Selective sought allowance of extensive discovery based upon the observation that their insureds who received treatment with the Defendant medical providers received a common treatment pattern, including referrals. Selective perceived the potential for fraudulent billing as well as discrepancies in underlying medical documents. Particularly, it was concerned with the inter-relationship between the Defendant medical providers and self-referrals to a facility where the referring provider had a beneficial interest, in contravention of the Codey Law, N.J.S.A. 45:9-22.5(a). As a result, Selective requested information from the Defendant medical providers, including details about their corporate structure and ownership, and employee identities. When the Defendants failed to comply, Selective instituted a declaratory judgment action in the Superior Court of New Jersey, asking that the court enter an Order, obligating the Defendants to produce information responsive to Selective’s requests, or, in the alternative, a declaration that Selective was no longer required to make PIP payments. Selective claimed that it was entitled to this discovery pursuant to the discovery provision of the PIP Statute, N.J.S.A. 39:6A-13(g).

On appeal, the Defendants argued that the trial court erroneously expanded the PIP Statute to permit a private cause of action seeking discovery well beyond the boundaries of the Statute. The Appellate Division agreed. Specifically, the Appellate Division acknowledged that an insured has a duty to cooperate, conditional upon the receipt of policy benefits. Griggs v. Bertram, 88 N.J. 347, 359-60 (1982). Nevertheless, the Appellate Division found that this duty to cooperate is not transferable to the Defendant medical providers, as assignees of the right to payment of PIP benefits. The Appellate Division found that it is impossible to assign such a duty under basic contractual law, and that the Defendant medical providers, as assignees, merely received a straightforward transfer of the right to receive payment. The Appellate Division took particular notice of the lack of any evidence suggesting that the Defendants agreed to perform the duties otherwise remaining with the insureds, and that the Defendants were not parties to the insurance contract or subsequent agreement. Thus, the cooperation clause in Selective’s contract did not extend to the Defendants, and was not enforceable in a declaratory judgment action.

Last, the Appellate Division found that the broad discovery request contravened New Jersey’s PIP statutory scheme, because it permits discovery only to the extent delineated in the statute. New Jersey Manufacturers Insurance Co. v. Bergen Ambulatory Surgery Center. 410 N.J. Super. 270 (App. Div. 2009). Instrumental in the Appellate Division’s analysis was that Selective failed to file an action specifically alleging a statutory or regulatory violation, but merely requested an order compelling discovery. Although the Appellate Division found that there is a strong public policy in New Jersey to curb and deter insurance fraud and reduce premiums, it took issue with the fact that Selective failed to allege a violation of the Codey Law or another statutory regulation allowing damages to the insurer. Selective also failed to bring an action under the Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to -30, which creates a private cause of action for the insurer against an offending medical provider. This decision is particularly significant for insurance carrier which, suspicious of fraudulent practices, desire to obtain discovery from medical providers. It is clear that the PIP Statute does not provide an avenue for such discovery, and that insurance carriers are better served by instituting causes of action under the Insurance Fraud Prevention Act, or alleging specific statutory violations, in order to obtain the desired discovery. The Appellate Division has clearly defined the narrow limits of discovery permissible under the PIP Statute.

Lauren M. Adornetto, Esq.