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AN INSURER CANNOT DENY PAYMENT OF AN AUTOMOBILE-ACCIDENT NO-FAULT CLAIM ON THE GROUND THE LICENSED HEALTHCARE PROVIDER COMMITTED PROFESSIONAL MISCONDUCT (HERE AN ALLEGED KICKBACK SCHEME) UNLESS THE PROVIDER HAS ABDICATED CONTROL TO AN UNLICENSED PARTY (CT APP).

The Court of Appeals, in full-fledged opinion by Judge Rivera, over an extensive dissenting opinion by Judge Wilson, determined the NYS Department of Financial Services’ (DFS’s) interpretation of a regulation addressing the payment of no-fault benefits for automobile-accident injuries was rational. The issue was whether alleged professional misconduct by a licensed healthcare provider allowed the insurer to deny payment. The DFS ruled that the insurer could not deny payment of a no-fault claim based upon alleged misconduct by the licensed provider which did not amount to the provider’s abdicating control to an unlicensed party:

The United States Court of Appeals for the Second Circuit has certified the question of whether a regulation promulgated by the Department of Financial Services (“DFS”) permits an insurer to deny a healthcare provider’s no-fault benefits claim because the provider allegedly committed professional misconduct by paying for patient referrals. DFS interprets its regulation to allow an insurer to deny a no-fault benefits claim only when a provider fails to fulfill a foundational licensing requirement necessary to perform healthcare services in any instance, and not when an insurer unilaterally determines that a properly-licensed provider has committed professional misconduct, short of effectively abdicating control to an unlicensed party. This interpretation is rational, because it is consistent with the regulation’s plain text, the no-fault statutory framework, and the legislative purposes of providing swift compensation to victims of motor vehicle accidents and reducing litigation costs. Therefore, as to those cases where the alleged professional misconduct does not constitute surrender of control to an unlicensed party, we answer the certified question in the negative. * * *

DFS asserts that it has long interpreted 11 NYCRR 65-3.16 (a) (12) as only encompassing pre-licensing requirements, and not standards to maintain licensure. DFS explains that State regulators have sole discretion to determine whether a provider has committed professional misconduct and, if they have, whether there should be licensing consequences that affect their ability to collect no-fault reimbursements. Only after a State regulator has determined that a provider committed professional misconduct, and it has suspended, annulled, or revoked their license, may an insurer deny the provider reimbursement of a no-fault benefits claim under 11 NYCRR 65-3.16 (a) (12). Additionally, DFS states that its interpretation of 11 NYCRR 65-3.16 (a) (12) does not preclude plaintiffs from arguing in this action that [the alleged} kickback scheme [at issue here] was so extensive as to essentially cede improper control of … to unlicensed individuals, in violation of licensing requirements. Plaintiffs argue that 11 NYCRR 65-3.16 (a) (12) allows an insurer to deny reimbursement based on its unilateral determination that a provider allegedly committed professional misconduct.

DFS’s interpretation of 11 NYCRR 65-3.16 (a) (12) is rational. … [I]nterpreting the regulation to exclude professional misconduct fully comports with the regulatory text. Government Employees Ins. Co. v Mayzenberg, 2025 NY Slip Op 06527, CtApp 11-24-25

Practice Point: Consult this opinion for insight into how a court will determine whether an agency has properly interpreted a regulation.

 

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