GEICO Halts Collection Suits Amid $3.4M No-Fault Insurance Fraud Case
In a significant legal development for the insurance industry, the U.S. Court of Appeals for the Second Circuit has granted GEICO the ability to halt over 600 collection lawsuits linked to a $3.4 million no-fault insurance fraud scheme. This pivotal decision may set a precedent for other carriers managing similar fraudulent activities within New York's no-fault insurance landscape.
Fraudulent Practices in No-Fault Insurance
The case centers around a medical practice in Queens, where GEICO alleges that the focus was on exploiting auto insurers through illegitimate treatment claims rather than patient care. Dr. Bhargav Patel and Patel Medical Care reportedly submitted fraudulent claims totaling approximately $3.4 million from August 2019 to April 2023. Allegations include third-party brokers directing accident victims to Patel's clinics in exchange for kickbacks, with treatments predetermined irrespective of actual patient needs.
GEICO contends that some medical treatments billed were unnecessary, with certain services improperly recorded or undelivered. Additionally, claim forms allegedly misrepresented Dr. Patel as the provider, with unlicensed contractors performing treatments and some claims featuring forged patient signatures.
Legal Actions and Appeals
In response, GEICO filed a federal racketeering lawsuit in April 2023, seeking to reclaim $711,000 paid out and to avoid paying $2.2 million in pending claims. Subsequently, the defendants launched 605 collection lawsuits, prompting District Judge Kiyo Matsumoto to issue a preliminary injunction to halt these state cases—a decision upheld by the appeals court, led by Circuit Judge Carney.
The appeals court highlighted the risk GEICO faced in defending numerous individual cases, with the potential of the systematic fraud being lost in case-by-case analyses. New York's expedited no-fault arbitration process could result in decisions that overlook GEICO's broader allegations of a fraudulent scheme.
Implications for the Insurance Industry
By consolidating claims in federal court, GEICO gains the opportunity to expose patterns of fraudulent activities across multiple claims. This strategy allows for a comprehensive evaluation of whether treatments were consistently unnecessary and if Dr. Patel could have credibly performed all claimed treatments.
The ruling also addressed the Anti-Injunction Act of 1793, which typically restrains federal courts from interfering with state court proceedings. However, an exception exists under federal racketeering law (RICO), as argued by GEICO, supported by the 2024 State Farm decision.
Despite the current stay on the defendants’ collection suits, the allegations of fraud remain unresolved as the case proceeds in district court. This decision underscores the continuing challenge of no-fault insurance fraud for insurers in New York, offering a tactical framework to address organized fraud. Insurers can now collaboratively confront systematic deceit rather than tackling isolated cases that might conceal fraudulent patterns.