• Ramifications of Failing to Comply with Examinations Under Oath Requirements in PIP Actions in New Jersey
  • July 23, 2003 | Author: Douglas M. Alba
  • Law Firm: Marshall, Dennehey, Warner, Coleman & Goggin - Cherry Hill Office
  • The seminal case that dealt with the issue of the ramifications of an insured's, or the assignee of the insured, failure to comply with examination under oath requirements is Prudential Property & Cas. Ins. Co. of New Jersey v. Nardone, 332 N.J. Super. 126, 137 (Law Div. 2000). In Nardone, Prudential ("PruPac") filed a verified Declaratory Judgment Complaint attempting to declare that the defendants, chiropractic and health care providers, were not entitled to personal injury protection ("PIP") benefits. Previously, the defendants had instituted arbitrations before the American Arbitration Association ("AAA") seeking PIP benefits for chiropractic treatment and physical therapy services allegedly rendered and for supplying durable medical goods to 96 PruPac insureds. Id. at 129.

    During the preliminary investigation of these claims, PruPac requested discovery from the defendants. PruPac's contract, under which the defendants sought PIP benefits, required a claimant's cooperation as a condition precedent to recovery of benefits. Specifically, the PruPac policy provided:

    YOUR DUTIES AFTER AN ACCIDENT AND LOSS . . . Persons making a claim under this policy must: . . .

    (2) Cooperate with us in investigating, settling, or defending any loss or suit. Cooperation includes attending hearings and trials, helping in suing others who are responsible for the accident, giving evidence and helping us get witnesses to a trial . . .

    (7) Give us a Statement Under Oath within 30 days of our request.

    Id. at 138.

    Despite this contract language, in the overwhelming majority of cases, the defendants failed to supply PruPac with ownership records, valid contemporaneous treatment notes, administrative protocol records, and Electro-Diagnostic testing "raw data" substantiating the efficacy of the alleged treatment for which benefits were sought. Id. at 129.

    Also, in conjunction with PruPac's contract with the insureds, beginning on June 16, 1999, PruPac scheduled the Examinations Under Oath ("EUO") of two of the defendants, including defendant Dr. Nardone. However, on numerous occasions, these defendants failed to appear. In fact, defendant Nardone refused to provide PruPac with meaningful discovery for more than eighteen months.

    Without obtaining discovery concerning these issues, PruPac was unable to investigate these apparent improprieties in order to properly defend against the defendant's claims. Accordingly, on February 1, 2000, PruPac obtained an Order to Show Cause from Judge Villaneuva of the Superior Court: (1) compelling discovery, including the defendants' depositions; production of all treatment records, including Electro-Diagnostic raw testing data; and complete ownership and incorporation documents; (2) staying all AAA proceedings involving defendant Nardone pending the production of discovery; and (3) providing for the dismissal of all referenced Nardone arbitrations, upon PruPac's Motion, if the requested discovery was not produced within thirty days. Id. at 130. Despite this order, the defendants' attorney indicated that the defendants would not appear for depositions nor give discovery because it "improperly impinges on [their] constitutional right against self-incrimination . . . ." Ibid. Subsequently, on March 3, 2000, PruPac filed an amended verified Declaratory Judgment Complaint adding a claim for insurance fraud, pursuant to the New Jersey Insurance Fraud Prevention Act, against the defendants. Ibid.

    Before rendering his decision, Judge Villaneuva discussed the statutory framework regarding PIP actions as it related to discovery. Specifically, he stated that:

    The New Jersey Legislature envisioned certain PIP disputes when it enacted the No-Fault Act, N.J.S.A. 39:6A -- 1 to 35, and provided limited discovery mechanisms. See N.J.S.A. 39:6A-13(b). Specifically, the statute provides for limited written discovery such as production of records, reports and documents regarding the patients. Nevertheless, these discovery mechanisms were not intended to be the exclusive method for obtaining relevant information in determining the compensability of a claim. The Legislature also envisioned the possible need for discovery not contemplated in the limited provisions of N.J.S.A. 39:6A-13(b). Specifically, when addressing the issue of PIP discovery, the Legislature also included N.J.S.A. 39:6A-13(g) which allows a party to seek judicial relief regarding PIP discovery disputes. Nardone, 323 N.J. Super. at 136-137.

    Against this statutory backdrop, Judge Villanueva held that, since "defendant Nardone and others, by filing forty-seven complaints for arbitration with AAA, were seeking payment of PIP benefits on assignment from PruPac's insured, they are bound to the assignors' contract terms and must comply with the insurance policies' cooperation and EUO clauses. As such, defendant Nardone, as well as all other assignees, must comply with the contractual EUO and cooperation clauses precedent to seeking benefits." Nardone at 137, citing, Mariani v. Bender, 85 NJ Super. 490, 500 (App. Div. 1964). Judge Villanueva further held that "as assignees of the allegedly treated parties," Dr. Nardone and the others have no greater rights than the assignors. Nardone at 137.

    Judge Villaneuva noted that PruPac's contract, under which the defendants sought PIP benefits, clearly required a claimant's cooperation as a condition precedent to recovery of benefits. Ibid. This notion is firmly grounded in New Jersey case law which has held that "cooperation and assistance of the insured [pursuant to the cooperation clause of the policy] requires a fair, frank, and truthful disclosure of information reasonably demanded by the insurer." Nardone at 138.

    Furthermore, subject to ordinary standards of reasonableness and fairness, if a claimant does not cooperate with the policy EUO provisions, he or she is not entitled to PIP benefits. Nardone 332 N.J. Super. at 138. Additionally, the court noted that an insurer is entitled to an EUO, even if it previously terminated benefits and arbitration has been demanded, and without even showing fraud.

    After reviewing the statute and case law, Judge Villanueva dismissed with prejudice all of Nardone's forty-seven AAA complaints. Judge Villanueva further denied and dismissed with prejudice all of the defendants' claims for first-party PIP benefits, on assignments of PruPac's insured. Specifically, Judge Villanueva stated that:

    The defendants' refusal to give discovery obstructs PruPac's contractual right to the claimants' cooperation and violates the duty to aid in the investigation justifying PruPac's disclaimer of coverage. Clearly, PruPac has been prejudiced by Nardone's refusal to cooperate. Mere assertion of a Fifth Amendment privilege not to testify by a health care provider assignee of an insured is a violation of the duty to cooperate with the insurance company, thereby precluding him or her from recovering personal injury protection benefits from the insurance company. In addition, dilatory tactics of the assignee attempting to delay the investigation and/or resolution of the claim is also grounds to deny the claim. One may not invoke the judicial process seeking affirmative relief and at the same time, flout the duties imposed by that process to avoid development of proof having a bearing upon his or her right to such relief. Nardone, supra, 332 N.J. Super. at 138-139.

    What then is the significance of failing to comply with Examination Under Oath requirements in New Jersey? An insurance company can deny and disclaim first party Personal Injury Protection benefits for non-cooperation under the insurance policy. Examination Under Oath requirements apply to medical providers who take on assignments from the insured. The medical providers in effect "step into the insured's shoes." Failing to attend an Examination Under Oath allows for the threshold refusal and/or dismissal in Personal Injury Protection AAA arbitrations for coverage issues. It is important to note that Rule 3B of the New Jersey No Fault Automobile Arbitration Rules states that if "the requirements in the insurance policy have not been met" then the aggrieved party must, within 45 days after the Demand for Arbitration has been filed with AAA, apply for the dismissal of the arbitration. Finally, failure to attend an Examination Under Oath allows the insurance company to seek judicial relief in Superior Court regarding PIP discovery disputes.