Court Says Bulk of GEICO’s $2.3 Million Fraud Case Belongs in Arbitration

Insurer GEICO has been dealt a setback in its efforts to get back $2.3 million in what it alleges were fraudulent medical and chiropractic service charges it paid to several clinics under New Jersey’s no-fault insurance law.

The 14 counts in GEICO’s original complaint alleged violations of the New Jersey Insurance Fraud Prevention Act (IFPA) and the federal Racketeer Influenced and Corrupt Organizations Act (RICO), and it cited common law fraud and unjust enrichment.

The U.S. District Court for New Jersey affirmed that RICO, unjust enrichment, and common law fraud claims related to PIP benefits are subject to arbitration under New Jersey’s no-fault insurance statute. The court dismissed those 12 charges, agreeing with the doctors and clinics and their defense.

However, the court allowed two of the charges relating to the IFPA to proceed. The court said details in the complaint provided a “plausible basis” for GEICO’s claims that the defendants “knowingly engaged in, and misrepresented” various aspects of their services.

GEICO had argued that its allegations of fraud were not subject to arbitration under the no-fault law or under its treatment review rules. The insurer maintained that fraud-based claims “go beyond” the type of “routine PIP disputes for which arbitration is mandatory” under New Jersey law.

The insurer cited cases including a 2022 U.S. district court ruling, GEICO v Elkholy, to support its position.

However, the district court found that GEICO mischaracterized the case law when it asserted that the “overwhelming weight of authority” in this district holds that RICO, common law fraud, and unjust enrichment claims regarding PIP benefits are not subject to arbitration. In fact, in the Elkholy case the court dismissed counts brought by GEICO that were unrelated to IFPA violations, holding that claims for damages under the IFPA must be resolved in court and not by arbitration — which is the conclusion the district court reached in this latest case as well.

New Jersey’s no-fault insurance statute contains an arbitration provision that states: Any dispute regarding the recovery of PIP benefits arising out of the operation, ownership, maintenance or use of an automobile may be submitted to dispute resolution on the initiative of any party to the dispute.

“Nothing in the statute provides that fraud-based claims warrant special treatment or should be carved out from mandatory arbitration, nor can the court find any independent reason to do so,” the court wrote.

The court and defendants also pointed out that GEICO’s own Decision Point Review Plan, which allows providers to submit PIP benefits claims to GEICO for certain medical services they provide following a car accident upon an assignment of the patient’s PIP benefits to the providers, also contains an arbitration provision.

GEICO brought the charges in April, 2023 against physician Serge Menkin and chiropractor Lawrence Petracco, and their Center for Joint & Spine in New Jersey, as well as two other clinics owned by Menkin — United Medical in New York and Advanced Pain in New Jersey — through which GEICO said many of the services were provided and billed since 2018.

The insurer’s complaint alleged that these medical and chiropractic services, to the extent provided at all, were not medically necessary and often were not “legitimately provided in the first instance”—rather, they were provided “pursuant to pre-determined fraudulent protocols designed to financially enrich” the defendants.