Mallela After Mayzenberg: What Insurers Can and Cannot Deny Under 11 NYCRR 65-3.16(a)(12)

Under 11 NYCRR 65-3.16(a)(12), a healthcare provider "is not eligible for reimbursement" if it "fails to meet any applicable New York State or local licensing requirement necessary to perform such service." Since Mallela in 2005, insurers have used this regulation to deny claims to providers that are fraudulently incorporated or controlled by unlicensed individuals. Two questions have dominated recent litigation: where does that defense end, and how do the verification requests that support it hold up in practice? The Court of Appeals answered the first in Mayzenberg. The Appellate Term answered the second in a series of Burke decisions.

The Mallela Framework

In State Farm Mut. Auto. Ins. Co. v. Mallela (4 NY3d 313, 2005), the Court of Appeals held that an insurer may deny no-fault reimbursement to a professional services corporation that was fraudulently incorporated, where unlicensed individuals paid licensed physicians to lend their names to incorporation paperwork while the unlicensed individuals actually ran the business. The Court explained that "the applicable state licensing requirements . . . prohibit nonphysicians from owning or controlling medical service corporations," and that violations of these requirements are not "mere technical" deficiencies but go to the provider's fundamental eligibility to bill for services.

Andrew Carothers, M.D., P.C. v. Progressive Ins. Co. (33 NY3d 389, 2019) extended the rule to post-incorporation conduct. There, the physician initially obtained a proper license but later ceded control to unlicensed individuals. The Court clarified that the misconduct need not amount to fraud; it must be a "willful and material failure to abide by" licensing and incorporation statutes. Technical violations are not enough. But when a professional services corporation violates a foundational statutory requirement for licensure, the violation renders the corporation ineligible for reimbursement regardless of when it occurred.

The common thread in both cases: an unlicensed person owns or controls the provider entity, violating the statutes that govern who may operate a professional services corporation.

Mayzenberg: Professional Misconduct Is Not Enough

Government Employees Ins. Co. v. Mayzenberg (2025 NY Slip Op 06527, Ct. App. Nov. 24, 2025) arrived via certified question from the Second Circuit. Igor Mayzenberg, a licensed acupuncturist, paid approximately $390,000 in kickbacks to unlicensed third parties for patient referrals. He then billed GEICO approximately $4.9 million in no-fault benefits. The federal district court found that Mayzenberg "engaged in a scheme to defraud GEICO using unlawful fee-splitting, kickback, and referral arrangements with unlicensed persons."

The certified question: can an insurer deny reimbursement because the provider paid for patient referrals in violation of Education Law 6530(18) and 8 NYCRR 29.1(b)(3)?

The Court answered no. Writing for the majority, Judge Rivera held that 11 NYCRR 65-3.16(a)(12) reaches only foundational licensing failures, not professional misconduct that falls short of ceding control to an unlicensed party. The Court deferred to DFS's interpretation of its own regulation and found it rational for three reasons:

Consistent with the regulatory text. The term "licensing requirement" encompasses prerequisites to obtain a license and lawfully practice, not rules of professional conduct. The Education Law lists requirements for a professional license as those that "shall [be] fulfill[ed] '[t]o qualify for a license.'" It enumerates professional misconduct separately and does not describe those rules as licensing requirements.

Consistent with the Board of Regents' authority. The Board of Regents has "final authority" over professional discipline, including the discretion to impose penalties ranging from mandatory training to license revocation. Allowing insurers to deny reimbursement based on their own determination of professional misconduct would displace the Board of Regents as the principal enforcer.

Consistent with no-fault's goals. If the regulation encompassed professional misconduct, an insurer could deny reimbursement based on unproven allegations involving any of the fifty categories of misconduct in Education Law 6530, including relatively minor departures like failing to wear an identifying badge. That outcome would delay payments and incentivize litigation, contrary to the no-fault system's purpose.

The Court left one door open. DFS acknowledged that its interpretation does not preclude an insurer from arguing that a provider's misconduct was so extensive as to "effectively cede[] control of their professional service corporation to unlicensed individuals," which would implicate Mallela and Carothers directly. GEICO did not advance that argument, so the Court did not address when a kickback scheme crosses that line.

The Dissent

Chief Judge Wilson dissented, arguing that kickback schemes are functionally identical to fraudulent incorporation. Both funnel no-fault revenue to unlicensed persons and create incentives for unnecessary treatment. In Mallela, the Court held that an insurer could withhold reimbursement because of the potential for fraud from unlicensed ownership. Here, the district court found an actual scheme to defraud, yet the majority denied the insurer the right to withhold payment.

Wilson identified what he characterized as DFS reversing its own prior positions. In its Mallela amicus brief, DFS titled a section "The Superintendent Promulgated Section 65-3.16(a)(12) to Target Fraud and Abuse." In Carothers, DFS devoted a section to fee-splitting, acknowledging that "the sharing of revenues with unlicensed nonphysicians is no mere technical, harmless violation of law." In Mayzenberg, DFS abandoned those positions.

The dissent also pointed to DFS's enforcement record: only 14 providers placed on the deauthorized list in 11 years, despite 38,846 no-fault fraud reports filed with DFS in 2024 alone.

Mallela Verification Requests: The Burke Cases

Separate from the substantive Mallela defense, insurers use verification requests under 11 NYCRR 65-3.5 to obtain corporate records during the claim stage. The Burke litigation, involving the same provider and the same insurer across multiple cases and assignors, tests the boundaries of this verification process.

Verification Requests for Corporate Records Are Proper

In Burke 2 Physical Therapy, P.C. v. State Farm Mut. Auto. Ins. Co. (85 Misc 3d 132[A], App. Term, 2d Dept. Mar. 7, 2025) and Burke Physical Therapy, P.C. v. State Farm Mut. Auto. Ins. Co. (2025 NY Slip Op 50836[U], App. Term, 2d Dept. May 16, 2025), the Appellate Term held that "it was not improper for defendant to seek, during the claim verification stage, information such as management agreements, W-2 forms, business-related bank records and lease agreements for the purpose of determining whether plaintiff was ineligible to collect no-fault benefits due to a failure to meet licensing requirements."

The rationale, articulated in the Appellate Term's earlier Burke decision (2025 NY Slip Op 50195[U]), is practical: if insurers could only obtain this information through post-litigation discovery, they would face a dilemma. They would have to either pay claims from potentially ineligible providers, or refuse to pay and wait until litigation to investigate, risking years of interest accruing at 2% per month under 11 NYCRR 65-3.9(a).

The 120-Day Compliance Window and Objection Letters

In Burke Physical Therapy, P.C. v. State Farm Mut. Auto. Ins. Co. PIP/BI Claims (2025 NY Slip Op 50376[U], Civ. Ct., Kings County, Mar. 24, 2025), the provider responded to State Farm's Mallela verification requests by submitting 197 pages of correspondence objecting to the requests and declaring them "nullities." The court granted summary judgment for State Farm, holding that unilaterally declaring verification requests to be nullities does not constitute "reasonable justification" for non-compliance under 11 NYCRR 65-3.5(o). The provider must either provide the requested verification within 120 calendar days or set forth a reasonable justification for the failure to comply. Objection letters accomplish neither.

Equivocal vs. Unequivocal Affidavits

When a provider does claim to have responded, the language of the compliance affidavit matters.

In Burke Physical Therapy, P.C. v. State Farm Mut. Auto. Ins. Co. PIP/BI Claims (2025 NY Slip Op 50376[U], Civ. Ct., Kings County, Mar. 24, 2025), the provider's owner submitted an affidavit stating he mailed the requested verification "to the extent such response was proper and, in [his] possession." The court found this equivocal language "insufficient to raise a triable issue of fact." The qualifier "to the extent proper" left open whether the provider actually sent the requested documents or only sent what it unilaterally determined to be "proper."

Compare Burke 2 Physical Therapy, P.C. v. State Farm Mut. Auto. Ins. Co. PIP/BI Claims (2025 NY Slip Op 34054[U], Civ. Ct., Kings County, Oct. 29, 2025), involving the same provider's owner but a different assignor. There, the affidavit stated that he "personally responded [to] and mailed" the verification, without the "to the extent proper" qualifier. The court found this unequivocal. Combined with State Farm's claims specialist contradicting receipt, it created a triable issue of fact, and both motions for summary judgment were denied.

The distinction is narrow but dispositive: "I mailed the verification" creates a fact issue. "I mailed the verification to the extent it was proper and in my possession" does not.

Collateral Estoppel Does Not Apply from Separate DJ Actions

Both Appellate Term Burke decisions addressed the provider's argument that State Farm should be collaterally estopped from relitigating the verification issue because its summary judgment motion had been denied in a separate Supreme Court declaratory judgment action. Both courts rejected this. Denial of a summary judgment motion "has no preclusive effect on this case, as it was not a final determination on the merits." An SJ denial means only that triable issues existed in that proceeding; it does not resolve the underlying question.

---

Cases Cited

---

About This Research

I'm Tommy Eberle, CEO and co-founder of DocketDrafter. I'm not a lawyer. I compiled this analysis by:

• Finding the Burke opinions on CourtListener while researching no-fault verification procedures
• Reading the Court of Appeals' Mayzenberg decision and tracing the Mallela/Carothers line it built on
• Using Claude Code to organize the findings to read the full text of each decision to map out how the substantive defense and the verification process interact

If you have comments or want to discuss the research process in detail, email me at tommy@docketdrafter.com.