Auto Insurer’s $10M Fraud Claims Against Doctors Are Subject to Arbitration, Court Rules

A federal appeals court has sided with three chiropractors in ruling that claims under New Jersey’s personal injury protection statute concerning insurance fraud are subject to arbitration.

GEICO has lost its bid to pursue litigation alleging fraud against the chiropractors.

The Third Circuit Court of Appeals reversed lower courts where GEICO alleged that the chiropractors defrauded it of more than $10 million by abusing the personal injury protection (PIP) benefits offered by its auto policies.

GEICO claimed that the clinics filed exaggerated claims for medical services, including sometimes for treatments that were never provided, ad that they billed medically unnecessary care and engaged in illegal kickback schemes. GEICO brought its claims under New Jersey’s Insurance Fraud Prevention Act (IFPA).

The clinics sought arbitration of GEICO’s IFPA claims, arguing both that New Jersey insurance law allows them to compel arbitration and that a valid arbitration agreement covered the claims.

But lower courts including the US District Court for New Jersey disagreed, ruling instead that IFPA claims cannot be arbitrated. The chiropractors appealed.

The Third Circuit Appeals Court concluded that the claims are subject to arbitration under New Jersey law and further that that there were enforceable documents that compelled arbitration under federal law.

The New Jersey law at issue allows “any party” to compel arbitration of “any 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.”

GEICO argued that because the claims involve fraud, they are not covered by the statute. It also maintained that arbitration would run counter to the purpose of the state’s anti-fraud statute.

The Third Circuit of Appeals disagreed. The court noted that the provision does not have an exception for fraud, and the court may not carve a broad exclusion from a plain statute on its own initiative. Also, New Jersey appellate courts have consistently held that the provision must be “construed liberally.”

The appeals court found that since GEICO is suing in an effort to recover medical expense claims paid through auto insurance PIP benefits, its claims fall under the statute’s plain text. The list of claims specifically subject to the provision suggests fraud falls under its umbrella as that group includes “whether the disputed medical treatment was actually performed” and “whether the treatment performed is reasonable[ or] necessary.” That, the court said, is the alleged fraud underpinning GEICO’s IFPA claims.

The court also said that GEICO failed to explain why arbitrating IFPA claims frustrates the anti-fraud goal.

The appeals court went further, also concluding that GEICO’s IFPA claims fall under the Federal Arbitration Act (FAA), which compels claims to arbitration once a party shows both that an arbitration agreement was validly formed and that it covers the claims at issue.

The appeals court cited two documents that suggest GEICO and the doctors formed of an arbitration agreement, documents that GEICO did not contest. The first was GEICO’s Precertification and Decision Point Review Plan, a plan that is required by New Jersey law and approved by the New Jersey insurance regulator. It governs GEICO’s reimbursement of PIP claims. The plan’s arbitration provision covers “any issue arising under the plan, or in connection with any claim for PIP benefits.”

The chiropractic clinics bound themselves to GEICO’s PIP reimbursement plan through a second document— GEICO’s assignment of benefits form, which doctors must submit before GEICO will pay them for PIP claims. That form requires each chiropractor to “comply with all the requirements” of the precertification plan.

The court said that these documents “facially suggest” that the chiropractors entered into an arbitration agreement and given that the plan covers “any issue . . . in connection with any claim for PIP benefits,” the language is broad such that it includes GEICO’s claims.

The appeals court reversed the decisions of the lower courts and remanded the matter with instructions to compel arbitration of GEICO’s IFPA claims against the chiropractors.