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Third Circuit Compels Arbitration of IFPA Qui Tam Claims
Post 4781
The Insurance Fraud Prevention Act (IFPA) allows insurers to sue health care providers pursuing insurers with assignments of benefits from personal injury protection (PIP) claims (no fault insurance) on behalf of the state. GEICO did so against multiple health care providers who asked the court to compel GEICO to arbitrate each potential fraud claim.
In Government Employees Insurance Co.; GEICO Indemnity Co.; GEICO General Insurance Company; GEICO Casualty Co. v. Mount Prospect Chiropractic Center, P.A., d/b/a Mount Prospect Health Center; et al, United States Court Of Appeals For The Third Circuit, Nos. 23-1378, 23-2019 & 23-2053, No. 23-1378 April 15, 2024) the Third Circuit required arbitration of GEICO’s claims of fraud by health care providers under the New Jersey Insurance Frauds Prevention Act (IFPA)
BACKGROUND
GEICO sued defendants-appellants (collectively, the “Practices”) in separate actions in the District of New Jersey, alleging they defrauded GEICO of more than $10 million by abusing the personal injury protection (“PIP”) benefits offered by its auto policies. It alleges the Practices filed exaggerated claims for medical services (sometimes for treatments that were never provided), billed medically unnecessary care, and engaged in illegal kickback schemes. GEICO’s suits against the Practices each included a claim under the IFPA, which gives insurers a fraud claim.
The Medical Practices sought arbitration of GEICO’s IFPA claim, arguing both that a valid arbitration agreement covered the claim and that a different New Jersey insurance law allowed them to compel arbitration. But each District Court disagreed, ruling instead that IFPA claims cannot be arbitrated.
IFPA Claims Can Be Arbitrated.
The Practices’ effort to compel arbitration under a different New Jersey law could do the same for the Practices’ FAA-based request. GEICO bears the burden of persuading the Third Circuit that the IFPA prohibits arbitration. GEICO claims that every known decision has held IFPA claims inarbitrable. The Practices cite no case holding otherwise.
GEICO claims that the IFPA’s antifraud mission bars arbitration. But it does not explain why arbitrating IFPA claims frustrates that goal. The United States Supreme Court has made clear that claims arising from laws empowering private attorneys general can be arbitrated. The American Arbitration Association rules give the arbitrator broad discretion to “grant any remedy or relief[.]” Am. Arb. Ass’n, Commercial Arbitration Rules and Mediation Procedures 28 (2013) (Rule 47), https://perma.cc/4Y74- WZM8.
In addition, New Jersey has a strong policy in favor of arbitration. The Third Circuit, therefore, predicted that the New Jersey Supreme Court would allow arbitration of IFPA claims. Having concluded that IFPA claims are arbitrable, the Third Circuit then considered whether the IFPA claims before it should be compelled to arbitration.
New Jersey Insurance Law Compels Arbitration.
Each Practice sought arbitration of GEICO’s IFPA claim through N.J. Stat. Ann. § 39:6A-5.1(a) (the “Provision”). It allows “any party” to compel arbitration of “[a]ny dispute regarding the recovery of medical expense benefits or other benefits provided under [PIP] coverage . . . arising out of the operation, ownership, maintenance or use of an automobile”. As these suits are GEICO’s effort to recover medical expense claims paid through auto insurance PIP benefits, they fall under the Provision’s plain text.
GEICO asserts that the Provision does not apply to IFPA claims because they deal with fraud.
First, the Provision does not have an exception for fraud, and the Third Circuit may not carve a broad exclusion from a plain statute on the Third Circuit’s our own initiative.
Second, the list of claims specifically subject to the Provision suggests fraud falls under its umbrella. That group includes whether the disputed medical treatment was actually performed and whether the treatment performed is reasonable or necessary. That is the alleged fraud underpinning GEICO’s IFPA claims: billing for fictitious or unnecessary care. Because the Provision’s plain language is broad and does not carve out fraud, but rather explicitly includes fraud-like claims, GEICO’s argument failed to persuade the Third Circuit.
GEICO’s IFPA Claims Are Subject to an Arbitration Agreement.
In the alternative, the Third Circuit also concluded that GEICO’s IFPA claims must be compelled to arbitration under the FAA. That statute compels claims to arbitration once a movant shows both that an arbitration agreement was validly formed and that it covers the claims at issue. To establish that an agreement was formed when (as here) a motion to compel arbitration is based on a complaint standing alone, a defendant must show that the complaint and the documents on which s it relies facially suggest that the parties agreed to arbitrate.
GEICO does not contest the Practices’ reliance on two documents to suggest formation of an arbitration agreement. The first is GEICO’s Precertification and Decision Point Review Plan (the “Plan”). This document, required by New Jersey law and approved by the New Jersey insurance regulator, governs GEICO’s reimbursement of PIP claims. GEICO could force the Practices to prove more than a suggestion by submitting or pointing to additional facts sufficient to place the arbitration agreement in issue.
It would not have taken much for GEICO to put contract formation in play. To compel arbitration of GEICO’s IFPA claims, the Third Circuit concluded it must hold that the arbitration agreement in the Plan covers them.
Nothing in the amended complaint precludes arbitration of GEICO’s IFPA claims. Rather the law requires it. Therefore, Third Circuit concluded the District Court abused its discretion in denying the motion and the Third Circuit ordered arbitration.
ZALMA OPINION
Since local prosecutors failed to deal with health care providers who try to defraud insurers like GEICO, it used the qui tam provisions of the IFPA to sue the medical providers and thereby take the profit out of their crime. The health care providers compelled arbitration thereby requiring GEICO to prove fraud in each individual claim which will probably cost more than the amount of the fraud. What is needed is for the state to prosecute the fraud perpetrators or allow the fraud to continue since it may become self-defeating for GEICO to go through with hundreds of individual arbitrations. Regardless of the legal basis for the Third Circuit’s decision, its practical effect is to make PIP fraud profitable and the fraudsters should sing Hosannas for the Third Circuit’s decision. The criminal doctors need to be prosecuted as DOJ is prosecuting Medicare and Medicaid fraudsters.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Jury’s Findings Interpreting Insurance Contract Affirmed
Post 5105
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Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.
In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....
Failure to Name a Party as an Additional Insured Defeats Claim
Post 5104
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Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy
In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.
The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS
Parties Involved:
CAEA is insured by Associated Industries Insurance Company, Inc. ...
Exclusion Establishes that There is No Duty to Defend Off Site Injuries
Post 5103
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Attack by Vicious Dog Excluded
In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)
Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
Presently before the Court are two ...
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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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
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
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
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...