Don’t Ty to Defraud GEICO It Bites Back
Barry Zalma
Oct 4, 2023
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GEICO (collectively, “GEICO” or “Plaintiffs”) sued Defendants ALP Supply, Inc. (“ALP”), PV Supply, Inc. (“PV”), and Pal Vakula, alleging common law fraud and unjust enrichment claims.
In Government Employees Insurance Company, GEICO Indemnity Company, Geico General Insurance Company, and GEICO Casualty Company v. ALP Supply, Inc.; PV Supply, Inc.; and Pal Vakula, No. 22-CV-79 (LDH)(MMH), United States District Court, E.D. New York (September 29, 2023) GEICO sought, and obtained, default judgments against health care fraud perpetrators.
The GEICO Plaintiffs' moved the USDC for default judgment pursuant to Federal Rule of Civil Procedure 55(b)(2). For the reasons set forth below, the Magistrate Judge recommended that Plaintiffs' motion should be granted as to their common law fraud claims. The Court further recommended that Plaintiffs should be awarded damage.
BACKGROUND
In sum, the allegations focus on Defendants' multi-faceted scheme to defraud GEICO by falsely representing material information to collect benefits under New York's “no-fault” insurance laws. Healthcare service providers that do not comply with state or city licensing requirements are ineligible to collect no-fault benefits. Further, the relevant laws prohibit licensed providers from paying or accepting kickbacks for referrals.
The Fraudulent Scheme
ALP and PV, both New York corporations based in Brooklyn, are retailers of Durable Medical Equipment (DME) and OD. Vakula, a New York resident, owns and operates both businesses, but is not and has never been a licensed healthcare provider.
From July 2019, Vakula used ALP and PV to submit and cause to be submitted to GEICO thousands of fraudulent no-fault insurance claims for medically unnecessary, illusory, and otherwise non-reimbursable DME and OD.
GEICO relied on this false information to process Defendants' claims promptly pursuant to statutory and contractual obligations, resulting in payments of over $267,000. Defendants not only submitted claims to GEICO knowing that they included materially false information but also hired law firms to pursue collection of the fraudulent claims from GEICO, which resulted in expensive and time-consuming litigation against GEICO if the charges were not promptly paid in full.
JOINT AND SEVERAL LIABILITY
GEICO seek to hold ALP and Vakula jointly and severally liable and PV and Vakula jointly and severally liable. Here, GEICO sufficiently alleged Vakula's joint and several liability as to PV and ALP. According to the Complaint, Vakula owns and controls both PV and ALP and was directly involved in submitting fraudulent claims to GEICO through those entities. The alleged harm to GEICO is indivisible between Vakula as the owner and operator of each corporate defendant. Accordingly, the Magistrate found that joint and several liability is appropriate as to (1) ALP and Vakula and (2) PV and Vakula.
COMMON LAW FRAUD
In the Second and Fourth Causes of Action in the Complaint, GEICO alleges that Defendants committed common law fraud. Under New York law, a plaintiff asserting a claim of common law fraud must plausibly allege:
a material misrepresentation or omission of fact
made by defendant with knowledge of its falsity
intent to defraud;
reasonable reliance on the part of the plaintiff; and
resulting damage to the plaintiff.
DECLARATORY JUDGMENT
Here, GEICO established that an actual controversy exists and that a declaratory judgment would afford specific and conclusive relief as to pending claims with respect to all Defendants. GEICO alleges that ALP and PV have pending bills submitted to GEICO that GEICO has no obligation to pay. Additionally, GEICO has submitted documentation of pending collections actions that ALP and PV are actively prosecuting against GEICO in New York state courts. GEICO has provided a list of the actions, including the amounts involved, the claim numbers, and the status of each action.
CONCLUSION
In sum, Plaintiffs established liability on their common law fraud claims only. The Magistrate judge recommended:
a default judgment should be entered against Defendants for common law fraud; Plaintiffs should be awarded compensatory damages in the amounts of $112,201.74 jointly and severally against ALP Supply, Inc. and Vakula and $188,799.94 jointly and severally against PV Supply, Inc. and Vakula, with prejudgment interest to accrue at an annual rate of nine percent until entry of judgment, with revised calculations to be provided to the Court to determine the specific amount due; and a declaratory judgment should be entered that Plaintiffs have no obligation to pay any pending claims submitted by ALP Supply, Inc. and PV Supply, Inc.
ZALMA OPINION
GEICO seems to have given up on Departments of Insurance and prosecutors to defeat insurance fraud by proactively suing fraudsters and taking the profit out of the crime of insurance fraud. Its success in this case and others should be emulated by the insurance industry who sits back and allows fraudsters to profit from claims.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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When I finished my three year enlistment in the US Army as a Special Agent of US Army Intelligence in 1967, I sought employment where I could use the investigative skills I learned in the Army. After some searching I was hired as a claims trainee by the Fireman’s Fund American Insurance Company. For five years, while attending law school at night while working full time as an insurance adjuster I became familiar with every aspect of the commercial insurance industry.
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