as alleged in the pleading as true, confer on the nonmoving party the benefit of every possible inference and determine whether the facts as alleged fit within any cognizable legal theory" (Hilgreen v Pollard Excavating, Inc., 193 A.D.3d 1134, 1136 [3d Dept 2021] [internal quotation marks and citations omitted]). However, conclusory statements unsupported by factual allegations are not entitled to any such consideration (see id.; Sterritt v Heins Equip. Co., 114 A.D.2d 616, 617 [3d Dept 1985]). Further, the courts may freely consider affidavits submitted by a plaintiff to remedy any pleading defects (see Leon v Martinez, 84 N.Y.2d 83, 88 [1994]).
Bad Faith Breach of Contract and Consequential Damages (Second and Fourth Causes of Action)
The second and fourth causes of action allege that State Farm breached the covenant of good faith and fair dealing implied in the parties' contract. Such a claim may be pleaded separately from a breach of contract claim for the purpose of seeking to recover consequential damages resulting from an insurer's alleged bad faith performance (see Panasia Estates, Inc. v Hudson Ins. Co., 10 N.Y.3d 200, 203 [2008]; see e.g. Gutierrez v Government Empls. Ins. Co., 136 A.D.3d 975, 976-977 [2d Dept 2016]).
Traditionally, insureds were not entitled to seek consequential damages for an insurer's bad faith breach (see Acquista v New York Life Ins. Co., 285 A.D.2d 73, 77-82 [1st Dept 2001]). New York has since departed from this traditional rule and now allows an insured to recover consequential damages (see Panasia Estates, Inc. v Hudson Ins. Co., 10 N.Y.3d 200, 203 [2008]; Acquista, 285 A.D.2d at 79 [ explaining that "[t]he problem of dilatory tactics by insurance companies seeking to delay and avoid payment of proper claims apparently [became] widespread enough to prompt most states to respond with some sort of remedy for aggrieved policyholders"]; see also 1 New Appleman Insurance Bad Faith Litigation §§ 5.02 & 5.03 [Bender 2023] [discussing the reasons for expanding liability against insurance companies for bad faith denial or delay of benefits and the different standards adopted by different states to address the problem]).
State Farm asserts that the amended complaint fails to allege facts sufficient to support consequential damages for a bad faith breach, and that any recovery in this action should be limited to whatever unpaid benefits are due and owing under State Farm's policy.
Bad Faith
"In New York, all contracts imply a covenant of good faith and fair dealing in the course of performance" (511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 N.Y.2d 144, 153 [2002]). This includes "a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract" (id. [internal quotation marks and citation omitted]). While such a duty does not imply obligations "inconsistent with other terms of the contractual relationship, they do encompass any promises which a reasonable person in the position of the promisee would be justified in understanding were included" (id. [internal quotation marks and citations omitted]).
In the context of an insurance-related dispute, a reasonable person would understand that this covenant requires the insurer to investigate claims for coverage in good faith and prohibits an insurer from manufacturing factually incorrect reasons to deny insurance coverage or acting with gross disregard of the insured's interests (see East Ramapo Cent. Sch. Dist. v New York Schs. Ins. Reciprocal, 199 A.D.3d 881, 884 [2d Dept 2021]; see also Insurance Law § 2601 [a]; Panasia Estates, Inc., 10 N.Y.3d at 203; Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of NY, 10 N.Y.3d 187, 192-195 [2008]; Brown v Erie Ins. Co., 207 A.D.3d 1144, 1145 [4th Dept 2022]; Roemer v Allstate Indem. Ins. Co., 163 A.D.3d 1324, 1325-1326 [3d Dept 2018]).
Here, Mr. Thrall alleges that State Farm did not conduct or complete a fair investigation of his claim for benefits, that it had no meritorious basis for denying the claim, and that it simply denied his claim in accordance with a business policy of denying similar claims based on predetermined, incomplete, and incorrect IME exams/reports. Mr. Thrall further alleges that State Farm has engaged in a consumer-oriented pattern and practice aimed at the public at large of wrongfully denying claims for no-fault benefits by providing financial bribes/incentives/pressure on the physicians hired to perform IMEs to provide medical reports that would support the denial of benefits. Mr. Thrall further alleges that he too was a victim of this practice. He alleges that the IME report contains false facts and that the opinions are incorrect. He further alleges that that the examination conducted on him to deny the benefits was cursory and incomplete and that the result was pre-determined.
Accepting these allegations as true, as is required on a motion to dismiss, the Court finds that Mr. Thrall has sufficiently pleaded the requisite element of bad faith (see New York Botanical Garden v Allied World Assur. Co. (U.S.) Inc., 206 A.D.3d 474, 475-476 [1st Dept 2022]; see also Insurance Law § 2601 [a]; Bi-Economy Mkt., Inc., 10 N.Y.3d at 194; D.K. Prop., Inc. v National Union Fire Ins. Co. of Pittsburgh, Pa., 168 A.D.3d 505, 505-507 [1st Dept 2019]; Tiffany Tower Condominium, LLC v Insurance Co. of the Greater NY, 164 A.D.3d 860, 861-862 [2d Dept 2018]; Acquista, 285 A.D.2d at 77-82).
Consequential Damages
"Breach of [the covenant of good faith and fair dealing] can result in recoverable consequential damages, which may exceed the limits of the policy" (Tiffany Tower Condominium, LLC, 164 A.D.3d at 862; see Panasia Estates, Inc., 10 N.Y.3d at 203; Brown v Government Empls. Ins. Co., 156 A.D.3d 1087, 1089-1091 [3d Dept 2017]; Gutierrez, 136 A.D.3d at 976-977). The ability to recover consequential damages for a breach of this covenant, however, is subject to the same rules that otherwise limit recovery of damages for any breach of contract (see Brown, 156 A.D.3d at 1090-1091). The damages must have been "within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting" (Panasia Estates, Inc., 10 N.Y.3d at 203 [internal quotation marks and citations omitted]).
Here, Mr. Thrall alleges that given State Farm's refusal to pay for medical services or provide him with the SUM benefits, he could not receive necessary medical treatment and, as a result, his injuries manifestly worsened. Mr. Thrall provides several specific allegations regarding the medical care that should have been covered. He further alleges that he could not afford such services and that the lack of this medical care caused his physical condition to worsen. Mr. Thrall further alleges that at the time of, or even prior to contracting, the consequential damages sought in this action were within the contemplation of the contracting parties as the probable result of the ordinary course of the breach of the subject contract. Mr. Thrall alleges that the above losses were foreseeable, in that if a person lacks money, he or she will not be able to treat injuries, and untreated injuries will worsen.
While State Farm disputes the validity of the allegations pleaded, the Court must "accept the facts as alleged in the pleading as true [and] confer on the nonmoving party the benefit of every possible inference" (Hilgreen, 193 A.D.3d at 1136; see Acquista, 285 A.D.2d at 81-82). In addition, "[t]here is no heightened pleading requirement for consequential damages" and "a determination of whether such damages were, in fact, forseeable should not be decided on a motion to dismiss and must await a fully developed record" (D.K. Prop., Inc., 168 A.D.3d at 507). Indeed, the limited inquiry on this motion to dismiss is not whether Mr. Thrall will be able to establish his claim, but whether he has stated a claim (see id.).
Considering these guiding principles on this motion to dismiss, the Court finds that the allegations are sufficient for Mr. Thrall to satisfy his pleading requirement (see Brown, 156 A.D.3d at 1089-1091; Acquista, 285 A.D.2d at 79 [explaining that a plaintiff may not have access to an alternative source of funds from which to pay that which the insurer refuses to pay, and that an insured's inability to pay that which the insurer should be covering may result in further damages to the insured]; see also New York Botanical Garden, 206 A.D.3d at 475-476; D.K. Prop., Inc., 168 A.D.3d at 505 ["plaintiff fulfilled its pleading requirement by specifying the types of consequential damages claimed and alleging that such damages were reasonably contemplated by the parties prior to contracting"]; 25 Bay Terrace Assoc., L.P. v Public Serv. Mut. Ins. Co., 144 A.D.3d 665, 667-668 [2d Dept 2016]).
Accordingly, that portion of State Farm's motion seeking to dismiss the second and fourth causes of action is denied.
Common Law Fraud (Fifth Cause of Action)
State Farm, DDA, and Dr. Nunez assert that the fraud claim should be dismissed on the grounds that it is inadequately pleaded and duplicative of the claims for breach of contract. "A cause of action to recover damages for fraud requires allegations of (1) a false representation of fact, (2) knowledge of the falsity, (3) intent to induce reliance, (4) justifiable reliance, and (5) damages" (Genovese v State Farm Mut. Auto. Ins. Co., 106 A.D.3d 866, 867 [2d Dept 2013]; see also Lanzi v Brooks, 54 A.D.2d 1057, 1058 [3d Dept 1976]). Each of these elements of fraud must be supported by factual allegations sufficient to satisfy the requirement of CPLR 3016(b), which requires that "the circumstances constituting the wrong shall be stated in detail" for a cause of action based upon fraud or misrepresentation (CPLR 3016[b]; see Lanzi, 54 A.D.2d at 1058).
CPLR 3016(b) "imposes a more stringent standard of pleading than the generally applicable 'notice of the transaction' rule of CPLR 3013, and complaints based on fraud which fail in whole or in part to meet this special test of factual pleading have consistently been dismissed" (Lanzi, 54 A.D.2d at 1058). "Bare allegations of fraud without any allegation of the details constituting the wrong are not sufficient to sustain such a cause of action" (Biggar v Buteau, 51 A.D.2d 601, 601-602 [3d Dept 1976] [internal quotation marks and citations omitted]). Indeed, merely characterizing representations as fraudulent is insufficient (see id.).
Further, a cause of action for fraud should be dismissed as duplicative of a breach of contract cause of action where the fraud alleged relates to a breach of contract (see Fourth Branch Assocs. Mechanicville v Niagara Mohawk Power Corp., 235 A.D.2d 962, 963 [3d Dept 1997]; see also Pollak v Moore, 85 A.D.3d 578, 579 [1st Dept 2011]; Salvador v Uncle Sam's Auctions & Realty, 307 A.D.2d 609, 611 [3d Dept 2003]). A fraud claim, however, is not duplicative and may be independently viable where "the complaint alleges a misrepresentation of present facts that are collateral to the contract and served as an inducement to enter into the contract" (Emby Hosiery Corp. v Tawil, 196 A.D.3d 462, 464 [2d Dept 2021] [internal quotation marks, citation, and brackets omitted]; see Gizzi v Hall, 300 A.D.2d 879, 880 [3d Dept 2002]).
Summary of Fraud Allegations
Mr. Thrall alleges that when he purchased the subject insurance, State Farm's agent, Rick Harmon, promised him that if he sustained injuries as the result of an accident, State Farm would pay for his medical services up to $125,000; and that if he was injured in an accident caused by an underinsured motor vehicle, that settled for the policy limits, State Farm would pay for his bodily injury losses up to $100,000.
Mr. Thrall alleges that Mr. Harmon enticed him to purchase this amount of coverage, which was beyond the minimum amount required by law, by holding himself out as a chiropractor that allegedly had experience with automobile injury victims who did not have enough insurance coverage to pay for all their necessary medical bills. Mr. Harmon, in his guise as a chiropractor, convinced Mr. Thrall that the extra insurance was necessary because of his medical condition which would be exacerbated in an accident.
Mr. Thrall alleges that State Farm had a present intent to deceive him because as Mr. Harmon was convincing him to purchase this premium insurance, State Farm was engaged in fraudulent and deceptive IME practices and procedures throughout the State, which made it impossible for Mr. Thrall to receive the promised coverage if he became injured.
Mr. Thrall further alleges that he was promised that the subject IME and IME reports would be based solely upon the application of sound medicine to his physical condition and would recommend the provision of all treatment necessary to achieve maximum medical improvement for the bodily injury. Mr. Thrall alleges that these representations were false because the request for the IME was made in order to create false justifications for the predetermined denial of his claims. Mr. Thrall also alleges that he relied upon State Farm's misrepresentations to purchase insurance coverage, maintain such coverage, and appear at an IME. Mr. Thrall further alleges that the fraudulent statements include the IME report and every denial of a claim that was based upon the fraudulent IME, as well as the refusal to pay SUM benefits.
Mr. Thrall also alleges that he relied on these promises to his detriment when he purchased insurance from State Farm because had he purchased insurance from a legitimate company, his medical benefits would have been paid for and he would have received the benefits that he was entitled to receive, thereby preventing his physical and financial damages.
State Farm
As it relates to State Farm, the allegations of fraud are directly dependent upon the contract. The alleged fraud relates to the amount of coverage allegedly promised, and the alleged failure of State Farm to perform its contractual duties. These are the same allegations that concern the contract claim. The remedy for State Farm's alleged failure to perform must therefore be pursued under contract law, not tort (see Acquista, 285 A.D.2d at 78 [acknowledging that "an insurer's failure to make payments or provide benefits in accordance with a policy of insurance constitutes merely a breach of contract, which is remedied by contract damages"]).
Moreover, it is well-settled that the general allegation that a party had no intention of performing its obligations when it entered into the agreement does not transform an alleged breach of contract claim into a tort (see New York Univ. v Continental Ins. Co., 87 N.Y.2d 308, 318 [1995]; see also Banc of Am. Sec. LLC v Solow Bldg. Co. II, L.L.C., 47 A.D.3d 239, 248 [1st Dept 2007] ["The option to breach a contract and pay damages is always available, even where the breaching party had no intention of performing its obligations when it entered into the agreement"]).
Likewise, the fraud allegations regarding the way State Farm processes claims and uses IME examinations to deny benefits also relates directly to the contract and the alleged breach. These allegations concern the covenant of good faith and fair dealing, which is implicit in all contracts (see New York Univ., 87 N.Y.2d at 318-319; see also Sichel v Unum Provident Corp., 230 F.Supp.2d 325, 327-328 [SDNY 2002]). These allegations are therefore duplicative of the contract claims based on bad faith; they do not state a cause of action for fraud (see New York Univ., 87 N.Y.2d at 319 ["conclusory allegations that defendants were engaged in a scheme to receive premium payments without giving any benefit in return" were insufficient to state a claim for fraud]).
Further, Mr. Harmon's alleged enticements and State Farm's commercials do not involve any fraudulent promises collateral to the contract. Rather, they concern the sale of no-fault benefits pursuant to a standard automobile insurance policy. To the extent Mr. Thrall alleges that he was promised more benefits than set forth in the policy or that State Farm agreed to pay benefits without requiring any conditions (e.g., IMEs), such allegations are insufficient to plead a variable claim for fraud based on the plain language of the policies; stated otherwise, the element of justifiable reliance is lacking (see Acquista, 285 A.D.2d at 83).
Equally unavailing is Mr. Thrall's allegation that Mr. Harmon convinced him to purchase more benefits than required under the no-fault law. Such allegations could under certain circumstances form a basis to avoid or rescind a contract (see Sabo v Delman, 3 N.Y.2d 155 [1957]). However, the fraud allegations made by Mr. Thrall are conclusory, and he is also not seeking to rescind the contract or recover the additional cost of the insurance. To the contrary, he is seeking to enforce the contract and obtain benefits alleged owed to him under the contract.
Further, Mr. Thrall's alleged reliance on Mr. Harmon's expertise and specialized knowledge as a chiropractor is misplaced. Mr. Thrall was purchasing a standard automobile insurance policy, not procuring a new data processing system or making risky investments. The purchase in this case did not require any specialized knowledge or expertise (compare RKB Enters. v Ernst & Young, 182 A.D.2d 971, 971-973 [3rd Dept 1992]). Nor did such enticements harm Mr. Thrall. To the contrary, Mr. Harmon has benefitted from the additional coverage by claiming that he is entitled to more than $200,000 in promised benefits under the contract.
This case is similar to New York University. There, the plaintiff alleged that the defendants "induced [it] to purchase and maintain [an] insurance policy notwithstanding their intent [from the beginning] to refuse [its] claims for indemnification and then terminate the policy" (87 N.Y.2d at 318). The plaintiff further alleged that the defendants "implicitly misrepresented the integrity of their company through advertising and by conducting business in New York pursuant to the provisions of the Insurance Law which require insurers to deal with insureds fairly and in good faith" (id.). The plaintiff also alleged that the defendants "engaged in a 'sham' investigation to perpetuate their allegedly fraudulent scheme" (id. at 319). In reviewing the sufficiency of the pleading, the Court of Appeals held that these allegations were conclusory and merely raised questions for the fact finder on the breach of contract claim (id.).
Sichel v UNUM Provident Corp. (230 F.Supp.2d 325 [SD NY 2002]) is also instructive. There, after being denied benefits based on a physician's examination, the recipient of disability insurance benefits sued his insurers and the physician who examined him. The plaintiff alleged that the examining physician "issued a false report, based on no rational medical basis, claiming he was able to work in his profession and occupation" (id. at 328). The plaintiff further alleged that the defendant insurers were engaged in a scheme; they would "obtain a physician who would falsely state the plaintiff was able to work in his occupation, no matter how spurious that opinion might be, and use this as a means of avoiding paying the plaintiff his benefits" (id. at 330). The court concluded that the plaintiff's allegations were "more accurately characterized as a bad faith denial of coverage than an action for fraud," and that the alleged scheme "involved only contractual breaches made in bad faith" (id. at 328-331).
Similarly, in Genovese, the plaintiff filed a complaint against State Farm containing similar allegations as those alleged by Mr. Thrall in this case (see 106 A.D.3d at 866-868). There, the plaintiff alleged that State Farm, DDA, IME doctors, and others defrauded him from receiving no-faut benefits based on a predetermined outcome of his medical examination to yield negative findings. The plaintiff also alleged that when he purchased the policy, State Farm promised to pay him up to $50,000 for medical expenses and lost wages if he sustained injuries as a result of a motor vehicle accident, and that he relied on this promise to his detriment. The plaintiff further alleged that he was denied medical treatment as the result of an ongoing conspiracy between the various defendants to deny medical benefits through the use of fraudulent IMEs. Based on these allegations, the fraud claim was dismissed against State Farm, pursuant to CPLR 3211(a)(7), as duplicative of the breach of contract claim. On appeal, the Second Department agreed that the fraud claim was duplicative, concluding that the fraud cause of action against State Farm was "based on the same allegations as the breach of contract cause of action" (id. at 867).
Similarly, here, the fraud claim is based on the same factual allegations as the breach of contract claims. The misrepresentations alleged by Mr. Thrall arise, if at all, out of State Farm's contractual obligation to honor its policy and pay SUM and no-fault benefits. Mr. Thrall has not alleged that State Farm made any material misrepresentation that were collateral or extraneous to the contract, and, thus, he has not stated a cause of action for common-law fraud. Accordingly, the fraud claim alleged against State Farm is dismissed as duplicative (see New York Univ., 87 N.Y.2d at 318; Genovese, 106 A.D.3d at 866).
DDA and Dr. Nunez
As for DDA and Dr. Nunez, they were not parties to the contract between State Farm and Mr. Thrall. The fraud claim is therefore not duplicative as against them (see LIUS Group Intl. Endwell, LLC v HFS Intl., Inc., 92 A.D.3d 918, 920 [2nd Dept 2012]; Selinger Enters., Inc. v Cassuto, 50 A.D.3d 766, 768 [2d Dept 2008]). Nevertheless, the allegations of fraud against these remaining defendants are either bare and conclusory or do not rise to the level of fraud (see Genovese, 106 A.D.3d at 866-868; Biggar, 51 A.D.2d at 601-602]).
Aside from perhaps the element of scienter, the amended complaint does not sufficiently allege any of the requisite elements necessary to plead a fraud claim against DDA. The details of the alleged fraud by DDA specific to Mr. Thrall are lacking, and the facts alleged are insufficient to permit an inference of fraud (see CPLR 3016[b]; New York Univ., 87 N.Y.2d at 318-319; see also Abrahami v UPC Constr. Co., 176 A.D.2d 180, 180 [1st Dept 1991]). Moreover, the facts are similarly insufficient under the heightened pleading requirements of CPLR 3016 to infer that a conspiracy existed to defraud Mr. Thrall or that DDA aided and abetted any alleged fraud perpetrated by the other defendants (see CPLR 3016[b]; see also Gorman v Gorman, 88 A.D.2d 677, 678 [3d Dept 1982]; Abrahami, 176 A.D.2d at 180). Accordingly, the allegations are insufficient to state a viable fraud claim against DDA (see CPLR 3016; Genovese, 106 A.D.3d at 867).
Turning to the remaining defendant, Dr. Nunez asserts that the purported fraud claim against him is not viable based on the general rule in this State that the subject of an IME (Mr. Thrall) conducted at the request of a third party (State Farm) has no cause of action against the examining physician (Dr. Nunez) for the opinions stated in the IME report. As his legal authority, Dr. Nunez cites to Bazakos v Lewis, 12 N.Y.3d 631 (2009) and Dyer v Trachtman, 470 Mich. 45 (2004). These cases stand generally for the proposition that "[t]he IME physician, acting at the behest of a third party, is not liable to the examinee for damages resulting from the conclusions the physician reaches or reports" (Bazakos, 12 N.Y.3d at 635, quoting Dyer, 470 Mich. at 49-50).
Dr. Nunez's interpretation of Bazakos and Dyer, however, is overly broad. These cases concern whether a person injured by a physician during an IME has a claim for medical malpractice (as opposed to negligence) given that a traditional physician-patient relationship does not exist in such a context. These decisions do not address whether a party may bring a fraud claim against an IME physician. Nor do they address or decide the question of whether a physician should be afforded qualified immunity in connection with an IME examination and report (see Bazakos, 12 N.Y.3d at 635; Dyer, 470 Mich. at 49-50).
Unlike Bazakos, the thrust of Mr. Thrall's fraud claim against Dr. Nunez is that he made several false statements in his IME report that extend beyond protected opinions. The more applicable case law concerns whether a physician's opinion may be considered actionable in tort for allegedly containing false statements (see Roth v Tuckman, 162 A.D.2d 941, 942 [3d Dept 1990]). In Roth, for example, the IME report was found to be a "nonactionable expression of pure opinion" (id. at 942; see also Violandi v City of New York, 184 A.D.2d 364, 365 [1st Dept 1992] [holding that the recommendation of a police department's physician "was merely an expression of opinion, which is nonactionable"]).
Unlike in Roth, however, Mr. Thrall alleges that Dr. Nunez's opinion is not just incorrect, but that it is a lie. Mr. Thrall also alleges in a non-conclusory manner that Dr. Nunez's IME report contains not just an incorrect opinion, but also false statements of fact. This case is therefore distinguishable from Roth. Nevertheless, even assuming for the sake of argument that the statements made by Dr. Nunez in the IME report constitute material misrepresentations, Mr. Thrall has failed to allege sufficient facts to support his conclusory allegations that he justifiably relied on the statements and that they caused him damages (see CPLR 3016[b]; Jacobs v Mostow, 306 A.D.2d 439, 439 [2d Dept 2003]; see also Anderson v Glismann, 577 F.Supp. 1506, 1512 [District Ct of Colorado 1984]; Pugh v Westreich, 2005 Minn App LEXIS 7, 2005 WL 14922 [Ct App Minnesota 2005]).
Indeed, the IME was conducted for State Farm's benefit, not Mr. Thrall's benefit. Mr. Thrall disputes the results of the IME report. He characterizes them as incorrect and false. He therefore most certainly has not relied upon the IME report. Mr. Thrall also cannot assert that he relied on the fairness of the examination as a condition for attending. Had he refused to attend the IME, State Farm could have denied his claims on that basis alone (see Unitrin Advantage Ins. Co. v Bayshore Physical Therapy, PLLC, 82 A.D.3d 559 [1st Dept 2011]).
Regarding damages, the IME report was not determinative on Mr. Thrall's right to benefits. Rather, Mr. Thrall had the option to challenge the denial of benefits through arbitration or trial. To the extent Mr. Thrall can establish that the denial of benefits breached the contract, he will be able to obtain the benefits that he desires.
General Business Law § 349 (Sixth Cause of Action)
"A cause of action to recover damages pursuant to General Business Law § 349 has three elements: first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act" (Brown, 156 A.D.3d at 1088-1089 [internal quotation marks and citations omitted]). A claim asserted under this section is not dependent upon fraud (see Gaidon v Guardian Life Ins. Co. of Am., 94 N.Y.2d 330, 348 [1999] [a practice may "mislead or deceive a reasonable person but not be fraudulent"]). "The strict pleading requirements for causes of action sounding in common-law fraud [therefore] do not apply to causes of action sounding in violation of General Business Law § 349" (Joannou v Blue Ridge Ins. Co., 289 A.D.2d 531, 532 [2d Dept 2001] [citation omitted]).
"[A]llegations that an insurer engaged in a practice of failing to investigate claims in good faith, or of denying claims without regard to their viability, are sufficient to state a cognizable claim for deceptive practices pursuant to General Business Law § 349" (Brown, 156 A.D.3d at 1088-1089). "[W]hether a plaintiff can meet his or her obligation of a threshold showing that his or her claim was predicated upon a deceptive act or practice that was consumer oriented is best reserved for a motion for summary judgment after discovery" (id. at 1089 [internal quotation marks, citations, and brackets omitted]).
Here, Mr. Thrall alleges that State Farm engaged in a consumer-oriented pattern and practice aimed at the public at large of wrongfully denying claims for no-fault benefits by providing financial incentives/pressure on the physicians hired to perform IMEs to provide medical reports that would support the denial of benefits and, further, that he suffered injury as a result of that practice. Just as in the Brown case, such allegations are sufficient to state a cause of action pursuant to General Business Law § 349, especially at this early stage of the litigation (see id.; see also Shebar v Metropolitan Life Ins. Co., 25 A.D.3d 858, 859 [3d Dept 2006]; Joannou, 289 A.D.2d at 532).
Accordingly, State Farm's motion to dismiss this claim is denied.
Declaratory Judgment Claims
Mr. Thrall asserts three declaratory judgment causes of action. "The supreme court may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed" (CPLR 3001). "A declaratory judgment action thus requires an actual controversy between genuine disputants with a stake in the outcome, and may not be used as a vehicle for an advisory opinion" (Long Is. Light. Co. v Allianz Underwriters Ins. Co., 35 A.D.3d 253, 253 [1st Dept 2006] [internal quotation marks and citations omitted]). "The decision to entertain an action for declaratory judgment is a matter committed to the sound discretion of Supreme Court, which may decline to consider such relief where other adequate remedies are available" (Clarity Connect, Inc. v AT & T Corp., 15 A.D.3d 767, 767 [3d Dept 2005]; see also Tiffany Tower Condominium, LLC v Insurance Co. of the Greater NY, 164 A.D.3d 860, 863 [2d Dept 2018]).
State Farm's Claims-Handling Process (Seventh Cause of Action)
In the seventh cause of action, Mr. Thrall seeks a judgment declaring that State Farm's claims-handling processes are unlawful. The Court declines to entertain this request for declaratory relief given that Mr. Thrall has other adequate remedies available for the alleged illegal claims-handling process to which he was subjected (see Clarity Connect, Inc., 15 A.D.3d at 767). In fact, Mr. Thrall is already pursuing those other remedies in this lawsuit. As explained above, he has sufficiently pleaded causes of action for breach of contract, bad faith breach of contract, and violation of General Business Law § 349. He is also seeking consequential damages.
Moreover, Mr. Thrall's assertion that declaratory relief is necessary to avoid future breaches is not persuasive. It is too speculative to assume that the claims-handling process utilized by State Farm in the past will be the same in the future or that State Farm will deny any valid claims in the future, assuming Mr. Thrall were to prevail in this action (see Park Avenue Clinical Hospital v Kramer, 26 A.D.2d 613, 613-614 [4th Dept 1966], affd without opn 19 N.Y.2d 958 [1967] [holding that courts should not make "mere hypothetical adjudications, where there is no presently justiciable controversy, and where the existence of a 'controversy' is dependent upon the happening of future events" (internal quotation marks and citation omitted)]).
State Farm's and DDA's Referrals to IME Doctors (Eighth Cause of Action)
In the eighth cause of action, Mr. Thrall asserts that he is entitled to a judgment declaring that State Farm's and DDA's procurement and provision of independent medical examinations violates Public Health Law Article 45, which prohibits medical referral service businesses. However, there is no private cause of action authorized for an alleged violation of this article. Rather, the statute allows for only a criminal proceeding or a proceeding by the Attorney General (see Public Health Law § 4502). Accordingly, for this reason the eighth cause of action should be dismissed (see e.g. Rocanova v Equitable Life Assur. Socy. of U.S., 83 N.Y.2d 603, 614-615 [1994] [dismissing claim because no private cause of action existed under Insurance Law § 2601]; Rego Park Gardens Owners, Inc. v Rego Park Gardens Assocs., 191 A.D.2d 621, 622 [2d Dept 1993] [dismissing claim because no private cause of action existed under the Martin Act]; Town of Wilson v Town of Newfane, 181 A.D.2d 1045, 1046 [4th Dept 1992] ["Because the Environmental Conservation Law specifically authorizes the Attorney-General to enforce 'any rule or regulation promulgated pursuant' to ECL article 27 the statute does not confer a private cause of action."]).
Under Article 45, corporations (among others) are prohibited from "engag[ing] in for profit any business or service which in whole or in part includes the referral or recommendation of persons to a physician, dentist, hospital, health related facility, or dispensary for any form of medical or dental care or treatment of any ailment or physical condition" (Public Health Law § 4501[1]).
The Constitutionality of the Regulations Pertaining to IMEs (Ninth Cause of Action)
The ninth cause of action seeks a judgment declaring that that the regulations pertaining to IMEs are inconsistent with the express dictates of the Insurance Law and are therefore unconstitutional. The Court, however, finds that issuing a declaration on this issue would be inappropriate. Such would amount to a mere advisory opinion and have no practical effect (see Chanos v Madac, LLC, 74 A.D.3d 1007, 1008 [2d Dept 2010]).
The New York State Attorney General was provided notice of this action, pursuant to CPLR 1012 (b), but chose not to intervene.
In particular, none of the defendants have the power to amend or withdraw the challenged regulations. Rather, the Superintendent of Financial Services ("Superintendent") is the administrator vested with the legislative authority to prescribe, withdraw, and amend the regulations at issue (Insurance Law §§ 107[a][41]; 301). For a declaration to have any practical effect and transcend beyond a mere advisory opinion, the Superintendent would need to be named as a party (see e.g. Matter of Medical Socy. of State of NY v Serio, 100 N.Y.2d 854 [2003]). Otherwise, any declaration in favor of Mr. Thrall would have no practical effect, as none of the defendants named in this action have any power to change the regulations (see CPLR 3001 [authorizing the court to render a declaratory judgment only as to "the rights and other legal relations of the parties" (emphasis added)]). Nor would a ruling on this issue be relevant to any of the surviving claims in this action (compare MUA Chiropractic Healthcare, PLLC v State Farm Mut. Auto. Ins. Co., 66 Misc.3d 464 [Dist Ct, Suffolk County 2019]).
In fact, as to the limited number of defendants named in this action, a declaration would not appear to resolve any actual dispute (see Clarity Connect, Inc., 15 A.D.3d at 767). Mr. Thrall, for example, has not alleged that he presently maintains other automobile insurance policies with State Farm. Nor has he alleged that he intends to purchase another policy from State Farm in the future. Moreover, to the extent that he is concerned about having to attend any future IMEs, such allegations are too hypothetical for declaratory relief, as they depend upon the happening of future events (see Park Avenue Clinical Hospital, 26 A.D.2d at 613-614).
In any event, even assuming for the sake of argument that these roadblocks did not exist, the Court is not persuaded that the regulations are unconstitutional. The challenged regulations permit the insurer to require eligible injured persons to submit to medical examinations by physicians selected by, or acceptable to, the insurer, "when, and as often as, [it] may reasonably require" (11 NYCRR § 65-1.1). In addition, the challenged regulations provide that "[i]f the additional verification required by the insurer is a medical examination, the insurer shall schedule the examination to be held within 30 calendar days from the date of receipt of the prescribed verification forms" (11 NYCRR § 65-3.5[d]).
Mr. Thrall contends that the regulations pertaining to IMEs circumvent and are contrary to Insurance Law § 5106(a), which requires payments of benefits "as the loss is incurred" and deems such benefits as "overdue if not paid within thirty days" after the claimant provides proof of loss. Mr. Thrall contends that this inconsistency renders the regulations unconstitutional as a violation of article III, § 1 of the New York State Constitution, which provides that "[t]he legislative power of this state shall be vested in the senate and assembly." Distilled, the question presented is whether the Superintendent has exceeded the permissible scope of the authority delegated to such administrator by engaging in inherently legislative activity by promulgating the challenged regulations.
The responsibility for administering the Insurance Law and prescribing regulations rests with the Superintendent of Financial Services (Insurance Law §§ 107[a][41]; 301). "The Superintendent's power to interpret, clarify, and implement the legislative policy is broad and, unless inconsistent with a specific statutory provision [ e.g., by running counter to the clear wording of a statutory provision], regulations issued by the Superintendent are valid exercises of his [or her] power" (State Farm Mut. Auto. Ins. Cos. v Brooks, 78 A.D.2d 456, 458 [4th Dept 1981] [internal quotation marks and citations omitted]; see generally Matter of Medical Socy. of State of NY, 100 N.Y.2d at 854). Further, "[j]udicial review of a regulation is limited and where it is not irrational or unreasonable the regulation must be upheld" (State Farm Mut. Auto. Ins. Cos., 78 A.D.2d at 458; see generally Matter of Medical Socy. of State of NY, 100 N.Y.2d at 854]).
Regarding the facial challenge, the regulations are not inconsistent with the statute. The statute for example requires the insurer to advise the claimant of the acceptance or denial of the claim within 30 days (see Insurance Law §§ 2601[a][4]; 5106[a]). The regulations aid the insurer in this process by allowing it to use IMEs to determine whether to accept or deny the claim. This in fact "advances the legislative intent of providing prompt payment of benefits as the loss is incurred, while reducing rampant abuse" due to fraudulent claims (Matter of Medical Socy. of State of NY, 100 N.Y.2d at 867). Thus, Mr. Thrall's facial challenge to the constitutionality of the regulations fails.
Insurance Law § 2601(a)(4) provides, in part: "After receiving a properly executed proof of loss, the insurer shall advise the claimant of acceptance or denial of the claim within thirty working days[.]" Insurance Law § 5106(a) provides, as follows:
"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. All overdue payments shall bear interest at the rate of two percent per month. If a valid claim or portion was overdue, the claimant shall also be entitled to recover his attorney's reasonable fee, for services necessarily performed in connection with securing payment of the overdue claim, subject to limitations promulgated by the superintendent in regulations."
To the extent that Mr. Thrall seeks to declare the regulations as invalid based on various administrative opinions, this does not present an actual controversy. Mr. Thrall was not denied benefits based on the bulk of the scenarios set forth in the administrative opinions referenced by him. In fact, the only scenario even remotely similar to any issues affecting Mr. Thrall concerns his objection to Dr. Nunez providing medical opinions beyond the scope of his alleged expertise. This objection, however, may be asserted as a challenge to the credibility and weight of the report. It is unnecessary to address this same issue indirectly by way of a constitutional challenge to the regulations and administrative opinions.
A challenge to the validity/constitutionality of the interpretations of the regulations set forth in the administrative opinions would be more appropriately left for cases involving plaintiffs whose claims were actually denied based on such interpretations. Unlike Mr. Thrall, such plaintiffs would actually benefit from a ruling on these issues. For Mr. Thrall, however, a ruling on these issues would be abstract and hypothetical.
Contrary to Mr. Thrall's assertion, the administrative opinions interpreting the regulations are not blindly followed by the courts. In fact, they are not afforded any deference if they are inconsistent with the clear wording of the statute (see Kurcsics v Merchants Mutual Ins. Co., 49 N.Y.2d 451, 459 [1980]).
Further, regarding the challenge to the regulations as applied, Mr. Thrall has an alternative means to address such issue, namely, his bad faith claims. Assuming for the sake of argument that the IMEs were predetermined to produce a negative result, such conduct is already prohibited by the Insurance Law and would constitute a bad faith breach of the policy (see Insurance Law §§ 2601; 5106; Brown v Government Empls. Ins. Co., 156 A.D.3d 1087, 1089-1091 [3d Dept 2017]). A resolution of this issue on constitutional grounds is therefore unnecessary.
Accordingly, the Court denies Mr. Thrall's request for a declaratory ruling on the constitutionality of the regulations as premature and too hypothetical for this case.
Punitive Damages
State Farm further seeks to dismiss Mr. Thrall's claims for punitive damages. "Punitive damages are not recoverable for an ordinary breach of contract as their purpose is not to remedy private wrongs but to vindicate public rights" (Rocanova v Equitable Life Assur. Soc'y, 83 N.Y.2d 603, 613 [1994]). "Punitive damages may be recovered for breach of contract 'only where a defendant's conduct was (1) actionable as an independent tort, (2) egregious, (3) directed toward the plaintiff and (4) part of a pattern directed at the public'" (Brown, 156 A.D.3d at 1091 [citation omitted]). "The standard for awarding punitive damages in first-party insurance actions is [therefore] 'a strict one,' and this extraordinary remedy will be available 'only in a limited number of instances'" (Rocanova, 83 N.Y.2d at 613 [citations omitted]).
Except for "limited punitive damages" authorized under General Business Law § 349(h) (see Karlin v IVF Am., 93 N.Y.2d 282, 291 [1999]), Mr. Thrall's allegations that State Farm engaged in unfair claim settlement practices are insufficient to state a claim for recovery of punitive damages (see Brown, 156 A.D.3d at 1091; see also Rocanova, 83 N.Y.2d at 613). Nonetheless, the second, fourth, and sixth causes of action have survived this motion to dismiss (discussed above), and Mr. Thrall is therefore entitled to discovery on these claims. There is also an overlap of issues between these causes of action and the issue of punitive damages (see Perlbinder v Vigilant Ins. Co., 190 A.D.3d 985, 989 [2d Dept 2021] [acknowledging that causes of action for an alleged breach of the implied covenant of good faith and fair dealing and an alleged violation of General Business Law § 349 may support an award of punitive damages]; 25 Bay Terrace Assocs., L.P. v Pub. Serv. Mut. Ins. Co., 144 A.D.3d 665, 666-668 [2d Dept 2018]; Wilner v Allstate Ins. Co., 71 A.D.3d 155, 167 [2d Dept 2010]).
To afford Mr. Thrall a full and fair opportunity to present his case and allow transparency, the Court will allow Mr. Thrall to engage in discovery in support of his purported claim for punitive damages. This will also allow Mr. Thrall the opportunity to develop the record on this issue to permit him a full and fair opportunity to make a good faith argument on appeal for a good faith extension of the law on the issue of punitive damages, assuming he is unable to meet the threshold requirement of proof necessary for this claim to survive a motion for summary judgment.
Accordingly, that portion of State Farm's motion seeking to dismiss the claim for punitive damages is therefore denied, without prejudice, with leave for State Farm to renew the motion after the completion of discovery (see CPLR 3211[d]).
Request to Strike
State Farm requests that the Court strike paragraphs 57, 63 through 72, 165 through 175, and 210 through 211 of the amended complaint as irrelevant, scandalous and prejudicial. Pursuant to CPLR 3024(b), "[a] party may move to strike any scandalous or prejudicial matter unnecessarily inserted in a pleading." Upon reviewing these allegations, the Court agrees that the allegations concern scandalous and prejudicial matter unnecessarily inserted in the pleading. According, the motion to strike is granted. State Farm is therefore not required to respond to these allegations when it serves its answer.
The Court has considered the remaining requests for relief in this matter, and to the extent they are not addressed above, they have been found to be unpersuasive and/or have been rendered academic by this decision.
It is therefore, ORDERED, that the motion of the defendant, State Farm Mutual Automobile Insurance Company, is granted in part and denied in part, and the fifth, seventh, eighth, and ninth causes of action are dismissed; and it is further
ORDERED, that the motions of the defendants, DDA Management Services, LLC and Louis David Nunez, MD, are granted, and the amended complaint is dismissed as against these two defendants; and it is further
ORDERED, that paragraphs 57, 63 through 72, 165 through 175, and 210 through 211 of the amended complaint are stricken and the defendant State Farm is not required to respond to these allegations in its answer; and it is further
ORDERED, that the plaintiff Jeffrey Thrall's motion seeking summary judgment is denied as moot; and it is further
ORDERED, that any other relief requested and not specifically addressed herein is denied; and it is further
ORDERED, that State Farm shall serve and file an answer by way of NYSCEF within 20 days of the date of this Decision & Order; and it is further
ORDERED, that the parties are directed to complete paper discovery by May 26, 2023. The parties are further directed to appear for an in-person compliance/settlement conference on June 7, 2023, at 2:00 p.m.
This shall constitute the Decision & Order of the Court. The Court is hereby uploading the original Decision & Order into the NYSCEF system for filing and entry by the County Clerk. Counsel is still responsible for serving notice of entry of this Decision & Order in accordance with the Local Protocols for Electronic Filing for Saratoga County.