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Court of Appeals of New York
February 8, 2005, Argued ; March 29, 2005, Decided
[**759] [***701] [*319] Rosenblatt, J.
[1, 2] On this certified question from the United [****2] States Court of Appeals for the Second Circuit, we are asked whether, under our "no-fault" insurance laws (see Insurance Law § 5101 et seq. and implementing regulations), insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims. We conclude that they may.
] Patients covered by no-fault insurance often assign their claims to their health care providers rather than seek reimbursement from insurance carriers directly (see 11 NYCRR 65-3.11). Regulations require the carriers to make prompt decisions on claims once the provider has furnished adequate factual support (see 11 NYCRR 65.15).
This case began when State Farm filed a complaint in the United States District Court for the Eastern District of New York seeking a judgment declaring that it need not reimburse defendants--fraudulently incorporated medical corporations--for assigned claims submitted under no-fault. The complaint also sought equitable relief and damages against defendant companies and individuals for unjust enrichment [****3] and fraud. State Farm alleged, in essence, that to obtain payments from the carriers under the requirements of no-fault insurance, defendants willfully evaded New York law prohibiting nonphysicians from sharing ownership in medical service corporations. 1
According to the complaint, the unlicensed defendants paid physicians to use their names on paperwork filed with the State to establish medical service corporations. Once the medical service corporations were established under the facially valid cover of the nominal physician-owners, the nonphysicians actually operated the companies. To maintain the appearance that the physicians owned the entities, the nonphysicians caused the corporations to hire management companies (owned by the [****4] nonphysicians), which billed the medical corporations inflated rates [*320] for routine services. In this manner, the actual profits did not go to the nominal owners but were channeled to the nonphysicians who owned the management companies.
Notably, State Farm never alleged that the actual care received by patients was unnecessary or improper. The patients insured by State Farm presumably received appropriate care from a health professional qualified to give that care. State Farm's complaint centers on fraud in the corporate form rather than on the quality of care provided.
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
4 N.Y.3d 313 *; 827 N.E.2d 758 **; 794 N.Y.S.2d 700 ***; 2005 N.Y. LEXIS 501 ****
State Farm Mutual Automobile Insurance Co., Appellant, v. Robert Mallela et al., Respondents.
Subsequent History: Related proceeding at High Definition MRI, P.C. v. Allstate Corp., 2016 N.Y. Misc. LEXIS 3630 (N.Y. Sup. Ct., Oct. 5, 2016)
Prior History: [****1] Proceeding, pursuant to NY Constitution, article VI, § 3 (b) (9) and Rules of the Court of Appeals (22 NYCRR) § 500.17, to review a question certified to the New York State Court of Appeals by the United States Court of Appeals for the Second Circuit. The following question was certified by the United States Court of Appeals and accepted by the New York State Court of Appeals: "Is a medical corporation that was fraudulently incorporated under N.Y. Business Corporation Law §§ 1507, 1508, and N.Y. Education Law § 6507 (4) (c) entitled to be reimbursed by insurers, under New York Insurance Law §§ 5101 et seq., and its implementing regulations, for medical services rendered by licensed medical practitioners?"
State Farm Mut. Auto. Ins. Co. v. Mallela, 372 F.3d 500, 2004 U.S. App. LEXIS 12034 (2d Cir. N.Y., 2004)
Disposition: Certified question answered in the negative.
reimbursement, regulation, carriers, licensed, fraudulently, medical services, patients, nonphysicians, providers, no-fault
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