Arzu v NYC Tr. Auth., 2012 NY Slip Op 22008 (Civ. Ct. Kings Co. 2012)
The last thorny issue in PIP practice that has not gotten much attention: 65-3.9(d). This is the toll of interest that applies when a plaintiff lets a case sit in limbo ad finitium.
As we all know, interest accrues at 2% per month. For those who have been lucky to find old reg bills that were prosecuted within the 6-year SOL, that 2% is compounded. Yet, what happens when a Plaintiff purchases an index number and bottles a case up for 10 years?
Well, one particular plaintiff attorney, in my estimation “mastered” this trick. You cannot blame him and have to respect him. If you are able to sit on receivables without a client demanding immediate recompense, then why would you not attempt to obtain at least 24% on your receivables, when the amount you can obtain from the bank on this money is 1.05%?
Here, we have an endorsed complaint for $25,000 and a plaintiff who happily waited for Defendant to draw first blood. Defendant woefully failed to comprehend who he was dealing with and ended up in a situation where the within case was not even trial ready, and 10-years of interest accrued.
Defendant, however, appears to have outfoxed the Plaintiff by arguing that 3.9(d) applies and interest must toll. Yet, Plaintiff still did not make out badly. Here are some snippets of this case that should arouse some thought.
Rule of Law
(1) Significantly, claimants or applicants are also required to act promptly or face the tolling of insurance. Pursuant to 11 NYCRR §65-3.9(c), where the applicant does not commence litigation within 30 days of the denial of the claim or payment of benefits, the interest shall be tolled until such action is taken. Pursuant to 11 NYCRR §65-3.9(d), interest shall accrue once the applicant has submitted a dispute to arbitration of the courts “unless the applicant unreasonably delays the …court proceeding.” Thus, “[f]ailure to act promptly after a denial of claim results in a toll of the statutory interest provisions, for to do otherwise would reward a recalcitrant plaintiff with a windfall of punitive interest payments and would contravene the legislative goal of promptly resolving no fault claims.” Devonshire Surgical Facility et al v. American Transit Ins. Co., 2011 NY Slip Op 50793(U), 31 Misc 3d 1221(A) (Civil Ct., NY Co., 2011). See East Acupuncture. P.C., supra, 61 AD3d at 210.
(2) Per the clear language of the regulation, the interest which accrues on overdue no fault penalties acts as an incentive for both insurers and claimants to act promptly. The insurer must first promptly adjust the claims or face payment of interest to an applicant who prevails in litigation. However, once a denial or payment of benefits has been made by the insurer, the incentive to act promptly switches to the applicant who first initiate the lawsuit within 30 days of the denial and must then not unreasonably delay the prosecution of the case in order to avoid the tolling of interest. See, Devonshire Surgical, supra at 4; See also, LMK Psychological Services, Inc., 12 NY3d 217, 223-24 (2009) (the Superintendent of Insurance has interpreted the tolling of interest provision contained in subdivision (c) to apply, regardless of whether the particular denial at issue was untimely so as to encourage applicants to swiftly seek to resolve any dispute). Canarsie Med. Health, P.C. v. National Grange Mut. Ins. Co., 21 Misc 3d 791, 797 (Sup. Ct., NY Co. 2008)(The regulation contains a “built-in protection against potential delay by providing that where an applicant chooses not to timely press forward to seek redress for a denial, there will be no interest penalty assessed against the insurer until such time as the applicant chooses a remedy. This is in keeping with the intent of the No-Fault Law as a whole because it seeks to encourage the parties moving forward toward a quick resolution, while not economically favoring one side or the other.”).
Court’s Observation
(1) Here, plaintiff’s delay in prosecuting the case is especially egregious. Plaintiff first waited nearly four years to respond to discovery demands resulting in defendant filing a motion to preclude plaintiff from offering evidence. Only upon receipt of this motion did plaintiff enter into a So-Ordered stipulation whereby plaintiff was to provide copies of the allegedly unpaid [*4]bills within 45 days or be precluded from offering such evidence at trial. Defendant disputes that it ever received the sought disclosure as a rationalization as to why it did not serve plaintiff with a notice to resume prosecution and file a note of issue for approximately five years. Yet, ironically, plaintiff claims that it actually mailed the sought after discovery in 2005. Hence, by its own admission, plaintiff concedes that it waited five years to resume prosecution of the case, and that it was spurred to action by being served by defendant with a notice to resume prosecution and file a note of issue.
Remedy
To make both the insurer and applicant equally responsible for moving the case forward would contravene both the explicit language of the regulations and the intent of the legislation by creating an incentive for the applicant to do nothing and hence receive a windfall in punitive interest payments as the case languished in perpetuity. As such, this Court holds that inaction on the part of the applicant for five years after it received discovery from the defendant constitutes an unreasonable delay and directs that the interest be tolled from one year after plaintiff complied with the discovery request.
An Aside
I probably would have made a pre-answer motion to dismiss under Lopes v Liberty Mut. Ins. Co., 24 Misc.3d 127(A)(App. Term 2d Dept. 2009). I think there would be a decent chance of success and you would limit the interest exposure. Be careful for Domotor issues; still, make Plaintiff properly plead out his case.