In a published opinion, the Appellate Division rejected an attempt by defendant medical providers to compel arbitration in an insurance fraud case.

The Appellate Division issued its opinion Wednesday in Allstate v. Carteret Comprehensive Medical Care, filed by Allstate Insurance and five related companies against more than 30 defendants for insurance fraud. Allstate alleged that between 2008 and 2022, the defendant medical providers obtained more than $1.7 million in personal injury protection benefits from the insurer in more than 800 fraudulent and misleading claims, according to the opinion.

Judge Robert J. Gilson wrote the opinion for the appeals court, which held that insurance fraud claims under the Insurance Fraud Prevention Act and the state’s Anti-Racketeering Act are not subject to personal injury protection (PIP) arbitration under the Automobile Insurance Cost Reduction Act (AICRA). The ruling overturned a lower court's holding.

“By construing AICRA's mandatory arbitration provision to cover PIP claims and not insurance fraud claims, we avoid a potential constitutional issue,” Gilson said. “It is well-settled that statutes should be construed to avoid constitutional problems.”

Allstate provides no-fault automobile insurance policies in New Jersey, where insureds can assign their benefits to their medical providers. Those providers then seek payments from insurers. After Allstate filed its complaint, some defendant medical providers moved to compel arbitration under the Automobile Insurance Cost Reduction Act. The Middlesex County Superior Court agreed with the defense and issued orders granting the request to compel arbitration.

Allstate argued that, if the interpretation of the AICRA allows insurance fraud claims to be arbitrated, then that part of the act would be unconstitutional because it would deprive the insurer of the right to a jury trial under the Fraud and RICO Acts. Gilson agreed and cited the New Jersey Supreme Court’s 2015 opinion in Allstate v. Lajara, which held that private parties in a civil action under the Fraud Act have the right to a jury trial.

The defense argued that Allstate’s claims are subject to personal injury protection arbitration under the AICRA and that the trial court was correct in dismissing the insurer’s complaint for lack of subject matter jurisdiction. The medical defendants also cited a U.S. Court of Appeals for the Third Circuit opinion in GEICO v. Mount Prospect Chiropractic Center, which they allege supports the position that Fraud Act claims are subject to arbitration.

“That decision is not binding on us, and we disagree with the Third Circuit's conclusion regarding New Jersey law,” Gilson said.

Gilson said that Third Circuit held that although the AICRA did not use the word fraud, it covered such claims filed under the Fraud Act.

“We disagree with the Third Circuit's analysis because it did not, in our view, fully consider the legislative goals of AICRA and the Fraud Act,” Gilson said.

Gilson reversed the trial court orders and orders dismissing Allstate’s complaint. Judges Lisa A. Firko and Avis Bishop-Thompson joined in his opinion.

Counsel to Allstate, David N. Cinotti of Pashman Stein Walder Hayden, did not immediately return a request for comment.

More than 30 defendants were named in the suit. Of those, three attorneys argued before the Appellate Division in the case. Jeffrey B. Randolph, a solo practitioner, represented Carteret Comprehensive Medical Care.

“My clients are disappointed with the Appellate Division's decision in the case which is contrary not only to the trial judge's decision but also the decision of the Third Circuit Court of Appeals in GEICO v. Mt. Prospect Chiropractic Center, both of which correctly held to the contrary that New Jersey Insurance Fraud Prevention Act and New Jersey Civil RICO cases belong in arbitration,” Randolph said in a statement to the Law Journal. “We will be petitioning the New Jersey Supreme Court to review the matter in short order and are confident that the decision will be reversed consistent with the trial judge's and Third Circuit Court of Appeals well-reasoned decisions.”

Andrew Gimigliano of Mandelbaum Barrett represented four medical practices. An individual doctor, John S. Cho, M.D. was represented by Kevin J. Musiakiewicz of Calcagni & Kanefsky. Neither immediately responded to requests for comment.