GEICO Forced to Arbitrate Fraud Claims Against 3 NJ Chiropractors

GEICO Forced to Arbitrate Fraud Claims Against 3 NJ Chiropractors cover

In a precedent-setting case, the Third Circuit held that GEICO must arbitrate claims against three New Jersey chiropractors that it was suing for fraud and racketeering. This finding may help level the playing field for healthcare providers in future fraud and Civil RICO (Racketeer Influenced and Corrupt Organizations Act) claw-back actions brought by insurance companies.


Insurance giants routinely bring claw-back actions based on a variety of fraud theories against medical providers in federal courts around the country. For two decades, we have worked diligently to help healthcare providers navigate the fraud and Civil RICO claw-back dynamic in New York and other jurisdictions. In the Eastern District of New York, for instance, insurance companies regularly file lawsuits alleging everything from illicit ownership of medical practices by laypeople down to billing for unnecessary medical services. Federal court litigation provides major insurers with a platform to take advantage of their financial leverage. This is because federal litigation is inherently more expensive than state court litigation or arbitration, since law firms that practice in federal court are typically pricier than those at the arbitration or state level. More often than not, healthcare providers are forced to settle these cases on terms that are largely unfair to them. It is often most logical from a business perspective for providers to settle the case early – even if it means paying out money to the insurance companies – to avoid hundreds of thousands of dollars in litigation expenses.

The Case

The Third Circuit Court of Appeals heard consolidated appeals stemming from three separate GEICO lawsuits. The lawsuits, all filed in the District of New Jersey, alleged that the chiropractic practices defrauded GEICO of more than $10 million by abusing the personal injury protection (PIP) benefits offered by the insurer’s auto policies. GEICO alleged the practices filed exaggerated claims for medical services, including for treatments that were not provided, billed for medically unnecessary care, and engaged in illegal kickback schemes. The lawsuits included claims under New Jersey’s Insurance Fraud Prevention Act (IFPA). The practices sought to arbitrate GEICO's IFPA claims, contending that New Jersey insurance law allows them to compel arbitration and secondarily that the insurer’s claims against the practices were covered by an arbitration agreement. The lower courts disagreed, ruling that IFPA claims cannot be arbitrated. The practices appealed, and the Third Circuit reversed.

The Third Circuit’s Findings

The Third Circuit held that the claims are subject to arbitration under New Jersey law. Further, the court ruled that there were documents in place to support the existence of a valid agreement between the parties that compelled arbitration under federal law.

The court poked holes in GEICO's primary argument that the IFPA implicitly prohibits arbitration. To support its position, GEICO relied on a paragraph-long string citation of prior cases, which the court said “lack[ed] force” and failed to show that the IFPA bars arbitration. The only appellate level case in the string citation did not make the point GEICO claimed it was making, while the other decisions, all from trial courts, offered minimal analysis that the court deemed insufficient.

New Jersey insurance law allows “any party” to compel arbitration of “any dispute regarding the recovery of medical expense benefits or other benefits provided under PIP coverage…arising out of the operation, ownership, maintenance or use of an automobile.” GEICO argued the statute does not cover claims involving fraud, and that arbitration would fly in the face of the purpose of the state’s anti-fraud mission.

The appeals court disagreed, holding that the provision does not, in fact, exclude fraud claims. “Because the Provision's plain language is broad and does not carve out fraud, but rather explicitly includes fraud-like claims, GEICO's argument does not persuade us,” the court stated. The court further found that GEICO failed to explain why arbitrating IFPA claims undermines the anti-fraud objective.

The court also sided with the practices in finding that GEICO’s IFPA claims fall under the Federal Arbitration Act (FAA), which compels arbitration when a party can demonstrate that a valid arbitration agreement exists and that it covers the claims in question. This finding was supported by two documents. One is GEICO's Precertification and Decision Point Review Plan, which is required by New Jersey law and whose arbitration provision covers “any issue arising under [the plan], or in connection with any claim for [PIP] benefits.” The other is an assignment of benefits form, which the practices must submit in order to be paid for PIP claims, and which requires the practice to comply with all the requirements of the insurer’s precertification plan. “These documents facially suggest that the Practices entered into an arbitration agreement with GEICO,” the court said.

The Takeaway

This case represents the first time in recent memory that the federal judiciary has pushed back against an insurance company in a fraud claw-back case. Whether this trend travels across the Hudson River into the Eastern or Southern District of New York, or to other jurisdictions, remains to be seen. But the finding could portend a positive trend for healthcare providers that bears watching.

If you are involved in a dispute with your business insurance company, contact Schwartz, Conroy & Hack. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your business.