Does The New York Prompt Pay Law Allow For a Private Right Of Action?

In January 2010, the New York legislature enacted Insurance Law § 3224(a) (“Prompt Pay Law”) to ensure that insurance companies paid their claims in a timely fashion. However, it was not clear whether the statute granted a party a private right of action. In a recent decision, the New York Supreme Court for Kings County held that it did. Maimonides Medical Center v. First United American Life Insurance Co., 2012 N.Y. Misc. LEXIS 701 (N.Y. Sup. Ct. Feb. 22, 2012).

The plaintiff in the case, Maimonides Medical Center (“Maimonides”), was a non-profit hospital that provided inpatient healthcare services. The cases stemmed from the hospital’s treatment of six patients, each of whom held Medigap policies issued by the defendant, First United American Life Insurance Company (“First United”). Some of the patients remained at the hospital for more than a year. Between the six, their stays at the hospital exceeded four years. Malimonides billed First United more than $19 million, but the insurance company paid them only $4,078,663.29. Consequently, Malinonides filed suit against First United, alleging breach of contract and violation of the Prompt Pay Law.

The Prompt Pay Law provides that, where an insurer is clearly liable to pay a healthcare claim, the health care provider or patient must be paid

a)      within 30 days of receipt of an electronically transmitted claim, or

b)      within 45 days of receipt of a claim transmitted by any other means.

See Insurance Law § 3224-a.

Additionally, where liability for a claim is not reasonably clear, the insurer must pay any undisputed portion and, within 30 days of receiving the claim, provide either written notification specifying why it is not liable or a written request for any additional information necessary to determine its liability. Id. This was not done.

The issue before the New York Court was whether the Prompt Pay Act gave Maimonides the ability to sue First United. When considering whether a statute implies a private right of action, courts will consider:

a) whether the plaintiff is one of the class for whose particular benefit the statute was enacted;

b) whether recognition of a private right of action would promote the legislative purpose; and  

c) whether creation of such a right would be consistent with the legislative scheme.

Sheehy v. Big Flats Community Day, Inc., 73 N.Y.2d 629 at 633 (1989).

The Court found that Maimonides satisfied the first two prongs, but First Insurance argued that the hospital did not satisfy the third – namely, that creating a right for Maimonides to sue would go against the legislative scheme of the statute. First Insurance argued that “a private right of action would be inherently inconsistent with enforcement,” but the Court disagreed. “Although defendant argues that the Prompt Pay Law is predominantly a remedial statute, it clearly creates rights for health care providers and patients and affirmative duties for insurers,” the Court held. “Before the statute was passed, the only requirements for timely payment of health care claims were contractual.”

The statute “was enacted to protect health care providers and patients against insurance companies that fail to pay claims in a timely fashion.”

The Court concluded that Maimonides was a member of the class that the legislature intended to benefit by passing the law, particularly because the purpose of the law was interpreted to be preventing the delay in the payment of health care claims. Therefore it had a private right of action available to it.

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© 2012 Nissenbaum Law Group, LLC