Case Briefs

Medical Provider's Improper Corporate Structure Renders Its Bills Ineligible for Coverage

In Verano, Damian & Finkel, LLC and Ramsey Medical, P.A. v. Allstate Insurance Company, 366 N.J. Super. 1 (App. Div. 2004), Ramsey Medical provided medical treatment to an individual who was covered by an Allstate automobile insurance policy. Ramsey Medical subsequently submitted its bills to Allstate for payment. When Allstate failed to pay all of the bills, Ramsey Medical filed an arbitration demand against Allstate seeking to compel it to make payment on the outstanding bills. The parties entered into a settlement prior to the arbitration hearing.

Allstate failed to make the payments called for by the parties' settlement agreement. As a result, Ramsey Medical filed a complaint to enforce the settlement. Allstate answered the complaint and filed a claim against Ramsey Medical under the New Jersey Insurance Fraud Prevention Act (N.J.S.A. 17:33A-1 et seq.), which provides insurance carriers with a cause of action against claimants and others who submit statements to insurance companies in support of claims for payment knowing that the statements contain material misrepresentations. Ramsey Medical filed a motion for summary judgment seeking to enforce the settlement agreement. Allstate opposed the motion, arguing that it discovered subsequent to the settlement that Ramsey Medical was operating in violation of the New Jersey State Medical Board's Regulations, and that the plaintiff fraudulently concealed this fact from it.

Allstate alleged that Ramsey Medical was incorporated in 1996 with Dr. George Najemian, D.C. listed as its registered agent and Dr. Robban Sica, M.D. as its sole director. Allstate further argued that it discovered that Dr. Najemian was listed as Ramsey Medical's registered agent and sole director in an annual report that was filed with the state in 1999. Allstate further argued that it discovered that Dr. Najemian was listed as the registered agent and sole director of Tangn Management Corporation, which entity used the same address as Ramsey Medical. Plaintiff admitted that Dr. Najemian was the sole owner and director of Tangn Management Corporation, but alleged that this entity solely provided management services to Ramsey Medical. Plaintiff maintained that Ramsey Medical was owned and operated by Dr. Sica. However, Allstate obtained statements from two medical doctor employees of Ramsey Medical in which they indicated that they had never met Dr. Sica and, at all times relevant, they were supervised by Dr. Najemian.

Allstate alleged that “Ramsey Medical's corporate structure was intended to mislead Allstate into believing it was owned, operated and controlled by a plenary licensed physician ' ie, Sica. The New Jersey Board of Medical Examiners had promulgated regulations regarding the structure of a professional practice … Of particular relevance here is N.J.A.C. 13:35-6.16(f)(3)(i) which in essence prohibits a physician with a plenary license such as an M.D. or a D.O. from being employed by a practitioner with a limited license such as a chiropractor (D.C.) or podiatrist (D.P.M.).”

Allstate argued that Dr. Sica was a sham owner, that Dr. Najemiam was the true owner of Ramsey Medical and that the entity was being operated in violation of the above regulation. The Appellate Division noted that Allstate successfully advanced similar claims against Dr. Sica in relationship to five other medical corporations that she claimed to own, citing to Allstate Insurance Company v. Schick, 328 N.J. Super. 611 (Law Div. 1999).

The Appellate Division noted that under New Jersey law, in order to qualify as a reasonable and necessary medical expense that is entitled to no-fault coverage, the medical services must be rendered in compliance with all significant requirements imposed by law. The Appellate Division further noted that, if Allstate's factual allegations proved to be true, the plaintiff would not be entitled to insurance coverage since the plaintiff would have been operating in violation of N.J.A.C. 13:35-6.16(f). The Appellate Division vacated the trial court's order of summary judgment enforcing the parties' settlement, stating that “A contract entered into by an entity not legally entitled to its benefits … should not be enforced by our Courts. This is particularly so when the contract is imbued with a public interest, such as the need to prevent insurance fraud and to enforce regulations designed to protect the public health.”

Absolute Pollution Exclusion No Bar to Coverage

In C.O.D. Gas & Oil Co. v. Ace American Insurance Co., 3004 Cal. App. Unpub. LEXIS 5419, (Cal. Ct. App. June 8, 2004), a California Court of Appeal addressed the scope of the so-called “absolute” pollution exclusion. The exclusion involved applied to bar coverage for “any injury, damage, expense, cost, loss, liability or legal obligation arising out of or in any way related to pollution, however caused.”

The insured sought coverage for damages regarding a puncture of an underground fuel tank. The puncture resulted in leakage of diesel fuel into soil. The carrier denied coverage, contending that the pollution exclusion applied to all damages. The Court of Appeal rejected this contention. It held that the language under the exclusion applying to legal obligations “arising out of” pollution “does not clearly exclude coverage for damages to the underground fuel tank and loss of use attributable solely to that damage.” As the court explained, the damage to the tank “did not originate from, grow out of or flow from pollution.” The court also rejected the carrier's argument that the “related to” language in the exclusion was broader and should apply to bar coverage. The court refused to interpret the language “broadly enough to exclude damages that would have occurred even absent any pollution, particularly since the purpose of the absolute pollution exclusion is to protect insurers against catastrophic environmental losses and not to exclude coverage for the insured's ordinary negligence resulting in property damage.” Therefore, the court ruled that the exclusion would not apply to losses from damage to the tank itself or for any loss of sales solely arising from that damage. Furthermore, the court refused to grant summary judgment on the ground that the damage was solely related to remediation, finding that the insured had raised triable issues of fact regarding the nature of the underlying damages award.

Medical Provider's Improper Corporate Structure Renders Its Bills Ineligible for Coverage

In Verano, Damian & Finkel, LLC and Ramsey Medical, P.A. v. Allstate Insurance Company , 366 N.J. Super. 1 (App. Div. 2004), Ramsey Medical provided medical treatment to an individual who was covered by an Allstate automobile insurance policy. Ramsey Medical subsequently submitted its bills to Allstate for payment. When Allstate failed to pay all of the bills, Ramsey Medical filed an arbitration demand against Allstate seeking to compel it to make payment on the outstanding bills. The parties entered into a settlement prior to the arbitration hearing.

Allstate failed to make the payments called for by the parties' settlement agreement. As a result, Ramsey Medical filed a complaint to enforce the settlement. Allstate answered the complaint and filed a claim against Ramsey Medical under the New Jersey Insurance Fraud Prevention Act (N.J.S.A. 17:33A-1 et seq.), which provides insurance carriers with a cause of action against claimants and others who submit statements to insurance companies in support of claims for payment knowing that the statements contain material misrepresentations. Ramsey Medical filed a motion for summary judgment seeking to enforce the settlement agreement. Allstate opposed the motion, arguing that it discovered subsequent to the settlement that Ramsey Medical was operating in violation of the New Jersey State Medical Board's Regulations, and that the plaintiff fraudulently concealed this fact from it.

Allstate alleged that Ramsey Medical was incorporated in 1996 with Dr. George Najemian, D.C. listed as its registered agent and Dr. Robban Sica, M.D. as its sole director. Allstate further argued that it discovered that Dr. Najemian was listed as Ramsey Medical's registered agent and sole director in an annual report that was filed with the state in 1999. Allstate further argued that it discovered that Dr. Najemian was listed as the registered agent and sole director of Tangn Management Corporation, which entity used the same address as Ramsey Medical. Plaintiff admitted that Dr. Najemian was the sole owner and director of Tangn Management Corporation, but alleged that this entity solely provided management services to Ramsey Medical. Plaintiff maintained that Ramsey Medical was owned and operated by Dr. Sica. However, Allstate obtained statements from two medical doctor employees of Ramsey Medical in which they indicated that they had never met Dr. Sica and, at all times relevant, they were supervised by Dr. Najemian.

Allstate alleged that “Ramsey Medical's corporate structure was intended to mislead Allstate into believing it was owned, operated and controlled by a plenary licensed physician ' ie, Sica. The New Jersey Board of Medical Examiners had promulgated regulations regarding the structure of a professional practice … Of particular relevance here is N.J.A.C. 13:35-6.16(f)(3)(i) which in essence prohibits a physician with a plenary license such as an M.D. or a D.O. from being employed by a practitioner with a limited license such as a chiropractor (D.C.) or podiatrist (D.P.M.).”

Allstate argued that Dr. Sica was a sham owner, that Dr. Najemiam was the true owner of Ramsey Medical and that the entity was being operated in violation of the above regulation. The Appellate Division noted that Allstate successfully advanced similar claims against Dr. Sica in relationship to five other medical corporations that she claimed to own, citing to Allstate Insurance Company v. Schick , 328 N.J. Super. 611 (Law Div. 1999).

The Appellate Division noted that under New Jersey law, in order to qualify as a reasonable and necessary medical expense that is entitled to no-fault coverage, the medical services must be rendered in compliance with all significant requirements imposed by law. The Appellate Division further noted that, if Allstate's factual allegations proved to be true, the plaintiff would not be entitled to insurance coverage since the plaintiff would have been operating in violation of N.J.A.C. 13:35-6.16(f). The Appellate Division vacated the trial court's order of summary judgment enforcing the parties' settlement, stating that “A contract entered into by an entity not legally entitled to its benefits … should not be enforced by our Courts. This is particularly so when the contract is imbued with a public interest, such as the need to prevent insurance fraud and to enforce regulations designed to protect the public health.”

Absolute Pollution Exclusion No Bar to Coverage

In C.O.D. Gas & Oil Co. v. Ace American Insurance Co., 3004 Cal. App. Unpub. LEXIS 5419, (Cal. Ct. App. June 8, 2004), a California Court of Appeal addressed the scope of the so-called “absolute” pollution exclusion. The exclusion involved applied to bar coverage for “any injury, damage, expense, cost, loss, liability or legal obligation arising out of or in any way related to pollution, however caused.”

The insured sought coverage for damages regarding a puncture of an underground fuel tank. The puncture resulted in leakage of diesel fuel into soil. The carrier denied coverage, contending that the pollution exclusion applied to all damages. The Court of Appeal rejected this contention. It held that the language under the exclusion applying to legal obligations “arising out of” pollution “does not clearly exclude coverage for damages to the underground fuel tank and loss of use attributable solely to that damage.” As the court explained, the damage to the tank “did not originate from, grow out of or flow from pollution.” The court also rejected the carrier's argument that the “related to” language in the exclusion was broader and should apply to bar coverage. The court refused to interpret the language “broadly enough to exclude damages that would have occurred even absent any pollution, particularly since the purpose of the absolute pollution exclusion is to protect insurers against catastrophic environmental losses and not to exclude coverage for the insured's ordinary negligence resulting in property damage.” Therefore, the court ruled that the exclusion would not apply to losses from damage to the tank itself or for any loss of sales solely arising from that damage. Furthermore, the court refused to grant summary judgment on the ground that the damage was solely related to remediation, finding that the insured had raised triable issues of fact regarding the nature of the underlying damages award.