Key Takeaway
Court rules that Mallela fraudulent incorporation defenses must be decided by arbitrators, not courts, when applicants demand arbitration under no-fault law.
Understanding Mallela Defenses in No-Fault Arbitration Proceedings
The intersection of fraudulent incorporation defenses and arbitration jurisdiction represents a crucial area of New York No-Fault Insurance Law. When insurance companies suspect that medical providers have been fraudulently incorporated, they often face a strategic decision: challenge the provider’s standing in court or proceed to arbitration. The First Department’s decision in Matter of Countrywide Ins. Co. v DHD Med., P.C. clarifies that once an applicant demands arbitration, even Mallela-based fraudulent incorporation defenses must be resolved by the arbitrator rather than the courts.
This ruling has significant implications for how insurance carriers approach potential fraud cases, particularly when compared to other coverage-based defenses that can still be litigated in court proceedings.
Jason Tenenbaum’s Analysis:
Matter of Countrywide Ins. Co. v DHD Med., P.C., 2011 NY Slip Op 05864 (1st Dept. 2011)
“Petitioner argues that respondent is a fraudulently incorporated medical services provider and therefore is not only ineligible for reimbursement of no-fault payments (see State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 ) but is also precluded from demanding arbitration pursuant to Insurance Law § 5106(b) (and the no-fault policy issued by petitioner). Contrary to this argument, the defense of fraudulent incorporation is “for the arbitrator and not for the courts” (see Matter of Nassau Ins. Co. v McMorris, 41 NY2d 701 ; Matter of MVAIC v Interboro Med. Care & Diagnostic PC, 73 AD3d 667, 667 ).”
I take it this was a Special proceeding commenced through an Article 75, seeking injunctive relief. I think this decision would have been different had an affirmative lawsuit been commenced seeking Mallela based relief prior to the filing of an arbitration.
I would also note that this decision should not impact IME non-coop and EUO non-coop based DJ’s since those are “coverage” cases. Mallela is a standing based issue.
Key Takeaway
While Mallela fraudulent incorporation defenses must be arbitrated when demanded by applicants, this ruling doesn’t affect coverage-based defenses like IME or EUO non-cooperation claims. The timing and type of legal proceeding initiated by the insurance carrier can significantly impact whether courts will address these Mallela-related challenges before arbitration proceeds.
Legal Update (February 2026): Since this 2011 post, New York’s no-fault insurance regulations and arbitration procedures under Insurance Law § 5106 may have been amended through legislative updates or regulatory changes. Additionally, subsequent appellate decisions may have further refined the application of Mallela defenses in arbitration proceedings, and practitioners should verify current arbitration rules and case law developments when addressing fraudulent incorporation claims.
