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Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co.

December 15, 2006

SHADY GROVE ORTHOPEDIC ASSOCIATES, P.A. AND SONIA E. GALVEZ, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
ALLSTATE INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Gershon, United States District Judge

OPINION AND ORDER

Plaintiffs Shady Grove Orthopedic Associates, P.A. ("Shady Grove") and Sonia E. Galvez bring this class action against defendant Allstate Insurance Company ("Allstate") for Allstate's alleged failure to pay statutory interest penalties owed to New York customers on overdue no-fault benefits. Plaintiffs do not seek recovery of the benefits themselves, which they concede were eventually paid by Allstate, but rather seek payment of the statutory interest penalties allegedly withheld by Allstate in connection with the overdue payments. To that end, plaintiffs request declaratory judgment that Allstate's automobile insurance policies contain an implied representation that Allstate will address no-fault claims in a manner consistent with New York Insurance Law ("N.Y. Ins. Law") § 5106 and Part 65-3 of Title 11 of the New York Compilation of Codes, Rules and Regulations ("N.Y.C.R.R.") and assert claims against Allstate for breach of contract, bad faith breach of contract, and violation of N.Y. Ins. Law § 5106. On behalf of a putative class, plaintiffs seek damages in excess of $5,000,000 and assert diversity jurisdiction under 28 U.S.C. § 1332(d)(2)(A). Plaintiffs acknowledge that their individual claim, for approximately $500 in damages, fails to meet the monetary requirement for diversity jurisdiction. Allstate now moves to dismiss the claims asserted against it by plaintiffs Shady Grove and Galvez. For the reasons set forth below, the motion to dismiss is granted.

FACTS

The allegations in the Complaint, described below, are taken as true for the purposes of defendant's motion to dismiss.

Allstate is an Illinois corporation that engages in the business of insurance. As part of that business, Allstate regularly sells automobile insurance within the State of New York. Since at least April 2000, Allstate has been among the most prolific underwriters of automobile insurance, including no fault-coverage, in the State of New York. At all times relevant to this case, Allstate has derived substantial revenues and profits from the sale of such insurance products in New York.

Shady Grove is a Maryland corporation established for the practice of orthopedic medicine. On more than one occasion, Shady Grove's employees rendered medical care and physical therapy to plaintiff Sonia E. Galvez for injuries she sustained in an automobile accident that occurred on May 20, 2005. Ms. Galvez resides in Maryland, but is a named insured under an Allstate "New York Private Passenger Auto Insurance Policy" (the "Allstate policy") which was in effect at the time of the accident.

As part payment for treatment, Ms. Galvez assigned to Shady Grove certain of her rights with respect to first-party no-fault benefits under the Allstate policy. Specifically, Ms. Galvez signed two documents authorizing (i) Shady Grove to apply for benefits from Allstate, and (ii) Allstate to pay the benefits directly to Shady Grove. The first document, titled "Patient Authorization", contains the following language:

I Sonia Galvez hereby authorize Shady Grove Orthopaedic Associates, P.A., to apply for benefits on my behalf for covered services rendered by Shady Grove Orthopaedic Associates, P.A. I request payment from _____ be made directly to Shady Grove Orthopaedic Associates, P.A. (Compl., Ex. A.). The second document, an "authorization and assignment form", provides as follows:

I also requested that the insurance company pay directly to Shady Grove Orthopaedic Associates, P.A., any PIP benefits due me on their bill for professional services rendered in connection with these injuries. (Id.).

Pursuant to Ms. Galvez's authorization, Shady Grove tendered to Allstate claims for first-party no-fault benefits under N.Y. Ins. Law § 5106 and Part 65-3 of Title 11 of the N.Y.C.R.R., in connection with the injuries Ms. Galvez suffered as a result of the collision. Allstate failed to make payment of the benefits within the time frame prescribed by N.Y. Ins. Law § 5106(a) and Part 65-3 of Title 11 of the N.Y.C.R.R., rendering the benefits overdue and thus subject to a statutory interest penalty of two percent. To date, Allstate has failed to make payment -- to either Shady Grove or Ms. Galvez -- of the statutory interest that, according to plaintiffs, continues to accrue.

Plaintiffs Shady Grove and Sonia E. Galvez commenced this lawsuit on April 20, 2006, on behalf of themselves and all others similarly situated. The proposed class, as defined in the complaint, includes all persons to whom Allstate owes interest under N.Y. Ins. Law § 5106 and Part 65-3 of Title 11 of the N.Y.C.R.R. with respect to claims for first-party no-fault benefits arising since April 20, 2000. Plaintiffs contend that Allstate routinely fails to pay covered claims for first-party no-fault benefits within the statutorily mandated time period and routinely ignores its obligation to pay the statutory interest owed in such cases. Additionally, plaintiffs allege that Allstate routinely and falsely claims to have never received the insured's proof of loss in the first instance, so as to avoid violation of the statutory time restrictions.

Pursuant to those allegations, plaintiffs seek declaratory judgment and bring claims for breach of contract, bad faith breach of contract, and violations of N.Y. Ins. Law § 5106.*fn1 In addition, plaintiffs request that this court enter an order certifying the plaintiff class and appointing Ms. Galvez and Shady Grove's counsel to represent that class, pursuant to Rule 23 of the Federal Rules of Civil Procedure. As a class, plaintiffs seek a declaration establishing the parties' rights, duties, status or other legal relations under the affected insurance contracts. Finally, plaintiffs seek compensatory damages in the form of interest owed to Shady Grove, Galvez and all others similarly situated.

DISCUSSION

I. Standard for a Motion to Dismiss

Under Federal Rule of Civil Procedure 12(b)(6), "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); see also Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). In considering a motion to dismiss, the court must accept as true all factual allegations set forth in the ...


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