Key Takeaway
Court limits Mallela fraud defense in no-fault insurance cases, ruling fee-sharing arrangements don't justify withholding medical payments under New York law.
This article is part of our ongoing mallela issues coverage, with 32 published articles analyzing mallela issues issues across New York State. Attorney Jason Tenenbaum brings 24+ years of hands-on experience to this analysis, drawing from his work on more than 1,000 appeals, over 100,000 no-fault cases, and recovery of over $100 million for clients throughout Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and the Bronx. For personalized legal advice about how these principles apply to your specific situation, contact our Long Island office at (516) 750-0595 for a free consultation.
Matter of Allstate Prop. & Cas. Ins. Co. v New Way Massage Therapy P.C., 2015 NY Slip Op 09184 (1st Dept. 2015)
“Whether or not the fee-sharing arrangement at issue constitutes unprofessional conduct (see 8 NYCRR 29.1), it does not constitute a defense to a no-fault action (compare State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [“insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims”]). It is solely a matter for the appropriate state licensing board (see e.g. Necula v Glass, 231 AD2d 457 ; see also H & H Chiropractic Servs., P.C. v Metropolitan Prop. & Cas. Ins. Co., 47 Misc 3d 1075, 1078 ).”
This would probably be characterized as one of the largest cases of the year on the Mallela side of the equation. Aside from what could be characterized as the true doctor in the box scheme, the following defenses or perhaps even reasons to conduct EUOs or provider discovery viz verification include: (1) Self referrals, (2) Use of runners , (3) Improper ownership, i.e., MD not certified in acupuncture owning an LAC clinic, (4) Improper Fee splitting (among other grounds). These reasons don’t exist anymore.
This is what I have to say: an overzealous defendant stripped Mallela of all its adornments. Thank you Allstate and to the people who told you to appeal this. The real benefactors of this decision will be the medical practices who do all of the above, refuse EUOS in writing because the above “ solely a matter for the appropriate state licensing board” and beat out the insurance carriers in arbitration.
By the way, I invite you all to read Master Arbitrator Dachs decision in this case. Go to the electronic filed cases; it is an exhibit on the Petition. After I read that decision, I thought it was lunacy on this record to seek judicial and appellate intervention. Norman Dachs made sense. Many know that some of his decisions prior to his death were akin to lunacy. This one made a lot of sense, and there was no way a Supreme Court or an Appellate Division was going to reverse him.
Anyway, I made a bet with two regular readers of this blog (an attorney and a claims manager somewhere) that this appeal would result in a disaster for us. I was sadly correct. Also, my bet (and I cannot bet on this now) is that C&C Chiropractic (the cited to case) would have been reversed by the Appellate Term because the Appellate Term would have followed precedent re: self-referrals and found a violation of the Education law would be sufficient to deny compensation to a medical provider. I cannot make this bet because under stare decisis, this issue is done. I hope Metropolitan in the Civil Court action concedes the issue and moves on, as opposed to perfecting a wasteful appeal.
As always, it is the other players on the block that endure the wrath of a less than intelligent appeal.
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Legal Context
Why This Matters for Your Case
New York law is among the most complex and nuanced in the country, with distinct procedural rules, substantive doctrines, and court systems that differ significantly from other jurisdictions. The Civil Practice Law and Rules (CPLR) governs every stage of civil litigation, from service of process through trial and appeal. The Appellate Division, Appellate Term, and Court of Appeals create a rich and ever-evolving body of case law that practitioners must follow.
Attorney Jason Tenenbaum has practiced across these areas for over 24 years, writing more than 1,000 appellate briefs and publishing over 2,353 legal articles that attorneys and clients rely on for guidance. The analysis in this article reflects real courtroom experience — from motion practice in Civil Court and Supreme Court to oral arguments before the Appellate Division — and a deep understanding of how New York courts actually apply the law in practice.
About This Topic
Mallela Fraud Defense in No-Fault Insurance
The Mallela defense — named after the Court of Appeals decision in State Farm v. Mallela — allows insurers to deny no-fault claims by proving that a medical provider fraudulently incorporated to circumvent licensing requirements. Establishing a Mallela defense requires extensive investigation and evidence of corporate structure, ownership, and control. These articles analyze the Mallela doctrine, its procedural requirements, and the evolving case law that shapes how courts evaluate fraudulent incorporation claims in no-fault practice.
32 published articles in Mallela issues
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Apr 30, 2019Dr. Andrew Carothers, we salute you.
Appellate Term affirms jury verdict against Dr. Carothers' medical practice in no-fault insurance case involving unlicensed ownership claims and regulatory compliance issues.
Jul 30, 2013An unproven Mallela defense will cost State Wide millions
NY No-Fault legal analysis: Mallela defense standards, burden of proof & pending Rabiner claims. Insurance case law update from State Farm v. Mallela
Dec 22, 2010EUO Admissibility and CPLR 3212(f): Critical Evidence Rules for New York No-Fault Practice
Master EUO transcript admissibility and CPLR 3212(f) applications in NY no-fault practice. Expert analysis of RLC Medical decision and evidence rules for Long Island and NYC...
Jan 14, 2010The sad man’s DJ
Court dismisses insurance company's fraud-based declaratory judgment action lacking EUO testimony and claims-specific evidence, calling it a "sad man's DJ"
Jul 24, 2017Common Questions
Frequently Asked Questions
What are Mallela issues in no-fault insurance?
Mallela issues refer to a defense based on State Farm v. Mallela (2006), where the Court of Appeals held that insurers can deny no-fault claims to medical providers who operate fraudulent enterprises. Under Mallela, if a provider is controlled by unlicensed individuals in violation of Business Corporation Law §1507 or Education Law, the provider is not eligible to receive no-fault reimbursement. Insurers use Mallela defenses in declaratory judgment actions and as affirmative defenses in collection actions.
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About the Author
Jason Tenenbaum, Esq.
Jason Tenenbaum is the founding attorney of the Law Office of Jason Tenenbaum, P.C., headquartered at 326 Walt Whitman Road, Suite C, Huntington Station, New York 11746. With over 24 years of experience since founding the firm in 2002, Jason has written more than 1,000 appeals, handled over 100,000 no-fault insurance cases, and recovered over $100 million for clients across Long Island, Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, the Bronx, and Staten Island. He is one of the few attorneys in the state who both writes his own appellate briefs and tries his own cases.
Jason is admitted to practice in New York, New Jersey, Florida, Texas, Georgia, and Michigan state courts, as well as multiple federal courts. His 2,353+ published legal articles analyzing New York case law, procedural developments, and litigation strategy make him one of the most prolific legal commentators in the state. He earned his Juris Doctor from Syracuse University College of Law.
Disclaimer: This article is published by the Law Office of Jason Tenenbaum, P.C. for informational and educational purposes only. It does not constitute legal advice, and no attorney-client relationship is formed by reading this content. The legal principles discussed may not apply to your specific situation, and the law may have changed since this article was last updated.
New York law varies by jurisdiction — court decisions in one Appellate Division department may not be followed in another, and local court rules in Nassau County Supreme Court differ from those in Suffolk County Supreme Court, Kings County Civil Court, or Queens County Supreme Court. The Appellate Division, Second Department (which covers Long Island, Brooklyn, Queens, and Staten Island) and the Appellate Term (which hears appeals from lower courts) each have distinct procedural requirements and precedents that affect litigation strategy.
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