Alleviation v Allstate Goes to the Appellate Division: Leave Granted in the Policy Exhaustion Fight

Few issues in no-fault litigation carry more dollars-and-cents weight than policy exhaustion: what happens to claims that are still in the verification pipeline when the $50,000 in basic economic loss runs out? In late 2017, the Appellate Division, Second Department agreed to take that question up, granting Allstate leave to appeal from the Appellate Term’s decision in Alleviation Medical Services. This post, written when leave was granted, walks through the order and what was at stake.

Key Takeaways

• The Appellate Division granted Allstate leave to appeal from the Appellate Term’s August 4, 2017 order in Alleviation Medical Services v Allstate.
• The New York Insurance Association was permitted to appear as amicus curiae in support of Allstate’s motion — a signal of the issue’s industry-wide stakes.
• The underlying fight is over policy exhaustion: whether a carrier must pay claims after the policy limits have been paid out, and how exhaustion interacts with the priority-of-payment regulation.
• The author predicted affirmance unless DFS weighed in, with Harmonic v Praetorian as the doctrinal fallback.

The Order Granting Leave

Alleviation Medical Services P.C. v Allstate Insurance Company, 2017 NY Slip Op 96489(U) (2d Dept. 2017)

“Motion by Allstate Insurance Company for leave to appeal to this Court from an order of the Appellate Term, Second, Eleventh, and Thirteenth Judicial Districts, dated August 4, 2017, which affirmed an order of the Civil Court of the City of New York, Queens County, entered April 1, 2015. Separate motion by New York Insurance Association, Inc., for leave to file papers, as amici curiae, in support of the motion by Allstate Insurance Company.

Upon the papers filed in support of the motion for leave to appeal and the papers filed in opposition and in relation thereto, and upon the papers filed in support of the motion for leave to file papers, as amici curiae, and the papers filed in opposition thereto, it is

ORDERED that the motion by New York Insurance Association, Inc., is granted and its papers have been considered in the determination of the motion by Allstate Insurance Company; and it is further,

ORDERED that the motion by Allstate Insurance Company is granted.”

This really should not surprise anyone. The Appellate Term should have granted leave in the first instance. Instead, they tried to hide this case as (U) cite and quietly denied leave to appeal. My prediction? Unless DFS submits amicus (and I think they will sit on the sidelines), this will probably be affirmed. The fallback here is Harmonic v. Praetorian, which I think is the correct rule. But in light of Dust, I cannot see this Court applying Harmonic v. Praetorian.

Should this be affirmed, expect an amendment within a year after affirmance.

The Legal Framework: Exhaustion and Priority of Payment

The no-fault endorsement provides $50,000 in basic economic loss coverage per eligible injured person. The priority-of-payment regulation, 11 NYCRR 65-3.15, directs that claims be paid in the order they are received. The collision between those two principles is the exhaustion problem: when a claim is pending — often because the carrier requested additional verification — and later-received claims are paid in the meantime, the policy can run dry before the pending claim is ever paid or denied.

Providers argue that a carrier cannot verify a claim into limbo, pay everyone else, and then plead exhaustion. Carriers respond that the regulation says what it says: claims are paid as they come due, and once $50,000 has been paid, the contractual obligation is at an end. The Appellate Term’s Alleviation decision sat at the center of that dispute, which is why the industry’s trade association sought — and received — amicus status at the leave stage.

Why Leave to Appeal Mattered

Most no-fault appeals die at the Appellate Term, frequently as unreported “(U)” decisions with little precedential gravity. A grant of leave to the Appellate Division converts a first-party fee dispute into binding precedent across the Second Department, the busiest no-fault venue in the state. That is why the procedural posture of this order — including the amicus grant — was newsworthy in itself.

The post’s prediction framework is also worth understanding. Harmonic v Praetorian represented one rule for handling pending claims against exhausted policies; the question was whether the Appellate Division would adopt it or chart a different course. The author’s view: without the Department of Financial Services entering the fray, affirmance was the likely outcome, with a regulatory amendment to follow.

Where the Issue Stands Now

Exhaustion and priority-of-payment questions did not end with this appeal — the area has continued to generate litigation and arbitration disputes, including fights over whether a claimant can be forced to arbitrate against an exhausted policy. For the current state of play, see the firm’s priority of payment hub covering the 2024–2025 developments, which tracks how the regulation operates today.

For practitioners, the enduring lessons from the Alleviation saga are procedural as much as substantive: track the policy ledger from the first claim, demand exhaustion documentation in discovery, and remember that verification requests interact with the payment queue in ways that can determine who gets paid at all.

Practice Pointers

• Carriers: maintain a clean payment ledger showing date of receipt and date of payment for every claim under the policy. Exhaustion defenses rise or fall on that proof.
• Providers: when a carrier pleads exhaustion, demand the ledger and compare it against 11 NYCRR 65-3.15’s order-of-receipt rule. Payments made out of order are the pressure point.
• Both sides: watch the appellate posture. An issue resolved at the Appellate Term as a “(U)” cite is not settled the way an Appellate Division holding is.

Related Resources

• Priority of payment regulation and no-force arbitration (2024–2025)
• Policy Exhaustion appeals and amicus curiae considerations
• Understanding policy exhaustion and priority of payment requirements
• Priority of payment rules in no-fault cases
• Collateral attacks on arbitration awards in coverage disputes
• New York No-Fault Insurance Law
• The firm’s Legal Encyclopedia
• No-Fault Defense practice

Frequently Asked Questions

What is policy exhaustion in New York no-fault insurance?

It is the defense that the carrier has already paid out the full $50,000 in basic economic loss available under the no-fault endorsement, so no further benefits are owed. Disputes arise when claims that were pending — often awaiting verification — go unpaid while later claims consume the remaining limits.

What is the priority of payment rule?

11 NYCRR 65-3.15 requires no-fault claims to be paid in the order they are received. The hard question in the Alleviation line of cases is how that order-of-receipt rule applies when a claim is held open for verification while the policy is being exhausted by other payments.

Why did the New York Insurance Association file an amicus motion?

Because the exhaustion question affects every auto carrier writing no-fault coverage in New York, not just Allstate. The Appellate Division granted the association leave to be heard as amicus curiae and considered its papers in deciding to grant Allstate leave to appeal.