Liberty Mutual Targets $2M No-Fault Insurance Fraud Scheme in NY

Liberty Mutual Insurance Company has filed a federal lawsuit alleging a $2 million no-fault insurance fraud ring involving a network of physical therapy clinics and individuals operating in the New York metropolitan area. The complaint, filed in the Eastern District of New York, accuses the defendants of submitting fraudulent no-fault insurance claims for medically unnecessary or non-reimbursable healthcare services, including diagnostic tests and therapy procedures. Central to the allegations is the use of "nominal" or "paper" owners to conceal the true control and operation of these clinics by unlicensed individuals and management companies.

The insurer claims the fraudulent billings span over 40 clinic locations and include more than $2 million in charges since 2019, with Liberty Mutual having already paid out over $863,000. The insurer is seeking to recover these payments and block more than $1 million in pending claims. The complaint highlights the defendants' alleged violation of New York state insurance laws and licensing requirements, which disqualify unlicensed providers from receiving no-fault insurance reimbursements.

Further, the lawsuit alleges that the defendants inflated medical billing by unbundling charges that should have been submitted under a single code and failing to submit required interpretive reports. Financially incentivized referral arrangements are also cited as a method the defendants used to generate a steady volume of patient claims, bypassing legitimate marketing efforts.

This case underscores critical compliance and regulatory challenges in no-fault insurance fraud detection and management within New York. It draws attention to the enforcement of provider licensing laws under 11 N.Y.C.R.R. § 65-3.16(a)(12) and relevant legal precedents which bar claims by non-compliant providers. The ongoing litigation emphasizes the need for rigorous claims scrutiny and fraud prevention strategies in the auto insurance sector.

The outcome of this case may impact insurers’ approaches to claims review, provider credentialing, and fraud mitigation efforts, particularly concerning so-called "paper" clinics and unlicensed healthcare providers. Given the scale and complexity of the alleged scheme, industry stakeholders including underwriters, claims managers, and compliance officers are closely monitoring the proceedings for precedent-setting implications.