Reuters: The impact of RICO lawsuits on bodily injury claims: guidance for insurers

By: Michael L. Zigelman, Yousra A. Depalma and Christopher A. Arcitio

Since 2020, insurers, insureds, and defense attorneys have begun taking affirmative steps in investigating potentially fraudulent personal injury claims as opposed to legitimate claims. Such lawsuits allege fraud and violations of the Racketeer Influenced and Corrupt Organizations Act known as "RICO" for staged and fabricated accidents, and have given way to new tactics and strategies employed upon notice of allegedly fraudulent claims and throughout any proceeding litigation.

This article analyzes and examines a recent increase in RICO and fraud lawsuits involving insurers, insureds, defense counsel, and claimants, and the legal strategies employed in litigating such lawsuits and provides takeaways for the insurance industry.

In jurisdictions including Florida and New York, national insurance providers have obtained favorable settlements and judgments in lawsuits alleging fraudulent billing practices in connection with manufactured and/or exaggerated personal injury accident claims.

In Florida for instance, automobile insurance companies, State Farm Mutual Automobile Insurance Company and Government Employees Insurance Co.(GEICO) commenced federal RICO lawsuits in the Middle District of Florida: State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company v. Ronald Jack Travis Utter, D.C. et al. and Government Employee Insurance Co. et al. v. Ronald Panella, M.D., et al. alleging, among other things, that the defendants submitted bills and supporting documentation that were fraudulent for purported services rendered to collect on personal injury protection or "PIP" benefits, misrepresented the severity of the claimant's presenting problems, misrepresented the level of care and services provided to justify charging higher rates, and misrepresented the nature, extent and results of follow up examinations.

These RICO lawsuits alleged that the motor vehicle collisions were "low-speed," "low-impact," that the insureds' vehicles were functional following the accident, and that no one was seriously injured in the accidents, or injured at all.

A running theme argued in the court papers for both cases was that the defendants allegedly engaged in a pattern of racketeering activity or "predetermined fraudulent treatment protocols," by creating cross-referral relationships amongst medical providers, attorneys and "runners" to solicit and secure personal injury clients for staged accidents in exchange for financial kickbacks and rewards. These lawsuits subsequently settled.

In New York, GEICO successfully obtained a judgment of $2.5 million against various medical providers in 2022 following motion practice in GEICO et. al. v. Igor Mayzenberg, et. al. alleging RICO violations. According to the motion papers, various providers engaged in a wide-ranging, unlawful patient brokering scheme involving shell companies in automobile accidents, where the shell companies were found to accept payment for patient referrals.

Following motion practice, the federal judge found that the defendants committed fraud by improperly compensating one another for patient referrals. The judge noted that the defendants' own deposition testimonies admit that they paid one another for patient referrals and that the defendants repeatedly "failed" to rebut GEICO's evidence consisting of bank records, copies of checks, and telephone records reflecting repeated communications, and that the defendants provided no legitimate marketing or advertising services.

A review of the online court files reflects that GEICO continues to take steps to enforce the judgment against these medical providers.

In the past year, GEICO and foreign Bermuda based reinsurer, Roosevelt Road Re, Ltd., and property and casualty insurer, Accredited Surety and Casualty Company, Inc. (through its managing agent, Tradesman Program Managers, LLC), commenced their own RICO lawsuits against various medical providers and law firms for being involved in questionable personal injury lawsuits.

The GEICO lawsuit is similar to the 2022 lawsuit in Florida and has quickly resolved, with GEICO reaching a settlement with some medical providers and agreeing to discontinue the case against the remaining medical providers.

The Roosevelt Road Re, Ltd. lawsuit, Roosevelt Road Re, Ltd and Tradesman Program Managers, LLC v. John Hajjar, M.D. et. al., alleges that construction workers staged the injuries they incurred at worksites and the defendants created a "self-justifying circle of medical justification for all alleged treatment and procedures" intended to deprive the plaintiffs from timely locating and surveilling the claimants prior to the implementation of fraudulent protocols "designed to mimic legitimate courses of treatment."

In the Roosevelt Road lawsuit, the company alleges that it is facing general liability exposure because of the "pattern of fraudulent activity … between $6 million and $12 million" for four of the claimant enterprises alone. The Roosevelt Road lawsuit remains pending and is in the early stages of litigation in federal court.

On or about Aug. 7, 2024, the plaintiffs discontinued the case as against some of the defendants and filed an Amended Complaint adding additional defendants. The defendants have not yet filed responsive pleadings to the Amended Complaint. A WABC-TV news piece, opens new tab reported that defendant law firm — Gorayeb and Associates — said the complaint is a gross mischaracterization of the law firm and they look forward to the truth coming to light.

Regardless of whether the allegations in the series of RICO lawsuits are found to be accurate, these lawsuits have impacted the insurance industry for insurers and insureds alike. Defense attorneys and attorneys for claimants are responding in innovative ways.

Defense attorneys at the trial level have begun utilizing the RICO lawsuits as a good faith basis to include an affirmative defense of fraud in their pleadings, alleging that the claimant's alleged incident and subsequent medical treatment(s) were the product of a fraudulent scheme orchestrated by, in part, the claimant's treating physicians, in an effort to bolster the plaintiff's lawsuit and enrich themselves from improper and medically unnecessary procedures and appointments.

Next, defense attorneys have begun to use a number of discovery devices to uncover the existence of fraud, including: (1) Serving the equivalent of a Notice to Admit under New York's Civil Practice Law and Rules, where a claimant must admit or deny if he or she knows the identity of the individual who took photographs/video depicting the accident itself, identifies the claimant in the immediate aftermath of the accident in photographs/videos, and/or identifies the situs of the accident; (2) Serving a subpoena on the local police department to obtain the 911 audio tape recordings and police report for the alleged accident; (3) Serving a subpoena for the claimant's cell phone records for a duration of time that predates the date of loss, including the date of loss and for a duration after the purported accident; and (4) Opposing any efforts by the claimant's attorney to be relieved as counsel from an existing case without providing sufficient information for the basis of the removal of counsel to the court.

Attorneys for claimants have also begun to respond to the RICO lawsuits. In particular, in Ildo Lopes v. County of Suffolk et. al., a pending New York state court matter, claimant's attorney recently filed a pre-trial motion in limine seeking to preclude any reference of the RICO lawsuits on the basis of prejudice.

In opposition, the defendants urged the lower court judge to deny the pre-trial motion as parties are generally permitted to cross-examine a witness on prior bad acts. In that case, the judge presiding over the trial "split the difference" and granted the motion, holding that defense counsel was enjoined from referring to the RICO lawsuits themselves, except that defense counsel was allowed inquiry about the specific allegations pertaining to the provider as set forth in the RICO complaints. Notably, the judge's ruling was subject to the development of the record at trial.

Assuming sufficient evidence is uncovered during the discovery phase of litigation, insurers and defense counsel may consider amending their responsive pleadings to include a counterclaim of fraud against the claimant.

In many jurisdictions, to plead a claim for fraud, a party must state, with sufficient particularity, basic facts that satisfy five common elements: (1) Material misrepresentation or omission of fact; (2) Knowledge of its falsity; (3) Intent; (4) Justifiable reliance; and (5) Damages. Pleading a counterclaim for fraud requires evidence that will satisfy each of these elements.

Indeed, in a pending and recent state court lawsuit filed by Exo Industries Corp. v. Subin Associates, LLP and Subin & Associates LLC, seeking pre-action discovery, a litigation hold, and a declaratory judgment, the plaintiff alleged that the defendants have faced allegations of fraud against their clients "centered on the firm's use of highly questionable referral sources" for 200-300 pending state court matters.

The defendants have retained counsel, who has filed a motion to dismiss the action arguing, among other things, that plaintiff lacks standing to bring the lawsuit, plaintiff failed to state a cause of action, plaintiff's claims are duplicative of a previously filed motion in another pending matter. The motion currently remains pending.

Upon reviewing those pending matters, the plaintiff noted a common theme of "serious wrongdoing and questionable practices" surrounding the same referral source, including the same referral source for eleven different personal injury accidents all occurring within five years and all with claimants who retained the same law firm. These circumstances appear to be sufficient for courts to permit a counterclaim for fraud.

Michael L. Zigelman is a regular contributing columnist on corporate and professional liability insurance for Reuters Legal News and Westlaw Today.