State Farm Insurance Co. v. Mallela – Case Brief Summary (New York)

In State Farm Insurance Co. v. Mallela, 4 NY3d 313, 827 N.E.2d 758, 794 N.Y.S.2d 700 (2005), the Court of Appeals held that insurers may withhold payment for medical services provided by fraudulently licensed medical service corporations to whom patients, who are covered by no-fault insurance, have assigned their claims.

Insurance Law §5102 requires no-fault carriers to reimburse patients or their medical provider assignees for "basic economic loss."

In order to combat incidences of fraud, the Superintendent of Insurance promulgated 11 N.Y.C.R.R. 65-3.16(a)(12), which excludes from the definition of basic economic loss payments made to unlicensed or fraudulently licensed providers, thus rendering them ineligible for reimbursement. 4 NY3d at 320. After finding this regulation valid, the Court held that carriers "may look beyond the face of licensing documents to identify wilful and material failure to abide by state and local law." Id at 321.

Addressing the defendants' contention that the insurance companies would turn this "investigatory privilege into a vehicle for delay and recalcitrance," the Court stated:

"The regulatory scheme .... does not permit abuse of the truth-seeking opportunity that 11 N.Y.C.R.R. sec. 65-3.16(a)(12) authorizes. Indeed, the Superintendent's regulations themselves provide for agency oversight of carriers, and demand that carriers delay the payment of claims to pursue investigations solely for good cause. (See N.Y.C.R.R. sec 65-3.2(c). In the licensing context, carriers will be unable to show "good cause" unless they can demonstrate behavior tantamount to fraud. Technical violations will not do...We expect and the Legislature surely intended, vigorous enforcement by the Superintendent against any carrier that uses the licensing requirement regulation to withhold or obstruct reimbursement to non-fraudulently incorporated health care providers." (4 NY3d at 322.)