New York’s no-fault insurance laws require an insurance company to pay or deny a claim within 30 days of receipt from a medical provider who has rendered care and treatment to an auto accident victim and obtained his or her assignment of benefits. However, many unsuspecting physicians and other healthcare providers who have provided such care in good faith are distressed to discover that instead of having their claim paid promptly, as is the intent of the law, the insurance company refuses to pay and instead files suit against them alleging that the claim is fraudulent because their professional medical corporation is illegally incorporated.
Such suits have skyrocketed since the New York Court of Appeals decided the landmark case of State Farm Mutual Auto Ins. Co. v. Mallela in 2005. The Court held that medical providers who violate New York’s licensing requirements are not eligible to be reimbursed for their no-fault insurance claims by an insurance company.
One type of licensing violation addressed by the Mallela court is the situation in which the licensed healthcare provider does not really own, control and/or operate his or her professional medical corporation. Instead, a management company owned by non-physicians requires the provider to contract with it, thereby sharing in the “profits” generated from paid no fault claims.
The Mallela decision held that while insurance carriers must reimburse patients and/or the medical provider to whom they assign their benefits for “basic economic loss,” unlicensed providers or those fraudulently licensed are excluded from receiving such payments. This is because non-physicians are forbidden to practice medicine in New York. The decision also gave insurance carriers the right to look beyond medical corporations’ licensing documents so as to be able to discover and identify any violations of New York law.
Mallela’s Ever-widening Discovery Rules
Not surprisingly, many insurance companies took the Mallela decision to be their authorization to dispute virtually all no-fault claims made by medical providers. In their zeal to reduce or eradicate fraudulent claims and payments therefor, these insurance companies make it a routine practice to sue most claimants.
Despite the court’s rejection of the Mallela defendant’s argument that granting insurance companies the right to look further than a professional healthcare corporation’s licensing documents would “turn this investigatory privilege into a vehicle for delay and recalcitrance,” this is exactly what has happened in the past 17 years. Many insurers have run amuck during their lawsuit’s discovery period, egregiously overreaching into virtually all areas of the defendant’s professional life.
Their demands to see ever more of the medical provider’s proprietary documents and records seemingly know no bounds. Subsequent court decisions, however, have continued to grant insurance companies very broad discovery powers, including the following:
- Requests for production of documents
- Requests for admissions
- Examinations Under Oath (EUOs)
In addition, in the 2008 case of One Beacon Ins. Group v. Midland Medical Care, P.C., the court held that unlike most litigants, insurance carriers need not make a good cause showing when demanding such disclosures in Mallela-type lawsuits. Instead, they must merely allege that the documents in question are “material and necessary” to their investigation of possible fraud.
Other courts have ruled that such things as the provider’s corporate tax returns and any contract between the provider and a management company regarding leased space are likewise discoverable. By now, the depositions or Examinations Under Oath of anyone having to do with a provider’s professional corporation are standard procedures in Mallela cases.
Honest Mallela Defendants
The best and virtually only things a medical provider has going for him or her in a Malella suit are the following:
- His or her own honesty in complying with New York law regarding professional corporations and their ownership and structure
- An aggressive attorney with extensive experience defending healthcare providers in these types of cases
- The fact that few Mallela cases actually go to trial and a jury verdict.
While there is virtually no way to avoid going through the lengthy discovery process and the hassles it entails, once the physician or other healthcare provider complies with the verification and EUO protocols showing him or her to be a duly licensed and incorporated medical provider, most insurance carriers settle the no fault claim upon receipt of a pay-or-deny letter from the provider’s attorney. These settlements often include confidentiality agreements whereby neither the provider nor the insurance company can reveal the specifics of the settlement.