Important Court Decision For No-Fault Insurers; New York Appellate Court Rejects Limitation On State Farm v. Mallela

December 01, 2010

We are very pleased to inform you that on November 30, 2010 our firm, together with our co-counsel Bob Stern of Stern & Montana, obtained a very favorable and significant decision for no-fault insurers from the Appellate Division, First Department, on an issue of first impression before the New York State appellate courts.  This marks the second time in this same case that the Appellate Division has ruled in favor of no-fault insurers on an issue of first impression.  In the first instance, the Court confirmed the right of insurers to defend any unpaid claim under State Farm v. Mallela irrespective of whether the services were alleged to be rendered prior to the April 2002 effective date of the new no-fault regulations.

You will recall that in State Farm v. Mallela, the New York Court of Appeals ruled that, as of April 5, 2002, fraudulently-incorporated providers, or providers that were violating core licensing requirements, were not entitled to reimbursement under New York's no-fault system.  Since that time, many providers have sought, in the context of litigating actions against insurers or defending against affirmative recovery actions brought by insurers, to limit the scope and effect of Mallela.  In Allstate Insurance Co. v. Belt Parkway Imaging, P.C., the defendant radiological providers made a summary judgment motion seeking dismissal of affirmative claims by Allstate and GEICO and the insurers' affirmative defenses to counterclaims.  Such defendants argued that the New York State Legislature's enactment of Insurance Law Section 5109 (relating to the de-certification of providers) overruled Mallela and prevented insurers from raising Mallela-type defenses or seeking affirmative recoveries from providers without a determination from the Department of Insurance that such providers were de-certified from receiving no-fault benefits as the result of fraudulent or other improper activities.  The trial court denied the providers' motion.

On appeal, the First Department specifically addressed the Legislature's enactment of Insurance Law Section 5109 and rejected the argument that such enactment overruled Mallela, calling "absurd" the result that would obtain if the defendants’ argument were to be accepted.  A copy of the decision is attached.  This decision constitutes the first New York State appellate ruling on this issue and represents a significant victory that protects and re-affirms the validity of insurers' anti-fraud efforts, including the independent ability to bring affirmative recovery actions and assert affirmative defenses relating to providers' fraudulent activities.