Man Bites Dog Story – Allstate May Sue on Behalf of State for Insurance Fraud
Barry Zalma
Aug 22, 2023
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Allstate Insurance Company and several of its affiliates (collectively, Allstate) brought qui tam actions on behalf of the State of California alleging insurance fraud under the California Insurance Frauds Prevention Act (IFPA) (Ins. Code, § 1871 et seq.) and the Unfair Competition Law (UCL) (Bus. &Prof. Code, § 17000 et seq.) against three medical corporations, a medical management company and its parent company, four physicians, and Sattar Mir, an individual.
In the People ex rel. Allstate Insurance Company et al. v. Discovery Radiology Physicians, P.C., et al., and v. Onesource Medical Diagnostics, LLC, et al., B315264, California Court of Appeals, Second District, Third Division (August 15, 2023) the operative complaints allege that while the medical corporations hold themselves out as providers of radiology services, they in fact act as radiology “brokers,” sending patients to radiology facilities and radiologists with which the purported medical corporations have contracted.
The trial court found the complaints failed to state causes of action under the IFPA and the UCL because they were not pled with requisite specificity.
FACTUAL BACKGROUND
Allstate’s Fraud Actions; The Initial Demurrers.
Allstate Insurance Company is an insurance company licensed to issue automobile insurance policies in California. In 2020, Allstate filed two qui tam actions alleging insurance fraud in violation of the IFPA and the UCL.
The complaints alleged that the three medical corporations were formed and controlled by Mir, who is not a physician, to broker radiology services. The resulting bills falsely identified the technical and professional services as having been provided by one of the three defendant medical corporations and grossly inflated the fees for the services provided. Allstate alleged it would not have paid the claims for services purportedly rendered by the three professional corporations had it known of the false statements and fraudulent markups.
The trial court sustained the demurrer to the first amended complaints. The trial court entered judgments of dismissal in the Discovery and OneSource actions on August 16, 2021. Allstate timely appealed.
DISCUSSION
This appeal presents four basic issues:
1 Are the business models alleged in the amended complaints unlawful?
2 If the alleged business models are unlawful, do they give rise to causes of action under the IFPA and the UCL?
3 Do the amended complaints plead fraud with sufficient particularity?
4 Does the Discovery action adequately allege delayed discovery to survive demurrer on statute of limitations grounds?
The Court of Appeals answered each question in the affirmative.
ANALYSIS
A nonlicensed individual need not examine a patient or render a medical diagnosis to engage in the unlicensed practice of medicine-to the contrary, a non-physician unlawfully practices medicine if he or she exercises undue control over a medical practice. A non-physician undoubtedly exercises undue control by owning a medical practice but may also exercise such control in a variety of other ways, including by choosing physicians to provide medical services, selecting medical equipment, determining the parameters of physicians’ employment, including case load and compensation, and making billing decisions.
Overview of the IFPA.
The IFPA was enacted to prevent automobile and workers’ compensation insurance fraud in order to, among other things, “significantly reduce the incidence or severity and automobile insurance claim payments and . . . therefore produce a commensurate reduction in automobile insurance premiums.”
A claim need not contain an express misstatement of fact to be actionable under Penal Code section 550 and Insurance Code section 1871.7, subdivision (b). Instead, these sections require only that a person knowingly, and with intent to defraud:
1 present a claim that is false or fraudulent in some respect,
2 present, prepare, or make a statement containing false or misleading information about a material fact, or
3 conceal an event that affects a person’s right or entitlement to insurance benefits.
In other words, “[a]n insurance claim is fraudulent under [Penal Code] section 550 and [Insurance Code] section 1871.7, subdivision (b), when it is characterized in any way by deceit or results from deceit or conduct that is done with an intention to gain unfair or dishonest advantage.”
ANALYSIS.
The present case is a fraud action brought in the name of, and on behalf of, the state of California. Nor does Allstate seek to “avoid paying for” services rendered under an insurance contract, as defendants suggest; Allstate has already paid for those services and seeks through this action to recover a statutory penalty that, if recovered, will be shared by the state. For all of these reasons, the Court of Appeals concluded that the complaints allege claims under the IFPA.
The Operative Complaints State Claims Under The UCL.
The UCL prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” (§ 17200.)” All parties agree that Allstate’s UCL claims are derivative of its IFPA claims, and thus that the UCL claims rise or fall with the IFPA claims. Because the complaints adequately plead violations of the IFPA, they also adequately plead violations of the UCL.
The Amended Complaints Were Pled With Adequate Specificity.
Because Allstate has not only pled an allegedly fraudulent practice, but also identified each of the allegedly false claims submitted as a result of that practice it has adequately pled its complaint with adequate specificity.
DISPOSITION
The judgments of dismissal were reversed with directions to the trial court to vacate the orders sustaining the demurrers, enter new orders overruling the demurrers, and reinstate the amended complaints. Allstate shall recover its appellate costs.
ZALMA OPINION
The qui tam provision of the IFPA is an effective means of reducing insurance fraud by taking the profit out of the procedure without taking on the need for proof beyond a reasonable doubt in a criminal proceeding. If there is no profit in fraud and because the IFPA can assess serious damages on the perpetrators Allstate, and all the Amici who supported it on this appeal, should be honored in the work to defeat fraud and should be emulated by other insurers who are the victims of fraud providers, whether medical, auto body shops, contractors, roofers, public insurance adjusters and lawyers.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Notice of Claim Later than 60 Days After Expiration is Too Late
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Injury at Massage Causes Suit Against Therapist
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
No Coverage if Home Vacant for More Than 60 Days
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Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
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Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...