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SCORE ONE FOR THE INSURANCE COMPANIES
By: Jeremy A. Kosin, Esq.

FOR THE DEFENSE

SCORE ONE FOR THE INSURANCE COMPANIES

By: Jeremy A. Kosin, Esq.
Bruno, Gerbino & Soriano, LLP
Melville, New York


In an arena that feels like it is becoming more and more one-sided in favor of the plaintiff no-fault mills and the attorneys that represent them and where the plaintiff’s burden of proof is almost non-existent, the New York Court of Appeals recently held in State Farm Mutual Automobile Insurance Company v. Mallela, et al. that an “insurance carrier may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their rights.”

It is no secret to those who practice in the specialized field of no-fault defense litigation that there are numerous medical facilities that appear to be properly incorporated professional corporations “on paper.” However, in actuality, notwithstanding the requirements of Business Corporation Law § 1507, 1508, and Education Law § 6507 (4)(c), some physicians “sell” their names and licenses to non-physicians who then “run” the professional service corporation with the purpose of defrauding the insurance companies into paying no-fault benefits to the fraudulently incorporated professional service corporation.

In Mallela, State Farm sought declaratory relief stating that it did not have to reimburse the defendants, whom State Farm alleged were fraudulently incorporated medical service corporations, based upon their willful evasion of New York law that does not allow for the ownership of medical service corporations by non-physicians. The Court of Appeals held that an insurance carrier may investigate whether the “paper medical service corporations” are legitimate medical service corporations or whether they are fraudulent in nature and, therefore, not entitled to benefits.

The Court of Appeals in Mallela applied 11 N.Y.C.R.R. § 65-3.16 (a)(12), to all no-fault matters, even though that section is part of what is colloquially referred to as the “new regulation.” The “new regulation” applies to matters involving insurance polices issued or renewed after April 5, 2002. The Court of Appeals unambiguously states that “[S]uch [fraudulently incorporated medical service] corporations are not entitled to reimbursement” without any distinction between the “old” or “new” regulation 68. The Court of Appeals is correct in so stating, contrary to the Plaintiff Bar’s likely argument, in that the Department of Insurance’s legislative history demonstrates that it is simply clarifying the “old regulations” requirement that a health care provider must be properly licensed to be eligible for reimbursement of no-fault benefits.


Perhaps more importantly than the ultimate holding, the Court of Appeals in Mallela reaffirmed the basic administrative law principle that the Superintendent’s interpretation of the Insurance Laws and/or No-Fault Regulations, if not irrational, unreasonable, or contrary to the clear wording of a statutory provision will be upheld in deference to his special competence and expertise with respect to the insurance industry. NY Pub Interest Research Group, Inc. v. NYS Dept of Ins., 66 N.Y.2d 444, 448 (1985). Therefore, the lower courts and arbitrators are required to give deference to the Superintendent’s interpretation of the Insurance Laws and/or No-Fault Regulations and not engage in judicial activism in an attempt to streamline the overcrowded court calendars.

In the wake of the Mallela decision, the courts and no-fault arbitrators may have to re-evaluate their position on defenses based upon the conclusion that the services were rendered by an independent contractor, a requirement that the plaintiff demonstrate a prima facie showing of medical necessity and especially the issue of a claimant’s failure to appear for an Examination Under Oath. Regarding each of these issues, the Superintendent has issued interpretations of the Insurance Laws and/or No-Fault Regulations by issuing numerous General Counsel Opinions, most of which have not been given the proper deference by the courts.

Just as the Court of Appeals in Mallela applied the “new regulation” requirement regarding the proper licensing and incorporation of a medical service corporation to an “old regulation” case, the same analysis follows that the insurance company is allowed to request that the claimant appear for an Examination Under Oath and can issue a denial based upon the claimant’s failure to appear for same. The “new regulation” explicitly states that the claimant must appear for an Examination Under Oath as reasonably requested by the insurance company, as a condition precedent to coverage. However, the courts and many no-fault arbitrators have held that the insurance company is not entitled to an Examination Under Oath if the “old regulation” controls the case, since the “old regulation” do not explicitly allow for an Examination Under Oath, despite the Superintendent’s interpretations to the contrary. Now, after Mallela, it can be argued that the “new regulation” is simply a clarification of the Superintendent’s prior interpretations of the Insurance Laws and No-Fault Regulations wherein it is stated that the insurance company is entitled to conduct an Examination Under Oath. Moreover, the Superintendent’s prior interpretations should be given the deference to which they are entitled by the courts.

It now falls upon the insurance companies and the Defense Bar to raise these issues once again to the courts and it is clear that as long as the Plaintiff Bar keeps filing these actions, the Defense Bar will keep defending them.


Editor’s Note: Jeremy A. Kosin is a graduate of Boston University School of Law and an associate at the law firm of Bruno, Gerbino & Soriano, LLP, located in Melville, New York

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