Arbitration can be used to resolve fraud

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This case involves the relationship between health care providers in New Jersey and the insurance companies that pay those providers to treat patients for injuries resulting from auto accidents.

IN GEICO In v. Caring Pain Management PC a/k/A Careon Pain Management, Jinghui Xie, MD, First Care Chiropractice Center, LLC, and Konstantine Fotiou, DC, No. 2:22-cv-05017(BRM)(JSA), United States District Court, D. New Jersey (May 31, 2023), insurer sought to defeat fraudulent claims under New Jersey no-fault law.

BACKGROUND

Several GEICO insurers (the “Plaintiffs”) alleged a variety of fraudulent schemes, including illegal compensation in exchange for patient referrals, misrepresenting the nature, extent and results of patient examinations, and misrepresenting compliance with relevant health care laws.

MOTION TO DISMISS

When a district court orders a dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6), a district court must accept all factual allegations in the complaint as true and draw all inferences from the facts alleged in the light most favorable to them for the non-moving party.

DECISION

The Insurance Fraud Prevention Act (“IFPA”), enacted roughly a decade after the No-Fault Law, provides that an “insurance company injured as a result of a violation of any provision of this Act may bring an action in any court of competent jurisdiction.” In part, the New Jersey Legislature enacted the IFPA to address rising insurance premiums resulting from widespread fraud with the express goal of aggressively addressing the problem of insurance fraud in New Jersey by facilitating the detection of insurance fraud and eliminating the occurrence of such fraud through the development of fraud prevention programs.

A person or physician violates the IFPA by presenting or preparing false or misleading statements in connection with an insurance claim, or by failing to disclose the occurrence of an event affecting an individual’s right to insurance benefits or the amount of compensation

COMMON LAW FRAUD, UNJUST ENRICHMENT AND RICO LIABILITY

The No-Fault Law’s language, legislative intent, and application cover Plaintiffs’ common law fraud, unjust enrichment, and RICO claims. The plain language of the No-Fault statute states that “[a]new dispute regarding recovery of . . . benefits provided under personal injury coverage. . . arising from the operation, ownership, maintenance or use of a car may be subject to dispute resolution at the initiative of any party to the dispute.” (my italics)

The plaintiff’s claims include:

1. a dispute of [Plaintiffs]
2. involves the defendant’s recovery of PIP benefits which
3. a party wants to submit to arbitration.

Accordingly, plaintiffs’ common law fraud, unjust profits, and RICO claims fall within the statute’s arbitration provisions. After reviewing the No-Fault Law’s language, legislative intent, application, and arbitrable claims with the plaintiffs’ claims for common law fraud, RICO, and unjust enrichment, the USDC found that there was nothing to preclude an arbitrator from hearing the claims.

New Jersey IFPA claim

The plain meaning of the New Jersey Insurance Fraud Prevention Act (IFPA) requires that insurers’ claims under the IFPA be litigated. Although the statute states that insurers “may sue in any court of competent jurisdiction,” arbitration does not constitute a court of competent jurisdiction.

To the extent that the IFPA may appear to conflict with the No-Fault Law, state legislatures are presumed to be aware of prior assumptions, including the pre-existing No-Fault Law. The state legislature could have provided a remedy for PIP Benefits disputes in the IFPA but did not.

The USDC concluded that the court, in its discretion, dismissed the IFPA claim separately under the Declaratory Judgment Act to avoid double jeopardy. To the extent Plaintiff seeks a declaration that Defendants have violated RICO, committed common law fraud, or are liable for unjust enrichment, an arbitrator shall determine the issue.

Clearly, health care providers accused by GEICO of fraud felt they had a better chance of success with an arbitrator rather than a federal judge. The judge found the statutes admissible for arbitration and sent the fraud case to an arbitrator. I would like to be that arbitrator and hope the parties get an arbitrator who dislikes insurance fraud as much as I do, and think they would have done better with a federal judge. GEICO should be honored for working to defeat fraud by trying to extract the profits from the fraud.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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