Insurance fraud is not only a New York problem, or even solely a northeast concern. Insurance fraud is prevalent across the country. In particular, no-fault insurance fraud can be found in every state with a significant no-fault insurance program.

State legislatures have adopted a wide variety of statutes in an effort to protect consumers and law-abiding businesses from fraud. A good example: unfair business practices laws, the provisions of which vary from state to state. Their application to no-fault insurance fraud varies as well.

For instance, a number of Florida courts have interpreted the Florida Deceptive and Unfair Trade Practices Act (FDUTPA) to permit insurance companies to file lawsuits alleging fraud against health care providers. By contrast, the ability of insurers to rely on New York General Business Law (GBL) §349 in these situations is a bit less clear.

This column discusses and compares how these two states treat insurance company actions alleging no-fault fraud under their unfair business practices acts—the FDUTPA and GBL §349, respectively.

The Situation in Florida

The FDUTPA proscribes "unfair methods of competition, unconscionable acts or practices, and unfair or deceptive trade or commerce." Fla. Stat. §501.204(1). The FDUTPA authorizes a private cause of action for actual damages by any "person" who has suffered a loss because of a defendant's violation of the statute. Fla. Stat. §501.211(2). To establish a claim under the FDUTPA, a plaintiff must show (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages.

Whether insurance companies could assert a claim under the FDUTPA was at issue in Government Employees Ins. Co. v. Clear Vision Windshield Repair, No: 6:16-cv-2077-0r1-28TBS (M.D. Fla. March 29, 2017) (a case in which my firm represented the insurance company plaintiffs).

The insurance companies alleged that various windshield repair companies had engaged in an expansive scheme intended to defraud the insurers by filing thousands of phony insurance claims for windshield repairs totaling more than $300,000.

Among other things, the insurers charged that the defendants had violated the FDUTPA.

The defendants moved to dismiss. With respect to the insurers' allegations under the FDUTPA, the defendants argued that the FDUTPA only provided a cause of action for "consumers," and that the insurers did not qualify as consumers.

The court rejected the defendants' argument, finding that the insurers had standing to bring a claim under the FDUTPA.

The court reasoned that, in 2001, the Florida legislature broadened the remedy provision of the FDUTPA to replace the term "consumer" with "person," defined to mean "any person affected by a violation of this part or any person affected by an order of the enforcing authority." According to the court, the change indicated that the legislature no longer intended the FDUTPA to apply to only consumers, "but to other entities able to prove the remaining elements of the claim as well." In the court's view, this was consistent with the FDUTPA's purpose, "[t]o protect the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce." Fla. Stat. §501.202(2).

This past June, in State Farm Mutual Automobile Ins. Co. v. Health and Wellness Services, No. 18-23125-Civ-Scola (S.D. Fla. June 11, 2019), another federal court in Florida reached the same result in a case alleging no-fault medical fraud.

In this case, insurers sued three health care clinics and nine individuals associated with the clinics, asserting that the individual defendants had orchestrated a scheme to defraud the insurers through the unlawful operation of the clinics. According to the insurers, the alleged fraud scheme involved (1) making false representations to the Florida Agency for Health Care Administration to obtain health care clinic licenses; (2) employing medical directors who wholly failed to perform their duties and instead actively participated in the fraud; and (3) treating patients in a predetermined, rote manner that was not based on each patient's actual needs, but which instead was designed to maximize insurance billings. 

In addition, according to the insurers, the clinics submitted false, materially misleading, and fraudulent bills and supporting documentation to the insurers for services that either had not been medically necessary or indicated or, in some cases, that had not even actually been provided.

The insurers contended that, in effecting their scheme, the defendants, together, fraudulently obtained insurance payments from the insurers for in excess of $4.7 million.

The insurers asserted three counts under the FDUTPA, among other causes of action.

The court refused to dismiss the insurers' FDUTPA claims, rejecting defense arguments that the insurers could not bring FDUTPA claims because they were not consumers and because there was no "trade or commerce" involved.

The court reasoned that the insurers did not have to be consumers to assert FDUTPA claims because FDUTPA claims were "not limited to consumers." The court acknowledged that the FDUTPA did "not apply to any person or activity regulated under the laws administered by the Office of Insurance Regulation of the Financial Services Commission," but declared that because the conduct that the insurers alleged had taken place—fraudulent billing—was "not a type regulated by the Office of Insurance Regulation," the exemption did "not apply."

The court also decided that, under the FDUTPA, "trade or commerce" included "providing [or] offering … any good or service"—including health care services.

GBL §349

GBL §349(a) provides that "deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful." To state a claim under §349, a plaintiff must make a prima facie showing that (1) the defendant engaged in an act or practice that was deceptive or misleading in a material way; (2) the plaintiff was injured by reason thereof; and (3) the acts the plaintiff complained of were consumer-oriented in the sense that they potentially affected similarly situated consumers.

Although New York courts have applied §349 to a wide range of acts and a broad variety of defendants, they have not yet reached a clear consensus permitting insurance companies to rely on it in cases involving alleged no-fault insurance fraud.

For example, the U.S. District Court for the Eastern District of New York, in State Farm Mutual Automobile Ins. Co. v. Mallela, 175 F. Supp. 2d 401 (E.D.N.Y. 2001) (Sifton, J.) (a case in which my firm and I were co-counsel for State Farm), dismissed the §349 cause of action asserted by the insurer.

In this case, the insurer alleged that the defendants engaged in a fraudulent scheme pursuant to which they used the names of licensed professionals on certificates of incorporation filed with New York State to obtain certificates of authority to practice medicine. Among other things, the insurer asserted that defendants' actions constituted unfair and deceptive acts and practices that harmed the public and the insurer, in violation of §349.

Although the case subsequently led to the ruling by the New York Court of Appeals that an insurer may withhold payment under New York's no-fault law for medical services provided by a professional medical corporation based on its "willful and material failure to abide by" the state's licensing and incorporation statutes without needing to show specific instances of billing fraud, the district court dismissed the insurer's §349 claims. The district court simply ruled that the insurer could not establish that it was injured by the allegedly deceptive acts and practices nor that the acts it complained of were "consumer-oriented" within the contemplation of §349. This aspect of the district court's decision was not challenged on appeal.

A number of years later, in Allstate Ins. Co. v. Rozenberg, 590 F. Supp. 2d 384 (E.D.N.Y. 2008) (Spatt, J.), nine insurers filed a lawsuit alleging that the defendants had conspired to abuse the no-fault law to obtain payment for medical services and diagnostic tests that had not been medically necessary or that, in some cases, had never been performed at all.

Defendants moved to dismiss the insurers' §349 claim, contending that the insurers could not state a claim under §349 because they complained of practices that were not directed at consumers but, rather, were directed at the insurers.

The court denied the motions, declining to find as a matter of law that the insurers were unable to state a claim under §349. The court ruled that the fact that the defendants' alleged scheme "would almost certainly result in higher premiums for insurance consumers" was sufficient, at the motion-to-dismiss stage, to show that the alleged fraud had "ramifications for the public at large."

The Eastern District reached a different conclusion in 2011, in Allstate Ins. Co. v. Bogoraz, 818 F. Supp. 2d 544 (E.D.N.Y. 2011) (Feuerstein, J.), when it granted a defendant's motion to dismiss an insurer's §349 claim in a case in which the insurer alleged no-fault insurance fraud. The court said it was "unclear" how the defendant's allegedly deceptive acts had a "broad impact on consumers at large" and it ruled that the insurer failed to meet the "threshold requirement to state a claim" under §349.

Yet the following year, the Eastern District once again permitted a §349 claim to move forward in a case in which insurers alleged that defendants engaged in sophisticated and related schemes to fraudulently obtain insurance proceeds that were supposed to pay for medical services for people injured in automobile accidents.

The insurers in Allstate Ins. Co. v. Lyons, 843 F. Supp. 2d 358 (E.D.N.Y. 2012) (Gleeson, J.), contended that defendants violated §349 by making two types of misrepresentations: that professional corporations were eligible for reimbursement under the no-fault law and that they sought reimbursement for medically legitimate services.

In finding the insurers' §349 claims to be legally sufficient, the court concluded that, as alleged, the defendants' scheme unlawfully stripped millions of dollars from the insurers, which "likely increased the premiums of consumers" and created a "burden on the public" and a "broad impact on consumers at large."

Interestingly, as recently as this year, attempts by medical providers to use §349 against insurers in the no-fault context have been rejected. See, e.g., Allstate Ins. Co. v. Avetisyan, No. 17-CV-04275 (LDH) (RML) (June 4, 2019) (DeArcy Hall, J.).

Conclusion

There certainly is no shortage of causes of action that insurers can bring against entities and individuals they believe to be engaged in insurance fraud, ranging in appropriate cases from causes of action under the Racketeer Influenced and Corrupt Organizations (RICO) Act to common law causes of action for fraud and unjust enrichment.

In New York, although the law regarding §349 appears somewhat unsettled, insurers also have the benefit of the decisions by the Court of Appeals in Mallela and its progeny. And in Florida, courts have confirmed that insurers can rely on the FDUTPA.

One thing is certain. Insurers need to use every available tool to fight insurance fraud in state after state, wherever it can be proven.

Evan H. Krinick, managing partner of Rivkin Radler, can be reached at [email protected].