The question in these 12 consolidated no-fault suits was: Should the decision of the New York Court of Appeals in State Farm v. Mallela, also known in the no-fault bar as Mallela III, be applied retroactively? That case denied no-fault benefits to plaintiff providers that were organized fraudulently.

In this particular action, medical services were provided to Maria Mercedes during 1999, prior to the adoption of 11 NYCRR 65-3.16(a) (12), effective April 4, 2002. That regulation hinges reimbursement for services based on compliance and adherence with licensing requirements.

The court stated, It is a tribute to all the judges of the Civil Court, Queens County, that although they have reached different conclusions on the issue, their opinions this year have been on the leading edge, setting the contours of the debate. The highly articulate, cogent, and well-written opinion of Judge Anna Culley, in A.T. Medical, P.C. v. State Farm Mut. Ins. Co., reasons that public policy concerns warrant denial of claims made by corporate malefactors who organize their enterprises in violation of existing law. Judges Culley, Siegal, and Butler of this court thus hold that Mallela III should be applied retroactively.

In contrast, my colleague, Judge Joseph Esposito, in Multiquest, PLLC v. Allstate Insurance Co., in his characteristic penetrating and tight analysis, concluded that Mallela III should not be applied retroactively, especially since only a regulation is involved.

Court of Appeals Had the Choice

The two differing views of my colleagues both deserve attention by students of the issue because of the fine arguments made therein. In the final analysis, the undersigned agrees with Judge Espositos recent decision that Mallela III should not be applied retroactively.

In addition to all of the reasons stated by Judge Esposito, this court believes that if the Court of Appeals had wanted to provide a rule of retroactivity, it was fully informed of the issue at the oral argument of Mallela III and could have determined the issue in its opinion. Of course, many reasons may play into why a court does not discuss a certain argument. Sometimes in the hope of winning unanimity or a majority, compromises are made in forging judicial consensus. Other times, an appellate court will want to see how lower courts treat an issue, thereby benefiting from their thoughts, and to see, by experience, whether any division has, indeed, occurred among lower courts.

In the present case, this court believes that the Court of Appeals was aware of the fact that, if a rule of retroactivity were to be announced, insurers would be filing motions in thousands of no-fault cases, seeking to recapture payments already made. The Court of Appeals probably thought of this possibility and decided not to stimulate such unbridled litigation to already congested motion calendars in the no-fault parts. The court noted that adjournments of routine motions in the specially created no-fault parts already require waits of almost a year.

Second, to apply a rule of retroactivity, in the present circumstance, should not be done lightly. Despite the method of questionable, improper, and even unethical incorporation of a plaintiff provider, services were allegedly furnished, consistent with the public policy of this State, in the expectation that a claim would be filed and that payment would be made expeditiously.

For a court to adopt a rule of retroactivity, under the facts of the particular circumstances, would be tantamount to imposing a rule alienating a property right. The rights of plaintiff health care providers that provided services in the expectation of filing a claim under a statutory system for the quick, expeditious handling and processing of claims would be subverted. As shown, resort to public policy principles can be a two-edged sword.

This court holds that Mallela III should not be applied retroactively.

Multiquest PLLC v. Allstate Ins. Co., NYLJ 01/04/06 (Civil Court, Queens County) (MARKEY, j)