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SIU Spotlight

The Wild West on the East Coast: How the Fix Known as “No-Fault” Turned New York Into the O.K. Corral

SIU Spotlight, Issue 1, Vol. 1, July 2024

July 1, 2024

by Matthew A. Gray

Howdy! Did y’all come to hear about the virtues and triumphs of New York State No-Fault? Well sit on down and warm yourself by the fire, while I tell you the story of how a new little law gave way to greed, corruption and the white knights, known as Defense Counsel!

Introduced in 1974, New York State’s No-Fault insurance system, controlled under Regulation 68 or 11 NYCRR Part 65, otherwise known as “the Regs,” quickly became the foundation of how auto accidents were dealt with and how compensation was disturbed. The Regs were meant to provide quick and efficient coverage for medical expenses, lost wage, and other such claims for reimbursement post-auto accident: all without the need for drawn-out legal battles. However, over the decades since its inception, and with the many amendments to the Regs, multiple dusty trails for deceptive practices have been uncovered. Originally what was intended as a streamlined method to process claims and have parties taken care of has become a standoff of the highest order.

No-Fault law was created with certain tenets in mind which aim for the swift processing of claims. Two such tenets are that (1) claims be processed with haste and (2) the parties involved work together, amicably. While the basic and establishing principle of No-Fault law was always to ensure that auto accident victims received timely compensation for medical bills, etc., those who have taken on the practice seem to break into one of two groups: the lawmen who try to protect the public (Defense Counsel) and the outlaws trying to disturb the peace (Plaintiff’s Counsel).

While it may be true that those seeking medical treatment are oft seen and treated without haste or worry, the trouble starts when the bad eggs from the medical field roll into town, enlisting Plaintiff’s Counsel firms to perpetrate their nefarious plans. For every provider properly billing and treating patients, you will find a bad actor hiding in the herd, causing chaos and frustration throughout. One may ask themselves, “But, how can just a few bad actors affect an industry?” In the simplest of terms, any Defense Counsel worth their boot leather would say, “The premiums.” You see, it is our job to protect our clients’ interests. When our job is done well, we are able, as Defense Counsel, as lawmen, to keep the bad providers out of our town. By analyzing the cases we are assigned, and by recognizing the tell-tale signs of fraud and overbilling, we protect our clients from paying out claims they would not otherwise have to; thus, saving them in exposure. This is repaid to the good citizens of our settlement, to those who enlist the protection of the insurance carriers, by allowing them to have affordable premiums and, in turn, allows them to feel protected by the coverages they pay for.

While No-Fault may have been started with good intentions, it has taken a handful of bad eggs, acting with greed in mind, to try and exploit the entire system. For as good as Defense Counsel may be, those who seek to defraud our clients are just as skillful. Our adversaries know how, and when, to file suit against the insurance carriers. They know in what venue and in what order to file their suits. They have adapted to the amendments in the Regs, learned each carrier’s style of doing business, and they know how, and when, to best overload each carrier. They know that they can file a case on the last day before the statute of limitations (six years from when the claim accrues) and still have many years before any court will take up the case. These methods cost the carriers hundreds of millions of dollars annually, resulting in higher premiums and a lower quality of medical care. 

On one side, the bad-acting providers, seeking to force cases to trial, overburdening the carriers and courts with superfluous motion practice or, even as insidious, failing to respond to Defense Counsel’s requests to resolve the matter in a timely fashion.

The other side, the Defense Counsel, tired, ever-fighting, working to make the town safe for those just seeking a better quality of auto insurance coverage.

Effectively, we are locked in a daily standoff. However, it does feel like a victory whenever we can resolve a case. We close a case and get a little closer to what No-Fault is really about.

Matthew is a member of the Fraud/Special Investigation Practice Group, where he defends against intentional/staged losses, as well as medical provider fraud. He has vast experience conducting Examinations Under Oath/Depositions.
 

SIU Spotlight, Issue 1, Vol. 1, July 2024 is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We would be pleased to provide such legal assistance as you require on these and other subjects when called upon. ATTORNEY ADVERTISING pursuant to New York RPC 7.1 Copyright © 2024 Marshall Dennehey, all rights reserved. No part of this publication may be reprinted without the express written permission of our firm. For reprints or inquiries, or if you wish to be removed from this mailing list, contact tamontemuro@mdwcg.com.

Firm Highlights

Thought Leadership

Two Tracks, No Preclusion: Ohio Supreme Court Preserves Separate Damages Claims After Chapter 2506 Appeals

The Supreme Court of Ohio has clarified that an administrative appeal under Ohio Revised Code Chapter 2506 does not bar a separate action for damages and declaratory relief that could not have been pursued in the administrative appeal. The Ohio Supreme Court considered Sheetz, Inc. v. Centerville (2026-Ohio-3531) as a result of a certified question from the Southern District of Ohio. The question was whether Sheetz, the gas station/convenience store brand, was barred from seeking damages in a separate action since damages were not sought in their administrative appeal. Ultimately, the Ohio Supreme Court ruled that res judicata does not bar a separate action for damages after ruling on an administrative appeal because R.C. Chapter 2506 is limited to judicial review and cannot grant affirmative relief. The case arose after Centerville’s city council rejected a site plan proposed by Sheetz, Inc. that had received unanimous approval from the City’s planning commission. Sheetz filed an administrative appeal pursuant to R.C. 2506 in the Montgomery County Court of Common Pleas, and two months later filed a complaint for damages and declaratory relief under 42 USC § 1983 as a takings action with the city, city council, and other objectors as improper takings and a violation of due process, as well as interference with business and contractual relationship. The city and city council removed the § 1983 action for damages to federal court. Montgomery County Court of Common Pleas reversed the city council’s denial, and allowed the Sheetz project to move forward. Upon that ruling, the federal court issued a show-cause order questioning whether the § 1983 action was barred by the doctrine of res judicata via claim preclusion (which includes all theories of recovery).  Sheetz argued that Ohio courts of common pleas do not have authority to award damages or declaratory relief as party of the R.C. Ch. 2506 appeal, therefore res judicata could not be triggered to apply to the § 1983 action. Additionally, Sheetz moved to certify the issue to the Ohio Supreme Court, citing differing results between the second and sixth districts on this same issue. Centerville approached the question, not from a claim preclusion standpoint, but from the holding in Grava v. Parkman, Twp which states that a final judgment rendered on the merits bars all subsequent action based on the same transaction or occurrence.  In yet another approach, an objector argued that claim preclusion was satisfied because Sheetz could have raised its damages claims in the administrative appeal – Sheetz disagrees. In their analysis, the Supreme Court of Ohio broke down the elements of a claim preclusion analysis: 1) a prior final, valid decision on the merits by a court of competent jurisdiction; (2) a second action involving the same parties, or their privies, as the first; (3) a second action raising claims that were or could have been litigated in the first action; and (4) a second action arising out of the transaction or occurrence that was the subject matter of the previous action. The Court held that R.C. Ch. 2506 does not permit a party to argue damages as R.C. Ch. 2506 limits the common pleas jurisdiction as if it were sitting on appeal, and therefore can only affirm, reverse, vacate, or modify the appealed order, or can remand the case to the administrative body. Further, the Court held that Grava’s conclusion that a final judgment precludes additional litigation for different relief is inapplicable under this fact pattern because it was meant only to apply to those matters in which the plaintiff brings the exact same case twice, but for new relief. The Court found Grava was inapplicable because Sheetz could have requested damages or declaratory relief in the R.C. 2506 appeal. Therefore, Grava would be nothing more than dicta if it even did apply. Going further, the Ohio Supreme Court disavowed Sixth Circuit precedent which, in reliance on Grava and other district court decisions, permitted an owner to seeking relief under 42 U.S.C. § 1983 alongside an administrative appeal. See Moore v Hiram Twp., 988 F.3d 353 (6th Cir.2021). The Ohio Supreme Court found that the Sixth Circuit had disregarded a critical decision in Community Concerned Citizens, Inc. v. Union Twp. Bd. of Zoning Appeals, 1993-Ohio-115, which clearly held that a R.C. Ch. 2506 appeal cannot be combined with a complaint seeking other claims for relief. Id. at ¶ 11. To that end, the Ohio Supreme Court has determined that the decisions Moore relied on (outside of Grava) are no longer good law, and that Moore was wrongly decided. The decision draws a clear procedural boundary: Chapter 2506 provides judicial review of an administrative decision, not a forum for independent claims seeking affirmative relief. Although Grava may place claims arising from a single transaction within the potential scope of claim preclusion, those claims are not barred unless the complete claim-preclusion test is satisfied. Because Sheetz could not have pursued damages or declaratory relief in its Chapter 2506 appeal, the separate action was not precluded. The remaining question for practitioners looking to apply or defend against this exception is when does the statute of limitations begin to run on damages and declaratory relief claims related to an administrative decision on appeal? A takings action in federal court has a 2-year statute of limitations, or as a state claim, 4 years (like the other tortious claims raised therein). Correlating this case with others, an administrative appeal will not likely toll the statute of limitations on claims based on a final decision by a municipal authority. Therefore, practitioners should look for these cases to be brought simultaneously.

Thought Leadership

The Search-Incident-to-Arrest Doctrine Does Not License Strip Searches

In Beatty v. Gardner, No. 25-2860 (3d Cir. Sept. 16, 2026), Kyle Beatty sued police officers Clinton Gardner and Calvin Irvin under 42 U.S.C. § 1983 after they stopped, arrested, and searched him three times during a drug investigation in Williamsport, Pennsylvania. The officers initially smelled marijuana coming from the car in which Beatty was sitting and observed marijuana residue, giving them probable cause to arrest him. Beatty consented to the first pat-down, and the second search was conducted incident to his lawful arrest; neither search uncovered weapons or contraband. The officers then transported Beatty to the police station solely to strip-search him, but the strip search also revealed nothing. The District Court granted the officers summary judgment, concluding that the initial stop, arrest, and first two searches were reasonable and that qualified immunity protected the officers from liability for the strip search. The Third Circuit affirmed, but held that the strip search itself violated the Fourth Amendment. The court concluded that the search-incident-to-arrest doctrine does not automatically permit officers to strip-search an arrestee outside the jail or prison setting. Because strip searches are highly intrusive and the traditional justifications for searches incident to arrest (officer safety and preservation of evidence) did not justify the search of Beatty, the officers generally needed either the arrestee’s consent, exigent circumstances, or a warrant supported by probable cause to believe that a search beneath the clothing would reveal weapons, contraband, or evidence. Here, the officers had none of those justifications. Nevertheless, the court held that qualified immunity barred damages liability because, at the time of the search, the right against a warrantless strip search of an arrestee outside the institutional setting was not clearly established by Supreme Court or Third Circuit precedent. The court likewise upheld qualified immunity on Beatty’s First Amendment retaliation claim and affirmed summary judgment for the officers.

Thought Leadership

Pennsylvania Supreme Court to Review Whether Legal Malpractice Claims May Be Recast as Breach of Contract Claims

The Pennsylvania Supreme Court recently granted allowance of appeal to consider whether a plaintiff may pursue a breach of contract claim against an attorney based on allegations that the attorney failed to provide competent legal services. The issue is significant in professional liability litigation because it concerns whether a plaintiff may avoid the statute of limitations applicable to professional negligence claims by characterizing the alleged misconduct as a breach of contract. Antoine Poteat retained attorneys Gary Asteak and Nino V. Tinari to represent him in a criminal matter. After his conviction was subsequently overturned through a Post Conviction Relief Act proceeding, Poteat filed suit against his former attorneys alleging that they breached their retainer agreements by failing to provide competent legal services. The attorneys argued that the claims sounded in professional negligence, rather than breach of contract, and were therefore time-barred. The trial court dismissed Poteat’s complaint, but the Superior Court, sitting en banc, reversed. The Superior Court held that the gist-of-the-action doctrine did not bar Poteat’s breach of contract claim because the alleged failure to provide competent legal services could constitute a breach of the parties’ agreement. The Court further held that a legal-services agreement contains an implied duty requiring an attorney to provide competent legal services, even where the agreement does not contain an express provision requiring such services. The Pennsylvania Supreme Court granted review in July 2026 and will consider whether the Superior Court’s decision conflicts with Pennsylvania precedent distinguishing contract and tort claims, including Bruno v. Erie Insurance Co. The Supreme Court will also address whether a plaintiff may maintain a breach of contract claim based on an implied duty to provide competent legal services without identifying a specific contractual provision that was breached. The Supreme Court’s decision could have significant implications for professional liability litigation in Pennsylvania, particularly where plaintiffs seek to characterize claims arising from alleged professional negligence as contractual claims.