New Jersey’s high court has ruled that Allstate Insurance has a right to a jury trial for its fraud and conspiracy claims brought against more than 30 medical providers under the state’s Insurance Fraud Prevention Act (IFPA) and the Anti-Racketeering Act (RICO). The court found that Allstate is not required to arbitrate the claims.
The Supreme Court unanimously upheld an Appellate Division ruling from January 2025 that found that such racketeering and tort claims are not subject to mandatory arbitration under the Automobile Insurance Cost Reduction Act (AICRA). The appellate court had reversed a trial court. The case now goes back to the trial court.
Allstate alleges that the medical providers submitted misleading invoices over more than a decade in order to obtain more than $1.7 million in personal injury protection (PIP) payments.
In 2023, the trial court had dismissed the claims and ordered arbitration, reasoning that AICRA’s language requires arbitration of all disputes around the recovery of PIP benefits.
The state high court ruling rejecting the trial court’s reasoning, like the appellate court’s, also rejected an April decision by the U.S. Court of Appeals for the Third Circuit that found that similar claims in a $10 million fraud lawsuit brought by GEICO against three chiropractors were subject to arbitration In New Jersey, per state law and arbitration agreements. The appellate court explained, and the high court agreed, that because it based its holding on New Jersey law, it is not bound by the Third Circuit’s decision.
In its opinion, the Appellate Division probed discrepancies between what PIP arbitration permits and what is called for under the Fraud Act and RICO. The court reviewed the relevant portions of the Fraud Act, RICO, and AICRA, including the AICRA provisions that permit parties to submit to dispute resolution “any dispute regarding the recovery of benefits provided under [PIP] coverage arising out of the operation, ownership, maintenance, or use of an automobile, and that set forth a “not necessarily” exhaustive list of the type of disputes covered by PIP arbitration.
The appeals court opinion addressed the parties’ dispute as to whether the “streamlined and specialized” PIP arbitration process can grant the relief called for in the Fraud Act and RICO and determined it cannot. The court explained that the Fraud Act “allows for the recovery of compensatory damages, investigative expenses, costs, attorneys’ fees, and, where a pattern of fraud is established, treble damages,” while RICO allows “private persons to bring a civil action in ‘court’ to recover damages and to seek injunctive relief.”
PIP arbitrators, on the other hand, lack authority to grant equitable relief, and there are “serious questions” as to whether they may order broad discovery, allow for joinder of third parties, or “award compensatory damages, treble damages, or attorneys’ fees to an insurer.”
After reviewing these discrepancies between what PIP arbitration permits and what the Fraud Act and RICO call for, the appellate court reasoned that “the Fraud Act, RICO, and AICRA can be harmonized when the language used in each statute is considered and construed in the context of the legislative goals” of each act.
The Appellate Division thus concluded that claims under the Fraud Act or RICO do not fall within the ambit of PIP arbitration under AICRA. “In short, the current PIP arbitration set up under AICRA is designed for limited disputes over the timely payment of PIP benefits. That arbitration process is not set up to handle complex insurance fraud claims,” the court stated.
The medical providers had argued that they had a right to arbitrate under Allstate’s Decision Point Review Plans. But the courts rejected this argument, finding that as a matter of state law, the arbitration provisions in those plans that are mandated under AICRA regulations “are no broader than the statutory PIP arbitration established by AICRA” itself.
The courts added that this interpretation of AICRA also avoids the constitutional issue raised by Allstate that its right to a jury trial under the Fraud Act and RICO would be violated if AICRA is interpreted to require its insurance fraud claims to be arbitrated.
Allstate Claims
When insureds receive medical treatment, they typically assign their PIP benefits to their medical providers, who then seek payment from insurers, like Allstate. In March 2023, Allstate filed a nine-count complaint against more than 30 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 alleges that from 2008 through 2022, these entities conspired to obtain more than $1.7 million in PIP benefits.
Allstate alleges that numerous providers engaged in kickback schemes, illegal self-referrals, and patterns of fraud and racketeering.
Allstate has sought declaratory judgments, including a declaration that one defendant medical practice was illegally structured and was not entitled to receive PIP benefits.
As remedies, Allstate seeks damages, including the disgorgement of over $1.7 million that it paid to the defendants, treble damages, injunctive relief, and attorneys’ fees.
In response to Allstate’s complaint, three groups of defendants separately moved to dismiss the complaint and to compel arbitration. Other defendants, however, filed answers and requested a jury trial.
On October 27, 2023, the trial court entered three orders granting the moving defendants’ request to compel all claims asserted by Allstate to arbitration under AICRA. Two of those orders also dismissed Allstate’s complaint, without prejudice, including the claims against the non-moving defendants.
Allstate is also pursuing other RICO cases. In January, a federal appellate court reversed a lower court’s ruling that Allstate’s RICO claims failed because the insurer didn’t sufficiently allege that it relied on fraudulent bills when settling the claims. Rather, the Fifth Circuit Court of Appeals said Allstate adequately showed it was the victim of a RICO scheme involving more than 600 claimants. Allstate was allowed to move forward in its recovery of $4.7 million from a Houston medical facility.
Topics Lawsuits Fraud Claims New Jersey
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