Pa.: State Farm Adequately Pled Chiropractor Billing Fraud

insurance-fraud

PHILADELPHIA, May 20 — A federal judge has denied a motion to dismiss State Farm Mutual Automobile Insurance Co.’s amended complaint of billing fraud against a chiropractic and physical therapy practice.  It ruled also that State Farm need not prove justifiable reliance on the bills at this stage of the case.

U.S. District  Judge J. Curtis Joyner of the Eastern District of Pennsylvania also found that State Farm’s  amended claims were both timely, and adequately alleged misrepresentation in the billing submitted by the defendants.

State Farm alleges that  Eastern Approach Rehabilitation LLC, Aquatic Therapy of Chinatown Inc., Leonard Stavropolskiy, P.T., D.C., and Joseph Wang, P.T., D.C., submitted false and fraudulent insurance claims on behalf the practice’s patients.  State Farm claims that the defendants  created a series of records for patients suffering from “moderate-to-severe joint dysfunctions, pain, and muscle spasms across multiple regions of the spine,”  and that these impressions from initial examinations were copied and pasted into subsequent treatment notes.  The amended complaint contends that planned treatments recorded in the notes were simply pre-determined, and not individually tailored to each patient.

State Farm also alleges claims that dating back to 2010, the practicioners took action to hide the nature of the fraudulent activity through the use of software to randomize and synonymize similar observations and diagnoses.  The amended complaint alleges that this conduct created the impression that diagnosis and treatment of patients was individualized when in fact it was not.

State Farm alleges damages in excess of $850,000.

On Feb. 17, Judge Joyner granted the motion to dismiss the original complaint,  but allowed State Farm to file an amended complaint.  He ruled that the amended complaint, however, sufficiently set forth misrepresentations allegedly made by the defendants, and that, at least at the pleading stage, the insurer need not show  justifiable reliance on the misrepresentations allegedly made in the billings.

State Farm Mutual Automobile Insurance Company v. Leonard Stavropolskiy, P.T., D.C., et al., No. 15-cv-5929, E.D. Pa.; 2016 U.S. Dist. LEXIS 65234

State Farm Voids Homeowners’ Policy For Material Misrepresentation

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OXFORD, April 19 – A federal judge in Mississippi has granted State Farm’s request to void a homeowners insurance policy on grounds the insureds made misrepresentations material to the risk.

U.S. District Judge Sharion Aycock of the Northern District of Mississippi voided a policy issued to Cedric Flowers, because he misrepresented his ownership interest in the policy on the coverage application.   On April 19, 2012, Cedric Flowers applied to State Farm for homeowners insurance, after which State Farm issued a policy.  A fire destroyed a portion of the home on June 17, 2012, a fire damaged the house and its contents.

In 2015  State Farm sought to have the policy voided, and  filed a declaratory judgment suit seeking an order voiding the policy was void when issued.  State Farm also sought to void the policy claiming the Flowers violated several policy conditions.  Cedric Flowers counterclaimed for breach of contract, negligence, bad faith and fraudulent and negligent misrepresentation.

Judge Aycock granted State Farm’s motion for summary judgment, holding:

“This Court has held in other cases that ownership is a ‘material fact’ that would influence ‘a prudent insurer in determining whether to accept the risk. . . Therefore, the Court finds that the representation that the Flowers owned the property at the time he applied for this homeowner’s insurance policy is a material misrepresentation under both the objective (prudent insurer) and subjective (particular insurer) standards, and due to this material misrepresentation the policy was void from the beginning. . . [That] the Defendant .  believed, in good faith, that he owned the home at the time he applied for the policy is unavailing because the relevant cases make clear that the fact that a misrepresentation ‘was intentional, negligent, or the result of mistake or oversight is of no consequence.’”

State Farm Fire and Casualty Company v. Flowers et al, (N.D. Miss. 2016)

Property Value Admissible By Allstate To Prove Arson Fraud

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SPRINGFIELD, Feb. 29 –  A federal judge in Missouri has denied an insured couple’s attempt to exclude expert evidence Allstate Insurance  intends to submit  in a declaratory judgment action in which it seeks to have its denial of a homeowners insurance coverage claim upheld.

In Allstate Indemnity Company v. Joseph Dixon, et al., No. 14-cv-03489-MDH. W.D. Mo.; 2016 U.S. Dist. LEXIS 24678, U.S. District Judge Douglas Harpool denied a motion to strike Allstate’s expert disclosures filed by Allstate insureds Joseph Dixon and his wife, ruling that the value of the couple’s home could be probative of the couples’  financial motive to commit arson fraud. The Court found that Allstate’s proposed testimony from a county assessor as to the value of the insured couple’s home would not prejudice the homeowners, although it reserved final judgment about the precise nature of the allowed testimony until later in the case.

Allstate  denied coverage for the April 2014 fire, claiming that the Dixons falsified material facts with regard to the claimed loss. A cause and origin and claims investigation by Allstate revealed that the fire was intentionally set.  The Dixons contended in their motion to strike expert disclosures that the value of their home was not in dispute, and that expert testimony concerning the value of the property would be confusing to the jury as well as irrelevant, cumulative and prejudicial.

In denying the motion, Judge Harpool cited to an Eighth Circuit U.S. Court of Appeals’ ruling which discussed proper evidence of motive in arson fraud cases,  Gen. Cas. Ins. Companies v. Holst Radiator Co. (88 F.3d 670, 672 [8th Cir. 1996]).

Allstate v. Dixon (W.D. Mo. 2016)

Insured’s Failure To Cooperate In Corvette Theft Claim Dooms Bad Faith Case in Mississippi

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ABERDEEN, Feb. 26 – An insured’s failure to cooperate in the investigation of the claimed theft of his Corvette entitled his insurer to judgment as a matter of law on coverage and bad faith claims, a Mississippi federal judge has ruled.

In Holt v. Victoria Fire & Casualty Company, Plaintiff Eddie Gray Holt claimed his 2008 Corvette was stolen from an Alabama parking lot where it was left overnight, and filed a theft claim with his insurer, Victoria.  Because video surveillance of the parking lot did not show the presence or the theft of the car, Victoria sought Holt’s Examination Under Oath, and requested in writing that he bring to the examination documentation, including documentation regarding his finances, income, and expenses.

At his examination, Holt refused to produce the requested documents, and refused to answer certain questions.  After Victoria denied his claim, he filed a breach of contract and bad faith suit, after which Victoria moved for summary judgment on grounds that Holt breached several contractual duties in the policy, most notably his contractual duty to cooperate in the investigation of any claim.

After reviewing not only the applicable policy language but Mississippi common law, U.S. District Judge Carlton Reeves ruled that Holt’s refusal to cooperate in the investigation voided the policy, and entered judgment for Victoria on breach of contract and bad faith claims.

Holt v. Victoria Fire & Casualty Co., (N.D. Miss., March 3, 2016)

Winning the Arson/Fraud Case – Part II

In an earlier post, we examined some key points to structuring and winning a civil arson/fraud trial against an insured suspected of misconduct in the making of an insurance claim.  We resume our examination in Part II of Winning the Arson/Fraud Case.

Your Claims Adjuster and Claims Witnesses Must Be Demonstrably More Credible Than The Insured(s)

This is a vital assessment which must made in an objective, detached manor.  Hoping that your claims staff will appear more credible than the insured is not sufficient grounds to proceed to try the arson/fraud case.  A reasoned, detached analysis of the insurer witnesses must be done to determine whether they, individually and as a whole, will stand up to the scrutiny of the jury, and be judged more credible.

Beware of the landmines here. How can claims staff be cross-examined?  Are there any troubling issues in their employment histories?  Do they appear to be partial or biased based on the documentation in the claims file and the claims logs?  Are any of them disgruntled in some way or worse, disgruntled in some way and not forthcoming about it.

Next to the law enforcement witnesses, the claims witnesses are the most important pieces in winning the arson/fraud trial.  They deserve detailed vetting as soon as possible in the process.

Who Let The Dogs Out?

This is going to sound silly.  But this indicator has almost never in 25 years of practicing law led me astray from assessing the proper cases to take to trial.

Did the insured have any pets?  Are they normally kept inside?  Did they perish in the fire, or was there some unusual event or explanation which led them to being out of the house at the time of the fire?

Arsonists love their dogs like anybody else.  The average one-off arsonist is simply neither aware enough nor disciplined enough to sacrifice a family pet  to create the impression of a fire of actual unknown origin.   Electrical malfunctions and other accidental fires do not take time to lead otherwise confined pets to safety before they begin.  Almost all arsonists do, however.  The notable exception to this guideline is the rage or anger fire in which the arsonist attempts to harm a pet of the object of his anger — which is a very, very small percentage of intentionally set fires, in my experience.

Look For Mistakes

Some arsonists are more skilled than others. Few are hired professionals, and the amateurs make plenty of mistakes.  Combining the stress of the circumstances which would lead an insured to commit arson for insurance benefits,  and a basic lack of experience in such activity generally leads to a break or two in the fire investigation —  telltale signs of intentionally set fire versus fire of accidental cause and origin.

The following mistakes have all occurred in cases I have handled, including one case in which all of the mistakes occurred in the same fire.  Some of these are sure to strike you as fantastical but they all are true:

  • multiple points of origin which did not communicate with each other;
  • failure to ventilate the fire by opening doors and/or windows;
  • leaving incriminating documents such as  a mortgage foreclosure notice dated within 10 days of the fire  in the area of origin;
  • failing to dispose of lighters/ignition sources in the areas or origin;
  • failing  to plug in electrical appliances which were later offered by the insured as probable sources of an accidental fire
  • writing an apology to a spouse in soot on a window following the fire (this one is not so much as a mistake as it is a confession of the subconscious, I imagine)
  • using a cell phone to call a business associate about the fire twenty minutes before calling 911 Emergency Services to report the fire.

The case in which all of these mistakes occurred in the same fire  was readily identified as an arson/fraud case which should be tried.   And while that particular case is an outlier to put it mildly, most arson fires do not go perfectly for the arsonist, and mistakes can be identified.  They should be pointed out and shown to the jury.

Do Not Forget Damages

In the bustle and effort spent establishing the insured’s liability for arson/fraud, the fact that many statutes provide a right of reimbursement and recovery to the insure is lost, and insurers as a result do not take sufficient advantage of recouping expenses and costs related to investigating the fire, and recouping claims dollars which may have been paid out during the pendency of the claim.

In many ways, an insurer used to being a defendant must become a plaintiff fur purposes of not only putting on an arson/fraud case, but also for putting on a damages case as well.  Costs and claims dollars must be tracked, organized, and presented in the form of cogent damages exhibits and/or summary exhibits, preferably using the same trial presentation software as discussed in the first half of this post.  SIU and other special investigators employed by the insurers, and claims staff can authenticate these items for admission into evidence.

Some states provide for recovery of multiples of such costs, and attorneys fees in the form of penalties.  For that reason, they should not be overlooked if the decision to try the arson fraud case has been made.

Arson/Fraud Cases Can Be Won

While it does require thought and effort, the right arson/fraud cases can be won by insurers who take the time to identify good candidates, and work those candidates up properly for trial.  The prosecution of civil arson/fraud claims can also be a source for the insurer to recoup costs and claims dollars thought to have been lost in the investigation and payment of fraudulent claims.

C.J. Haddick

 

 

Winning The Arson/Fraud Case: Part I

Many jurisdictions provide insurers with civil claims for damages and/or civil penalties in the event they sustain losses caused by insured misconduct including arson/insurance fraud.  Yet insurers are for the most part reluctant to take advantage of these provisions, fearing the arson/fraud case as either too costly or not good for company image.

These cases are both winnable and, not unpopular where there is a basis to proceed. Here is a quick survey of some key points to winning the arson/fraud case:

Pick The Right Case Before Buying In

To say that there are winnable fraud and arson cases is not to say that all cases of suspected fraud and arson are winnable.  Perhaps a full 50% or more of determining whether a civil arson or fraud prosecution will be successful rides on selecting the correct cases for prosecution.   In this regard, experience on both the claims team side and the outside counsel side is important when making this assessment, as is the collaborative process between the two.  Case selection must be a  joint exercise.

The topic of selecting the proper cases for trial could fill volumes, but some general guidelines will be helpful here:   The fire science in the case must clearly point to incendiary origin.  Motive, usually financial, is technically not required, but I have never successfully prosecuted a civil fraud or arson case without explaining to the jury why someone would want or need to try to burn their own home to the ground.  It is a hard concept for most people to wrap their heads around without explaining why to them.  Other possible non-financial motives include revenge, or “rage” fires, but my educated guess is that financial motive is the motive in play for more than every 8 of 10 arson fires.

The candidates for trial are likely to strike  you in the face; they have a way of standing out.  Regardless, however, analysis and due diligence of the merits of  such candidates should always be done before a final decision is made.

Be Mindful of the Burden of Proof

This is sometimes overlooked until the case is well underway.  However, it should be one of the first things considered before a decision is made to try an arson/fraud case.

In many jurisdictions the burden of proof for establishing arson/fraud is higher than the standard civil preponderance of the evidence standard, e.g., the clear and convincing evidence standard.  The burden of proof should be considered at the outset, when analyzing a case for possible use of arson/fraud defenses, or for the affirmative seeking of compensation on behalf of the insurer victimized by the alleged arson/fraud.  If the evidence is not so good that the burden of proof will be met, the case is not a good candidate for an arson/fraud trial.

Develop a timeline

Just as motive is crucial to success (addressed in Part II of this post), so is explaining to a jury precisely what happened and when and, most importantly, answering the question of whether the insured had the opportunity to start a fire at home within the appropriate window of time.  The time line must be used to eliminate any potential alibis which can undermine successfully putting on an arson/fraud case.

When I suggest here that a timeline must be developed, I suggest also that it must be developed in a way that a jury can 1.) visually see the timeline of events (preferably via software like PowerPoint or TrialDirector); and 2.) understand the time line so that it makes sense, and does not look in any way at variance with the evidence.

Pictures Pictures Pictures

This is a close relative of the timeline tip, and arguably even more important.  Jurors today more than ever view jury trials as television in the courtroom, albeit on a larger scale.  They would much prefer to be educated by the insurer, law enforcement investigators, and counsel about the cause and origin of the fire, than to merely be told what caused a fire.  The will be comfortable only after coming to a conclusion on their own, rather than taking the insurer’s word for it, even if that word is coming from an expert.

Demonstrative evidence, preferably photo, animation, video and other visual media presented on trial software is the best way to convey cause and origin information.  With photographs and demonstrative evidence, experts can discuss and demonstrate origin points at the fire scene, point out burn patterns, and other critical visual evidence to give the jury the comfort it needs to make a finding that the insured essentially committed a crime.

Scale model fire scene diagrams, photos of documentary evidence (such as financial papers, tax return summaries, etc.) and fire scene photos and video evidence all aid the jury in assessing the arson/fraud case.

We will review additional keys to winning the arson/fraud case in Part II of this post.

 

 

 

 

 

Success Not Element of Insurance Fraud in New Jersey

New Jersey, January 20.  The New Jersey Supreme Court has unanimously  ruled that the state insurance fraud statue does not require the perpetrator to be successful in  the effort to sustain a conviction.   In State v. Goodwin, A-20 September Term 2014, 07352 (pdf copy attached below), Justice Albin wrote for a 6-0 majority that the making of a statement of a material fact  to an insurer “that has the capacity to influence a decision-maker in determining whether to cover a claim” was sufficient proof to sustain a conviction under N.J.S.A. 2C:21-4.6(a).

Justice Albin wrote:

If the falsehood is discovered during an investigation but before payment of the claim, a defendant is not relieved of criminal responsibility.  Here, defendant falsely reported that his girlfriend’s vehicle was stolen.  It was for the jury to determine whether the series of false statements about the theft generated by the defendant had the capacity to influence the insurance carrier in deciding whether to reimburse for the damage caused by the arson.

Goodwin, at pp. 2-3.    The Supreme Court reversed a N.J. Superior Court ruling which overturned the conviction on grounds that the jury instructions permitted conviction without showing harm or prejudice to the insurer, Progressive.

Justice Albin found that the State’s argument that “material fact” required an element of actual prejudice to it was far too strict an interpretation of the statute.  He referred to prior state and federal criminal statutes on perjury and false statement to rule that actual harm has never been a prerequisite to a conviction for crimes of falsehood.

Finally, the Court ruled that the Model Jury Charge on insurance fraud accurately set forth the standard for conviction and that the jury was free to conclude that Goodwin’s knowingly false statements affected Progressive’s analysis of whether to pay the claim.

State v. Goodwin, N.J. Supreme Court, 2016