Allstate Proactively Moves to Take the Profit Out of Insurance Fraud

Post 4974

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THE ISSUES

The New Jersey Superior Court, Appellate Division was faced with a need to resolve whether claims of insurance fraud under the Insurance Fraud Prevention Act (the Fraud Act), N.J.S.A. 17:33A-1 to -30, and the New Jersey Anti-Racketeering Act (RICO), N.J.S.A. 2C:41-1 to -6.2, are subject to arbitration under the Automobile Insurance Cost Reduction Act (AICRA), N.J.S.A. 39:6A-1.1 to -35.

In Allstate New Jersey Insurance Company, et al v. Carteret Comprehensive Medical Care, PC,  et al, No. A-0778-23, Superior Court of New Jersey, Appellate Division (January 9, 2025) resolved the issues presented requiring statutory interpretation., The Superior Court Appellate Division  held that insurance fraud claims under the Fraud Act and RICO are not subject to PIP arbitration under AICRA and that the Plaintiffs are permitted to pursue their claims in the Law Division, with the right to a jury triaL

THE PARTIES

Plaintiffs are six related insurance companies (plaintiffs or collectively Allstate). Allstate provides no-fault automobile insurance policies in New Jersey, under which insureds can recover PIP benefits if they are injured in an automobile accident. When insureds receive medical treatment, they may, and typically do, assign their PIP benefits to their medical providers. The medical providers can then seek payment from insurers, like Allstate.

FACTUAL BACKGROUND

In March 2023, Allstate filed a nine-count complaint against over thirty defendants, including several medical practices, the owners of those practices, and current and former physicians and administrators working at or with those medical practices. Allstate alleged that from 2008 through 2022, defendants conspired to obtain over $1.7 million in PIP benefits from Allstate through more than 800 fraudulent and misleading medical claims. In its complaint, Allstate asserts that defendants' actions violated the Fraud Act and RICO. Allstate also contends that certain defendants violated the Corporate Practice of Medicine Doctrine, N.J.A.C. 13:35-6.16, and New Jersey's Anti Self-Referral Law, N.J.S.A. 45:9-22.4 to -22.9.

Allstate alleged that numerous defendants engaged in kickback schemes, illegal self-referrals, and patterns of fraud and racketeering in providing the services for which defendants obtained payments from Allstate. Allstate seeks damages, including the disgorgement of over $1 .7 million that Allstate paid to defendants, treble damages, injunctive relief, and attorneys' fees.

The trial court entered three orders granting the moving defendants' request to compel all claims asserted by Allstate to arbitration under a statute known as AICRA.

THE FRAUD ACT

The Fraud Act was enacted in 1983 "to confront aggressively the problem of insurance fraud in New Jersey." N.J.S.A. 17:33A-2. The New Jersey Supreme Court has held that private parties in an action brought under the Fraud Act have a right to a jury trial because the Fraud Act provides legal relief in the form of compensatory and punitive damages and because a Fraud Act claim is comparable to common-law fraud.

RICO

The Legislature enacted RICO to safeguard the public interest to prevent, disrupt, and eliminate the infiltration of organized crime type activities which are substantial in nature into the legitimate trade or commerce of this State. Modeled on the federal statute, RICO provides a private cause of action.

NO-FAULT INSURANCE AND AICRA

New Jersey operates under a no-fault automobile insurance system, which includes AICRA enacted in 1998, established a resolution system to expeditiously resolve disputes regarding the amount or legitimacy of PIP claims. The Commissioner implemented regulations that provide that a request for arbitration of a "PIP dispute" can be made by the injured party, the insured, the provider who is an assignee of PIP benefits, or the insurer.

INTERPRETING AND HARMONIZING THE FRAUD ACT, RICO, AND AICRA

PIP regulations and PIP arbitration process are designed to expeditiously address disputes concerning the payment of medical expenses. Unlike arbitration and the statute implementing it, the goal of the Fraud Act is to confront aggressively the problem of insurance fraud in New Jersey and RICO has the goal of eliminating activities that present a serious threat to the political, social and economic institutions of this State.

THE POTENTIAL CONSTITUTIONAL ISSUE

The New Jersey Constitution guarantees the right to a jury trial to causes of action-even statutory causes of action-that sound in law rather than equity. The New Jersey Constitution provides a right to jury trial for claims under the Fraud Act and RICO. Neither are subject to PIP Arbitration. Therefore, the orders compelling plaintiffs' claims to PIP arbitration were reversed and vacated.

ZALMA OPINION

Forcing insurers who believe they were defrauded to arbitration clearly was designed to deprive the victim of insurance fraud (in this case Allstate) of the constitutional right to a jury trial to take the profit out of the crime of insurance fraud by forcing each dispute into individual arbitration where the results will be different while a jury trial will allow Allstate to prove the schemes of fraud that has fraudulently taken Allstate's money. Allstate has the right to get its money back plus treble damages under RICO. Allstate should be honored for taking down those who commit fraud.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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