State Farm Obtains Injunction Against Doctor to Stop Fraudulent No Fault Accident Claims
Barry Zalma
Jul 20, 2023
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In State Farm Mutual Automobile Insurance Company, State Farm Fire and Casualty Company v. Herschel Kotkes, M.D., P.C., Herschel Kotkes, M.D., No. 22-cv-03611-NRM-RER, United States District Court, E.D. New York (July 13, 2023) Plaintiffs, various State Farm insurers sued Herschel Kotkes and Herschel Kotkes, M.D., P.C. (“Kotkes”), alleging that Dr. Kotkes defrauded State Farm by submitting hundreds of fraudulent bills for no-fault insurance charges on behalf of insured patients who were involved in automobile accidents.
State Farm alleged common law fraud and unjust enrichment, seeking damages for benefits paid under no-fault insurance policies to Kotkes. State Farm also sought a declaratory judgment establishing that, among other things, it is not obligated to pay unpaid, pending claims submitted by Kotkes.
BACKGROUND
Under New York Law, an automobile insurer must provide no-fault insurance benefits to the individuals they insure (“insureds”) for necessary healthcare expenses resulting from automobile injuries, for up to $50,000. No-fault insurers like State Farm may reimburse patients without requiring proof of negligence. An insured may assign their claim to their provider, who then bills the insurers directly.
Factual Allegations
Defendants are Dr. Herschel Kotkes (“Kotkes”) and his medical practice, Herschel Kotkes, M.D., P.C. Kotkes is a pain management specialist, whose practice includes treating insureds who have been involved in automobile accidents. The insureds assign their policies to Kotkes, who bills State Farm for the treatment purportedly rendered.
State Farm alleged that Kotkes, since at least 2017, has been systematically submitting fraudulent and misleading claims to State Farm. Kotkes almost always described patient complaints in the same way (as non-specific neck and/or low back pain), diagnosed 99% of patients with radiculopathy in either the lumbar or cervical region, or both, along with “intervertebral disc displacement” in the corresponding region, but without specifying the particular location on the spine. The random sample of eighty-six patients also reveals that Kotkes provided the same prognosis for 98% of those he treated and recommended the same combination of treatment methods for nearly all patients.
State Farm asserted three causes of action: for common law fraud and unjust enrichment, under which it seeks damages for claims already paid to Kotkes, and for a declaratory judgment, under which State Farm seeks a judgment declaring that Kotkes is not entitled to reimbursement for claims submitted to State Farm that have not been paid to date and are unpaid through the pendency of this litigation.
COMMON LAW FRAUD
Under New York law, to state a claim for fraud, a plaintiff must demonstrate
1 a material misrepresentation or omission of fact;
2 which the defendant knew to be false;
3 which the defendant made with the intent to defraud;
4 upon which the plaintiff reasonably relied; and
5 which caused injury to the plaintiff.
State Farm points to Kotkes’s own testimony, from an examination under oath in a state court collection action, where he testified, for one, that he does not believe that certain procedures are medically valuable, but that he performs them as a matter of course. Kotkes also testified that it is his practice to perform a percutaneous discectomy and an IDET-two mutually exclusive procedures-at the same time and using the same needle.
State Farm adequately alleged that Kotkes had motive to commit fraud: to gain a financial benefit of hundreds of thousands of dollars in insurance payments by submitting claims to State Farm. State Farm also adequately alleges that Kotkes had opportunity to commit fraud, specifically that Kotkes could submit claims to State Farm that allegedly misrepresented the necessity of certain treatments or inflated the bills for certain treatments.
State Farm adequately pled that it reasonably relied on Kotkes’s misrepresentation and was injured as a result. State Farm has alleged the elements of common law fraud. State Farm has adequately and plausibly alleged that Kotkes made fraudulent statements in submitting the claims at issue. State Farm alleges fraudulent knowledge and intent by showing Kotkes’s motive and opportunity to submit fraudulent claims to take advantage of New York’s no-fault insurance scheme. Common law fraud is sufficiently pled and Kotkes’s motion to dismiss the common law fraud count was denied.
DECLARATORY JUDGMENT
State Farm has established a substantial controversy between the parties: whether Kotkes is entitled to payment on pending claims presented to State Farm, or whether, due to Kotkes’s allegedly fraudulent scheme, State Farm is under no obligation to pay.
MOTION FOR A PRELIMINARY INJUNCTION
State Farm alleges that, as of March 23, Kotkes initiated 103 arbitrations and 95 state court lawsuits seeking payment on claims that State Farm has refused to pay since uncovering the alleged fraudulent scheme and initiating the instant federal lawsuit. As of March 24, 2023, approximately $1,188,841.32 in unpaid claims was at issue in pending state court litigation and arbitrations, and $1,787,989.98 of Kotkes’s billed-unpaid amount was not yet the subject of pending collections litigation or arbitration.
New York courts routinely stay collection actions pending declaratory judgment proceedings. Accordingly, State Farm’s request that the USDC stay pending no-fault collection actions in state court was granted.
State Farm’s motion for a preliminary injunction was granted in full. Specifically, the Court granted State Farm’s request to stay pending state civil court proceedings and no-fault arbitrations against State Farm by Kotkes, and enjoined Kotkes from filing any new collection actions against Kotkes seeking no-fault insurance benefits, whether in state court or in arbitration proceedings, pending resolution of the declaratory judgment action, absent further order of the Court. State Farm’s obligation to post security was waived.
ZALMA OPINION
Because insurance fraud – especially with regard to individual small amounts – the only means of deterring or defeating insurance fraud relating to no-fault insurance claims assigned to less than scrupulous health care providers is to sue the providers for fraud. State Farm should be commended for its proactive work against Dr. Kotkes and was properly provided an injunction stopping further claims while litigating the declaratory relief and fraud suit. The evidence appears overwhelming and I look forward to reading about the results at trial.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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